ZEEL - Zee Entertainment Enterprises Ltd. Share Price

Management of Zee Entertainment Enterprises presented a cautious yet optimistic outlook for the company, highlighting strategic adjustments aimed at strengthening business fundamentals and driving sustainable value. Key points include:

1. Digital Business Growth: The digital platform ZEE5 saw a 32% year-over-year increase in revenue, attributed to a tailored subscription plan across seven languages. The aim is to achieve profitability for ZEE5 in coming quarters, with investments yielding positive results.

2. Market Positioning: Zee commanded an 18.2% market share in the television landscape as of July, with seven channels achieving leadership roles in their respective markets. This marks an improvement in overall viewership as new content was introduced.

3. Advertising Revenue Outlook: Advertising revenues experienced an 11% year-over-year decline, but showed a 6% quarterly increase due to rising FMCG spending and early festive season momentum. Management maintains a cautiously optimistic outlook for midterm advertising growth, spurred by expected benefits from recent GST reforms and increased consumer spend.

4. Cost Management: Despite increased content costs impacting profitability (EBITDA margin at 7.4%), these are viewed as necessary investments for future growth. Operating costs rose by 9% year-over-year, with expectations for stabilization as revenue growth from content and advertising picks up.

5. Financial Position: The company maintains a solid financial footing, with cash and investments totaling INR 21.1 billion. The strategic focus will continue to ensure cash generation while bolstering revenues across both digital and linear segments.

Overall, the approach centers on leveraging existing strengths while carefully expanding into new segments and optimizing operational efficiency to drive future growth.

Question 1: "Could you help us understand the revised outlook for ad revenues in the second half of FY '26 and what will be the key drivers here?"

Answer: While we initially anticipated 6-8% ad revenue growth, realizing that is challenging due to 1H revenues being down about 14%. However, we're hopeful for the second half, expecting growth from our content ramp-up and initiatives, alongside external factors like the GST reforms. We are optimistic about ad revenue trends picking up in H2, but avoid giving specific guidance at this moment as we observe developments closely.

Question 2: "How do you think of margin trajectory over the coming quarters given the increase in costs and advertising spends?"

Answer: The margin aspirations are indeed looking challenging right now. Costs, particularly from new shows and channels, have increased. While we expect some stabilization, the benefits from our investments, particularly in digital content, should gradually improve margins. We continue to see improving digital profitability, even though we're watching margins closely, especially since these costs are linked to our longer-term growth strategy.

Question 3: "Could you share some more color on the current year-to-date cash generation?"

Answer: Our receivables have increased primarily from advertising and subscription collections. The incremental increase in trade receivables is normal for our business, particularly since subscription collections tend to be lumpier in our fiscal year. We foresee improvements in cash flows in the upcoming quarters, especially as we fully navigate the typical collection patterns related to our service contracts.

Question 4: "What trends are you seeing in the past few weeks after the GST cut? Has there been a pickup in FMCG ad spend?"

Answer: There has indeed been an uptick in FMCG ad spending, but it's early to gauge the full impact. We're monitoring the situation closely as we anticipate the GST cut will translate into more significant ad spend in the coming months. While we remain cautiously optimistic, we are waiting for clear signals before making any definitive projections regarding third-quarter revenue growth.

Question 5: "What were the key drivers behind the spike in ZEE5 numbers? Which metrics have shown the most improvement?"

Answer: The notable growth in ZEE5 is driven by substantial increases in both subscription and advertising revenues. We are closely monitoring these metrics weekly and monthly, reflecting our strategic emphasis on enhancing content offerings, which has resonated well with viewers, leading to increased engagement and revenue growth across our digital platform.

Question 6: "When do you expect the channel gains to be reflected in the revenue numbers?"

Answer: We typically observe a lag effect of around 13 to 16 weeks for channel gains to reflect in revenue numbers. However, we are actively working with advertisers to expedite this process, especially as we enter the festive season with a strong viewership share, aiming to maximize the benefits of our enhanced viewership sooner.

Question 7: "What has led to the substantial increase in advertising and promotional expenses?"

Answer: The increase in advertising spends is attributed to several factors: significant new launches including two new channels, a comprehensive rebranding effort, and a high number of content launches this quarter"”39 linear and 26 digital"”which cumulatively demand increased promotional expenses. These expenditures are strategic investments in our growth trajectory and will yield benefits over time.

Question 8: "What is the expected margin profile for the second half?"

Answer: While we refrain from providing precise guidance, our operating leverage suggests that margins are expected to improve in H2. The current quarter's expenses are somewhat of a one-off due to increased investments. We anticipate that stabilizing costs, coupled with improved viewership and revenue, will lead to a healthy bounce back in margins.

Question 9: "Are you seeing new types of advertisers due to your omnichannel approach?"

Answer: Yes, we've begun attracting new advertisers as we deploy our omnichannel strategy. We've designed unique content for varied platforms, ensuring that the same piece reaches audiences through multiple channels. This approach is already yielding initial results, and we believe it will continue to mature over time, enhancing revenue opportunities.

Question 10: "Are there any plans for the promoters to increase their stake, especially following recent price declines?"

Answer: We are indeed keen to increase our stake in the organization in a structured manner. We're evaluating various avenues to achieve this, recognizing that it may require shareholder approval. While open market purchases haven't been considered yet, the intention remains strong among our family and as promoters.