Buy This Mid Cap Stock For 15% Gains, Surged Over 52% In 1 Year, Record Date Announced For Dividend

In its recent report, the brokerage firm ICICI Securities has suggested buy the stocks of Zee Entertainment Enterprises Limited (ZEEL), a mid-cap Media & Entertainment stock for a target price of Rs 300 apiece. Considering this, if you buy the stocks of the company at the Current Market Price, you can expect potential gains of 15% in 12 months.

Stock Outlook

The Current Market Price (CMP) of ZEEL on NSE is Rs 261.05 apiece. The stocks are 017% down from their previous close at the time of writing. Its 52-week low is Rs 166.80 apiece recorded on 23rd August 2021, and the 52-week high is Rs 378.70 apiece recorded on 15 December 2021.

The market capitalization of the stock is 25,987 crore. The ROE is 8.87%. The Dividend yield is 1.15% and the face value is Rs 1.

Returns on Investment

Over a week, the shares of the company have gained 8.73%. Whereas, in the past 1 and 3 months, the shares gained roughly 9.69% and 8.68%, respectively. Over the past 1 year, the shares surged a massive 52.13%. However, in 3 and 5 years, the shares have fallen 26.37% and 49.79%, respectively.

Dividend

The stocks will pay 300% final dividend of Rs 3/share of Rs 1 each for FY22. The company has declared 27% dividends since August 2000.

According to the company's filing to stock exchanges on 26 May, "recommended for approval of the Equity Shareholders, Equity Dividend of Rs. 3/ - per equity share of Re 1/ - each for the financial year 2021-22"

The declared final Dividend will be turning ex-dividend next month, on September 15. The record date for the same has also been announced i.e. September 16, 2022.

 

ZEE5 has taken a large price hike

ZEEL's efforts on pricing, content and technology is benefiting ZEE5 where good performance has sustained for past few quarters. ZEE5 has taken price increase from Rs499 p.a. to Rs 699 p.a., which should help drive revenue growth for the next few quarters. ZEE5 lost 1.5mn MAUs to bring the total MAUs to 103mn while it added 0.8mn in DAUs to 11.3mn. ZEE5 revenues rose 43% YoY to Rs1.6bn. EBITDA losses increased QoQ to Rs2.4bn in Q1FY23 from Rs 2bn in Q4FY22.

Ad revenues facing headwinds

ZEEL's domestic ad revenues (up 5.8% YoY to Rs9.3bn) were hit due to: 1) stress on margins for advertisers due to higher commodity inflation, particularly for FMCG companies; 2) discontinuation of FTA channels; and 3) subdued viewership ratings. ZEEL was impacted more than its peers, because of its relatively higher dependence on FMCG ads as it lacks presence in the sport genre (sport now has 20-25% of industry ad revenue pie). ZEEL is focusing on improving its ratings in key genres including Hindi GEC. It now expects ad revenues to improve in H2FY23 on correcting commodity prices, and festive season.

 

Underlying subscription revenues subdued

Domestic subscription revenues dipped 7.4% YoY (down 10.2% QoQ) to Rs6.6bn, negatively affected due to impasse in NTO 2.0. Underlying subscription revenues from linear TV contracted, which was disappointing. TRAI has intimated timeline of Nov'22 for implementing NTO 2.0, which will be key to watch. Further, discontinuation of FTA channels was expected to help, but that has not happened as yet. Revenues were also impacted from delay in completion of negotiations with B2B subscribers to ZEE5 with whom the it has long-term contracts.

Content cost remained elevated and hurt EBITDA

EBITDA dipped 32% YoY to Rs2.4bn and EBITDA margin was only 12.8%, impacted by 15.7% rise in programming cost to Rs10bn. ZEEL has been aggressively investing in programming to drive improvement in viewership rating, and for ZEE5. Inventory for show and movies has increased by 33% and 80% YoY to Rs11bn and Rs10bn respectively.

Subdued performance

ZEEL's Q1FY23 print was disappointing on the ad revenue front due to discontinuation of FTA channels, margin pressure for advertisers due to high commodity costs, and subdued viewership rating. Subscription revenues declined due to embargo on pricing, delay in closure of B2B deals and fall in revenues from linear TV. However, content costs were elevated as ZEEL continued to invest in programming to improve viewership rating in key genres including Hindi GEC, and invest in ZEE5.

Buy for a target price of Rs 300

With marked improvement in ZEE5 performance, the company has taken price increase of 40% from Rs 499 p.a. to Rs699 p.a., which should help drive growth in ZEE5 revenues for the next few quarters. "Though we maintain our BUY rating on the back of inexpensive valuation, and proposed merger with SONY Network, near-term performance depends on recovery in viewership rating (which has stabilised now). We cut our EPS estimates by 3-7% over FY23E-FY24E due to lower revenue and margin assumptions, and reduce the target price to Rs300 (from Rs310) valuing the stock at an unchanged P/E multiple of 20x FY24E," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.