Our meeting with Zee Entertainment Enterprises’ (ZEE) chairman Subhash Chandra and MD Punit Goenka reaffirmed our thesis that Jio/other telecom players are a big opportunity for ZEE for distributing its content, rather than a threat. Sun TV had also mentioned that Jio broadband is a big positive for TV broadcasters. The important change is that ZEE no longer views itself as a TV broadcasting company, but a content player. Broad-based ad growth and sustained focus on regional markets (GEC launch likely in Kerala) brighten prospects. ZEE is positive on likely implementation of Trai’s tariff order. Maintain buy.
ZEE expects similar revenue from Jio as it garners from the DTH/cable players. High consumption is happening outside home now, which is good for ZEE. When the DTH/cable players were at loggerheads with the broadcasters, the former suffered. Hotstar (STAR’s OTT) has not given content to Jio. For ZEE, Jio (being an organised player) is a better proposition than tackling the LCOs. Besides, ZEE and Bharti Airtel are at an advanced stages of discussion to strike a deal for distribution of content on Airtel TV. ZEE has taken into account learnings from Netflix in other markets. In India, Netflix has had very limited impact so far as 1) It is quite expensive and 2) There’s limited local content. No broadcaster has given content to Netflix.
ZEE is expected to sustain robust domestic ad growth. It is easily India’s most aggressive player in OTT in non-sports entertainment with 80 new shows only on ZEE5 in FY19. ZEE5 has commenced on a strong note on viewership metrics of monthly average users (MAUs) and video views, and is already among the top OTTs in India. ZEE5 is looking at differential payment across languages. ZEE5 gets ads for free content and gets subscription revenue for original content. ZEE5 will premiere 150 exclusive movies across languages over next 12 months.
We maintain buy due to revival in ad spends by FMCG companies and scale up of ZEE5. ZEE will soon be repatriating excess funds invested abroad. At CMP, the stock trades at 23.9x FY20E P/E versus consumer players’ 40-50x. We retain our target PE of 32x FY20E to arrive at TP of `700. Reiterate ZEE as one of the top picks in media space.
