Zee Entertainment Enterprises has exceeded analysts' expectations in Q2FY16 with a 24 per cent and 27 per cent rise year-on-year in revenues and adjusted net profit, respectively. Analysts are confident about the company's ability to deliver strong set of financials over the next couple of years.
Advertising revenue, which forms 54 per cent of the overall revenue, is expected to continue its strong show backed by higher ad spends from FMCG on the back of low raw material costs, doubling of ad spends from internet/ecommerce and likely boost from telecom 4G launches).
Viewership gains on existing channels will aid further. Emkay Global Financial Services has revised the company's ad revenue growth estimate to 27 per cent in FY16 from 22 per cent earlier. Subscription revenues, which contribute 37 per cent to revenues, are also expected to see a rebound in FY17 due to phase 3 and 4 digitisation.
Overall revenues are expected to grow at a compounded annual growth rate of about 20 per cent in FY15 to FY17.
Despite losses in TV and sports businesses, analysts have upgraded their earnings estimates for the next couple of years. Kotak Institutional Equities and Religare Institutonal Research have revised their earnings estimate upwards by 4 per cent each in FY16 to FY18.
"...Zee should post a strong 26% CAGR in earnings over FY16-18E even if it just holds on to its viewership share," IDFC Securities pointed out.
However in the medium term, the stock is expected to deliver a return of only 12 per cent given the average target price of Rs 455 estimated by six brokerages namely Motilal Oswal, IDFC Securities, Emkay Global Financial Services, Kotak Institutional Equities, Kotak Securities and Religare Institutional Research. This is due to substantial outperformance of the stock in the last one year.