Absence of strategic partner a challenge for ZEE’s scale-up plans: Elara Capital’s Karan Taurani

Analysts are optimistic about the potential growth in Zee's linear TV business, projecting an upward trajectory for the company. However, despite the anticipation of improved profitability, several concerns linger, casting shadows over the positive outlook.


“Despite potential for an improved profitability, concerns persist. These include increased disruption in the digital and linear TV space due to potential merger of Disney and Reliance, legal overhang on pending litigations with creditors and Sony Corp, and the absence of a strategic partner which could pose a challenge to scale up digital business offerings, a key growth driver,” said Karan Taurani, senior vice president at Elara Capital.

ZEEL (Zee Entertainment Enterprises Limited), announced its financial results on Tuesday, revealing muted ad revenue in line with analyst estimates. The ad revenue witnessed a decline of 3.4 percent year-on-year.

“The muted ad revenue is in line with our estimates. The decline was due to the shift of ad spend toward the Cricket World Cup,” said Taurani said.

Despite the challenges in ad revenue, Taurani anticipates continued growth in both ad revenue and subscription revenue of linear TV.

“Linear TV ad revenue will continue to grow by 3-4 percent YoY on steady state, in our view, for the near to medium term, led by mild outperformance in the regional genre. Linear subscription revenue too is set to grow by approximately 4 percent YoY on steady state, as linear TV household loss will be offset by price hikes, which could be subject to regulatory hurdles post NTO implementation,” he said.

Growth in the digital business remained strong for the company, as revenue grew 33 percent YoY in 9M FY24 contributing 10.7 percent of total revenue in 9MFY24, led by higher subscription and ad revenue, and launch of 73 shows and movies (including 14 originals) over the past three quarters.

EBITDA margin remained healthy for the linear TV business at 27 percent in 9MFY24 (excluding of OTT losses and movie revenue); however, with OTT losses, it is weak at 10.8 percent.

Management is confident of achieving sharp improvement in EBITDA margin, led by lower losses in OTT as investments have peaked, and cost rationalisation on employee, technology and content.

“We believe EBITDA margin could expand during FY24-26E to 15.4 percent in FY26E, below management’s aspiration of 18-20 percent,” said Taurani.