Zee Entertainment Q3FY19: Fundamental story remains intact; Buy

LKP Research | Jan. 16, 2019, 12:03 p.m.

Valuation

We believe the company can easily achieve their conservatve margin guidance of 30% (34.8% in Q3). However, we believe the 35% margins are an aberraton as heavy investments in Zee5 content in India and its launch in North America may pull down the margins from Q3 levels. Robust FCF and stable dividend policy will allow the company to be a secular growth story. We have slightly decreased our margins in line with the higher investments plans in OTT and newly launched Kerala channel. We have rolled over our estmates to FY21 and hence arrive at a target based on those numbers. We maintain our BUY ratng on the stock (@ 26x FY 21E earnings). Stake sell by the promoters (50%) remains an overhang on the stock though we believe that it will be positve in long term.



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