ZEE Entertainment shares: Recovery in ad revenue key to rerating; here are target prices

ZEE Entertainment Enterprises Ltd (ZEEL) reported 180 per cent year-on-year (YoY) rise in net profit for the December quarter, but its advertisement (ad) revenue fell for the ninth of last 10 quarters. Analysts see little scope for improvement in margins in the near future. They have cut their earnings estimates by 2-7 per cent for ZEEL, but differ on the stock's prospects after the recent correction.

The macro environment remains sluggish, particularly on the urban front, hindering advertising growth. The ZEE management highlighted it has successfully completed the first phase of its turnaround plan centered around cost optimisation, and focus now is on driving revenue higher.

"We trim FY25-27 Ebitda by 4-11 per cent, factoring in the Q3 performance and slower advertising growth going ahead. We believe the company will find it difficult to meaningfully improve margins from current levels in the absence of advertising growth. We maintain Reduce on ZEEL, and lower our target price by 7 per cent to Rs 130 (8 times December 2026E Broadcasting Ebitda," Emkay Global said.

MOFSL said ZEEL aspires to deliver a CAGR of 8-10 per cent in total revenue with its current portfolio and improve Ebitda margins to an industry-leading range of 18-20 oer cent by FY26.

"We believe that a sustainable recovery in ad revenue remains key to meeting these aspirations and the potential re-rating of multiples. We cut our FY25-27E revenue/Ebitda by 2-3 per cent due to weaker growth in domestic ad revenue. Zee’s valuations have turned attractive. However, a recovery in domestic advertisement revenue and a favorable outcome in ongoing litigation for ICC rights with Star remain key for rerating," MOFSL said.

This brokerage suggested a target price of Rs 130 on the stock.

In Q4FY25, ZEEL expects good strides on the margin front. Key focus areas of growth will be investment, movie launches and revenue. The next tranche of FCCB is slated for August 2025. Subscription revenue growth may continue for a couple of more quarters along with further price hikes, Nuvama said adding that rural local advertisement spends have improved. Language market is coming back and retail is large thereof. Domestic players are aggressive in the music rights business, international players are not," ZEE highlighted in its conference call.

"Ad revenues continue to face the heat from a subdued macro environment, with the urban slowdown particularly affecting FMCG and other consumption. All in all, we are cutting FY25E/26E/27E EPS by 9 per cent/7 per cent/5 per cent, yielding a revised target price of Rs 185 (earlier Rs 195); ‘BUY’," Nuvama said.

ZEEL is balancing cost measures with judicious investment towards growth, reflected in 2 percentage points increase in A&P spend, said JM Financial which has a Buy rating on the stock.

"It admits that margin improvement from hereon has higher dependence on growth. Rural recovery offers hope. ZEEL’s own interventions – international ad-revenue growth, pricing increase, regional channel strategy – should augment that. That said, we have tempered our FY25-27E revenue expectations by 2-4 per cent. Same has flown down to our EPS estimates. Maintain BUY with an unchanged target price of Rs 200," JM Financial said.