Zee Entertainment Enterprises Limited — Q3 FY25 earnings call

Call held 23 Jan 2025

Management summary

Zee Entertainment reported a mixed Q3 FY25, with advertising revenues impacted by a challenging macro environment and muted FMCG spending, resulting in an 8% YoY decline despite a 4% QoQ increase. However, subscription revenues continued healthy growth, up 8.2% for the nine-month period. The company demonstrated strong cost management, leading to a 10% YoY decline in operating costs and significant EBITDA margin expansion (up 590 bps YoY). PAT from continued operations surged 207% YoY to Rs 1,636 mn, reflecting improved business fundamentals and a streamlined cost base.

Highlights

  • Ad revenues were up 4% QoQ but down 8% YoY.

  • Nine-months FY'25 subscription revenues increased by 8.2%.

  • ZEE5 EBITDA loss was lower by Rs 22.6 Cr QoQ and Rs 107.8 Cr YoY.

  • Overall operating cost declined by 10% YoY.

  • EBITDA margins expanded by 10 bps QoQ and 590 bps YoY.

  • PAT from continued operations reached Rs 1,636 mn, showing a robust increase of 207% YoY.

  • Cash & treasury investments stood at Rs 17 bn as of December 2024.

  • A provision of Rs 809 mn was made for an arbitration outcome related to Margo.

Concerns

  • Challenging Macro-Economic Environment & Muted FMCG Spending

Key financials

2 periods

Headline

  • Ad Revenue Growth
    -8%
    YoY -8% QoQ +4%
  • ZEE5 EBITDA Loss Reduction
    ₹22.6 Cr
  • Overall Operating Cost Decline
    -10%
    YoY -10%
  • EBITDA Margin Expansion
    590 bps
  • PAT from Continued Operations
    1,636 mn
    YoY +207%
  • Cash & Treasury Investments
    17 bn
  • Content Inventory, Advances & Deposits
    69.9 bn
  • Provision for Receivables
    809 mn

9M

  • FY25 Subscription Revenue Growth
    8.2%
    YoY +8.2%

What they filed

Q1 FY27: revenue up 4.5%, net profit down 48.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,001 1,979 2,184 1,825 1,969 −2%2,280 +15%2,025 −7%1,907 +4%
EBITDA323 321 298 239 159 −51%256 −20%-255 −186%100 −58%
Net profit209 164 188 144 76 −64%155 −5%-104 −155%74 −49%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · by FY'26 · High confidence 18% to 20%
    So, Abhishek, we had recommended to the Board at the beginning of this financial year itself that by FY'26 we will be targeting to get to 18% to 20% margin. And the Board had approved that.

    — Punit Goenka

Revenue

  • Subscription Revenue Growth Revenue · after a couple of quarters of implementation · Medium confidence continue growing
    We expect subscription revenues to continue growing after a couple of quarters of implementation.

    — Punit Goenka

  • Ad Revenue Growth Revenue · new fiscal · Low confidence gradual recovery
    On the back of these factors, we remain optimistic about a gradual recovery in the new fiscal, that will enable us to capitalize on the increased spending by advertisers.

    — Punit Goenka

  • Ad Revenue Growth Revenue · near term · Medium confidence cautious
    We are continuing to look at ways to maximise Ad revenues in this environment and will remain cautious in the near term on the pace of our Ad revenue growth.

    — Mukund Galgali

Dividend

  • Dividend Payout Ratio Dividend · ongoing · High confidence 25%
    So, Abhishek, the formal dividend policy is already available on our website, and this is the reiteration of our commitment to maintain that.

    — Mukund Galgali

Cost

  • Ad Spends Run Rate Cost · generally · Medium confidence ~Rs 300 crores per quarter

    Previously Rs 250 crores per quarter → ~Rs 300 crores per quarter

    So, yes, the trend line or run rate has shifted because while we are driving efficiencies in overall cost structure, we are also mindful that we do not be short invested in business to be able to take advantage of growth. So, yes, the trend line has shifted. There may be some volatility you may see as the seasonality plays out, but generally it's going to be a higher trend line than past.

    — Mahesh Pratap Singh, Punit Goenka

Risks & concerns

  • Challenging Macro-Economic Environment & Muted FMCG Spending

    high

    The overall macro-economic environment remains challenging, with muted spending by FMCG brands slowing growth and impacting advertising revenues.

    Management acknowledged

  • Unpredictability of Movie Business Margins

    medium

    A busier movie calendar in Q4 may aid revenue but could bring unpredictability on margins depending on commercial successes.

    Management acknowledged

  • Delay in ZEE5 B2B Deal Renewal

    medium

    ZEE5's YoY revenue growth was slightly impacted by a delay in the renewal of a B2B deal that ended in September 2024, with new commercials still under discussion.

    Management acknowledged

  • Rising Music Rights Costs & Changing Industry Landscape

    medium

    The music industry is witnessing changes, including fewer streaming players, a changing revenue model, and higher costs of music rights, leading to selective growth pursuit.

