New Delhi, February, 04, 2021, By Karan Taurani, VP, Elara Capital

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Zee has reported an ad growth of 7.5%YoY which is slightly above our expectation of 5%YoY growth; as indicated earlier by us, there has been a sharp recovery in ad spends in the OND quarter led by festive season and pent up demand. Expect the momentum to continue going ahead next qtr too which will lead to ad spend decline for tv industry by 15-16%YoY which too is in line with our estimates. Subs revenue growth is also compelling, however some portion of this growth may also be attributed to Zee5 as the latter has a higher SVOD share- await more details on the same. Maintain our positive stance on zee given inexpensive valuations and scope for better ad spends backed by regional genre

Highlights

• Zee reported a Q3FY21 revenue growth of 33.2% YoY to INR 27.2bn (Elara E: INR 19.4bn) beating our estimates, led by the strong recovery in ad revenues which returned to growth trajectory with growth of 5.8% YoY as well as a strong growth in subscription revenues by 18% YoY. Other operating revenues witnessed a sharp surge by 462% YoY due to ; content syndication deal of 5,512mn, however excluding that overall revenues grew 6.3% YoY as against 33.2% YoY.
• Ad revenue grew 5.8% YoY to INR 13bn much better than our estimates of INR 11.9bn & 43.6% QoQ, a sharp recovery post H1 reflects the rebound in consumer demand and spending. Domestic advertising grew by 7.5% to INR 12.4bn while International advertising revenues were at INR 577mn during the quarter.

• Subscription revenue witnessed growth of 18% YoY to INR 8.4bn beating our estimates, as comprising of revenue from music business which has been reclassified as subscription revenue in this fiscal. On a like-to-like basis, domestic subscription grew 9.3% YoY to INR 6.9bn, primarily driven by growth in ZEE5 subscription revenues as well as TV broadcasting. International subscription revenues were INR 1,091mn during the quarter. Other operating revenues saw a sharp uptick by 462% YoY, on back of content syndication deal of INR 5512mn, however excluding that they declined 67.1% YoY largely due to reclassification of music revenues to subscription.
• ZEE5 Q2 Revenue and operating loss stood at INR 1178mn, up 19.1% QoQ and INR 1,757mn, with 65.9mn global MAUs, 5.4 mn global DAUs in Dec’20, 133 minutes average watch time per viewer per month in Dec’20 vs 152min in Sept’20. It released originals (18 original shows and 2 original movies released during the quarter) enabling subscription revenue growth.
• In case of Zee Studios , Released 5 movies during the quarter, including 4 theatrical release with plans to release 2 Hindi & 2 regional in Q4FY21. On the Zee Music Company segment, 50%+ YoY growth in YouTube video views, enabling additions of 5mn subscribers on YouTube; with 68.3mn subscribers to be the second most subscribed Indian music channel in India.
• In terms of the breakup for content inventory, advances and deposits, contribution from movie rights has increased 400bp over Q2FY21 to 67%, contribution from shows declined 500bp QoQ to 12% share and on the other hand, content advances & deposits share in inventory was stable QoQ at 14%. Movie production, Music & other rights contribution has increased 100bp QoQ to 7% during the quarter.
• Company reported an EBITDA of INR 7,157mn, up 26.5% YoY and an EBITDA margin of 26.2%, down mere 140bp YoY, indicating strong recovery after muted H1FY21. EBITDA Margin recovery was largely on back of cut on Advertising & sales promotion expenses by 5.7% YoY, other expenses down by 10.4% & sharp recovery in revenues for the quarter.
• Reported PAT was up 14.2% YoY to INR 3980mn, led by a strong overall operating performance, sharp cut on interest expenses by 89.4% & fair valuation gain of INR 839mn which was partially offset by lower other income by 61.1% YoY & slightly higher effective tax rate during the quarter.