Zee Entertainment Enterprises Ltd shares soared nearly 5% on Tuesday ahead of the announcement of earnings for the third quarter ended December (Q3) scheduled for later in the day. The gain in the stock price is surprising given the fact that most brokerages are expecting a subdued set of numbers from the company.
Brokerage firm Kotak Securities Ltd said it expected Zee Entertainment to witness a weak December quarter amid slowdown across advertising categories and due to the impact of a drop in reach or viewership of select channels.
The company may post net sales to the tune of Rs 2,102.4 crore for the December quarter, which is down 3% compared with a year ago and 0.9% from the previous quarter, said Kotak Securities. Adjusted PAT (profit after tax) may come in at Rs 412.1 crore for the December quarter, down 21.5% year-on-year and 30.5% sequentially.
“Zee’s Q3 FY20 operating performance would be disappointing. We expect a sharp 14% year-on-year (YoY) decline in advertisement revenues, significant underperformance versus industry growth rate which may remain flattish. We expect a 630 bps year-on-year decline in Ebitda (earnings before interest, tax, depreciation and amortization) margin to 28.6%,” said Kotak Securities.
Another brokerage firm Edelweiss Securities said that Zee’s advertisement revenue is likely to decline in the December quarter owing to economic slowdown, cutback in ad spends by large categories of companies (consumer goods, auto, telecom and retail) and withdrawal from the FreeDish platform. However, subscription revenue growth may remain robust owing to the tailwind from NTO (new tariff order) and viewership gains in portfolio channels, it added.
“Amid this challenging environment, we expect Zee’s revenue to decline nearly 5% year-on-year, with domestic ad revenue declining about 13% (on a base of 22%) and subscription revenue growing nearly 19% year-on-year (on a base of 29%),” Edelweiss Securities said.
Edelweiss expects Zee’s Ebitda and adjusted PAT to decline about 22% and 21% year-on-year, respectively, while Ebitda margin is likely to contract about 630 bps.
Motilal Oswal Financial Services also expected Zee to post adjusted PAT of around 424.6 crore, down 19% compared with a year ago, while revenue is estimated at Rs 2,148.5 crore, down 0.8%.
The company’s ad revenue is likely to fall 12% compared with a year ago, and will drag the company’s margins, said Motilal Oswal.
At 2:48 pm, shares of Zee Entertainment were trading at Rs 282.55, up 4.4%, after hitting the day’s high of Rs 284.80.
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