Braveheart Series: Zee Entertainment Enterprises - Raring to go Amid Near Term Hiccups; Visit Note :: Edelweiss, link

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We recently met senior management of Zee Entertainment Enterprises (ZEE). Management is upbeat about STAR’s RIO deal and expect ARPUs to increase gradually. ZEE anticipates ad growth to be at least in line with industry and outperformance, if any, could be spurred by market share gains. &TV, the new GEC to be launched in Q4FY15, is expected to substantially compress EBITDA margin 4-5 quarters post the launch, which is a key concern.

ZEE expects TV ARPUs to double in 5 years

ZEE sees RIO as a great opportunity to increase ARPUs. Benefit of high ARPUs should pass on to the broadcasters. ZEE is likely to log 8-9% YoY like-to-like domestic subscription growth in FY15. Excluding possible rise in ARPU due to RIO, management expects domestic subscription growth to be muted over the next 12 months. Beyond that, benefits of Phase 3 are expected to kick in. Sports loss will be marginally lower than earlier guidance of ~INR1bn for FY15. Zee TV has changed its positioning to Har Lamha Nayi Ummeed from Ummeed Se Saje Zindagi earlier.

&TV launch to compress FY16 margins

&TV, the likely new GEC in Q4FY15, is targeted at audiences with a more contemporary outlook. We believe&TV could clock loss of INR7-10bn in the next 3-5 years similar to other mainstream Hindi GECs and break even in line with industry standards only thereon. From Q4FY15, ZEE’s EBITDA margin is expected to remain depressed in the ensuing 4-5 quarters and recover to ~27-28% levels thereafter. Though ZEE is venturing into Hindi movie production, it will not produce big-budget movies.

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