Zee Entertainment Enterprises Ltd shares rallied as much as 7% on Wednesday as brokerages seemed bullish on the company’s prospects despite muted earnings for the third quarter ended December (Q3).
The Zee Entertainment stock opened the day in the red, but recovered later to touch an intra-day high of Rs 304 compared with its previous close of Rs 284.10. The stock ended the session at Rs 298, up nearly 5%. Notably, Zee Entertainment shares have fallen over 31% in the last one year compared with a nearly 11.5% rise in the benchmark Nifty 50 index.
On Tuesday after market hours, Zee Entertainment said consolidated net profit fell sharply by 37.9% year-on-year to Rs 349.4 crore in the December quarter due to lower revenue and operating income.
Revenue from operations during the quarter fell 5.5% year-on-year to Rs 2,048.7 crore mainly due to lower advertising revenue. “Advertising revenue for the quarter was Rs 1,230.8 crore, a decline of 15.8% y-o-y,” Zee said in a filing to stock exchanges. However, subscription revenue growth was strong at 15.4% year-on-year to Rs 713.7 crore.
“Third quarter is normally a strong growth period for us; however, the tough macro-economic environment led to a decline in our advertising revenues. Most of our advertisers are going through a slow-growth period and that has led to a cut in advertising spends. I believe that the worst phase is behind us and we will start seeing an improvement from the next quarter,” said Punit Goenka, Managing Director and CEO, Zee Entertainment.
After the earnings, Morgan Stanley maintained ‘equal-weight’ rating on the Zee Entertainment stock with a target price of Rs 340. It said that the company’s Ebitda (earnings before interest, tax, depreciation and amortization) was mainly affected by a one-time charge of Rs 37.6 crore on delay in payments from two distributors.
Another brokerage firm CLSA gave a ‘buy’ call on Zee Entertainment shares, setting a price target of Rs 360. CLSA said it expected advertising growth returning in FY21 despite the recent drop.
Macquarie also set a price target of Rs 425 per share with an ‘outperform’ rating: An improvement in cash generation and stronger corporate governance should drive re-rating for Zee Entertainment, said Macquarie.