    Management acknowledged

  • Arbitration Outcome (Margo)

    low

    A provision of Rs 809 mn was made based on an arbitration outcome related to Margo, which was a non-cash impact on net profit, with a focus to reduce legal overhang.

    Management acknowledged

Areas of evasion (3)

  • ZEE5 B2B deal specifics (telco name, probability)
  • Competitive landscape post-consolidation in linear TV
  • Granular RIO pricing details

Q&A highlights

0 direct, 2 evasive
Movie Production vs. Music Rights Business Strategy Partial
So, the risk reward ratio is evaluated on a regular basis on a per content basis as well. So, we do it, but we do have to also look at the fact that the movies business also works as a feeder business for us, and our basic requirement of what we require internally has to be met.

Challenges management's allocation of resources to a riskier segment (movies) versus a potentially more predictable one (music), especially given the tough FY25 for Hindi movies.

Asked by Abneesh Roy

ZEE5 B2B Deal Renewal & Pricing Evasive
Sorry, we cannot name telco, Jinesh. And the probability of that is subject to us getting our right pricing that we want. So, it's about a negotiation, which is a commercial negotiation between two parties that are taking place. As and when that closes, we will disclose that, and you will get more color on that.

The B2B deal's non-renewal impacted ZEE5's YoY revenue growth, and the uncertainty around its future and pricing is a key concern for digital segment performance.

Asked by Jinesh Joshi

Competitive Dynamics in Linear TV Post Consolidation Evasive
On the other one, it is too early to comment, Abneesh. I do not think we can discuss every strategy on an open call. Maybe we can take that offline with you.

Analysts are keen to understand if industry consolidation (one major player gone) is easing competitive pressure or changing market dynamics, which could significantly impact ZEEL's ad revenue growth and market share.

Asked by Abneesh Roy

3 min read 7 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Zee Entertainment reported a mixed Q3 FY25, marked by robust profitability amidst a challenging macro environment. PAT from continued operations surged 207% YoY to Rs 1,636 mn, driven by effective cost management. Overall operating costs declined 10% YoY, contributing to a significant expansion in EBITDA margins, which were up 10 bps QoQ and 590 bps YoY. The company's cash and treasury investments stood strong at Rs 17 bn as of December 2024.

Advertising Revenue Challenges and Outlook

Advertising revenues faced headwinds, declining 8% YoY, despite a 4% QoQ increase. This was primarily attributed to a broad consumption slowdown and muted spending by FMCG brands, particularly in urban areas and the Hindi heartland. Management expressed caution on near-term ad revenue growth but remains optimistic about a gradual recovery in the new fiscal, expecting increased advertiser spending as consumption cycles pick up.

Subscription Revenue Growth and Digital Progress

Subscription revenues continued their healthy growth trajectory, with nine-months FY'25 subscription revenues up 8.2%. The company has published a new Reference Interconnect Offer (RIO) reflecting competitive pricing, expecting continued growth after a couple of quarters of implementation. The digital platform, ZEE5, narrowed its operating losses, with EBITDA loss lower by Rs 22.6 Cr QoQ and Rs 107.8 Cr YoY, despite a slight impact on YoY revenue growth (8%) due to a delayed B2B deal renewal.

Cost Optimization and Strategic Investments

ZEEL's focus on fiscal prudence led to a 10% YoY decline in overall operating costs, driven by efficient execution and optimization in programming, technology, and ZEE5. While costs were managed tightly, the company strategically invested in growth areas, with advertising and publicity expenses being higher for the quarter and nine-month period. Employee expenses also saw a QoQ increase due to wage increments rolled out from September.

Content and Business Segment Performance

The linear TV business maintained its position as a strong #2 entertainment network, gaining 40 bps share to 16.9% YoY, with Zee Marathi and Zee Tamil showing consistent progress. The music business, Zee Music Company, maintained healthy profitability. However, the movies business experienced a lean quarter, with 'Other Sales and Services' revenues declining 43% YoY due to lower syndication and a leaner movie lineup, though key releases are planned for Q4.

Arbitration and Legal Matters

The company made a provision of Rs 809 mn for receivables related to an arbitration outcome concerning Margo. This was a non-cash impact that adversely affected reported net profit. Management clarified that this claim was previously reported in financials and crystallized this quarter, emphasizing a focus on reducing legal overhang and preventing protracted litigation. The ICC arbitration case filed by Star is in its initial stages, with proceedings begun.

Future Outlook and Margin Targets

Looking ahead to Q4 FY'25 and FY'26, accelerating revenue growth is a key priority. Management reiterated its commitment to achieving an 18% to 20% EBITDA margin by the end of FY'26, a target approved by the Board. While a busier movie calendar in Q4 is expected to aid revenue, it may introduce some unpredictability in margins. The company aims to balance growth initiatives with judicious cost management.

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