Zee Entertainment Enterprises Limited Q3 FY24 Earnings Conference Call Insights

Key highlights from Zee Entertainment Enterprises Limited (ZEEL) Q3 FY24 Earnings Concall

• Sony Merger Termination
  • Announced that Sony terminated the proposed merger through a communication on Jan. 22nd, 2024.
  • The Board reviewed it and took appropriate legal steps in the best interest of shareholders.
  • Zee approached NCLT seeking direction on implementing the merger scheme.
  • Growth seen across both urban and rural markets in T1, T2 and T3, T4 cities.
  • Zee wanted the merger implemented and offered solutions, but Sony did not accept.
  • Zee will let the law take its course.
• Growth Plans
  • Outlined a 3-pronged approach for growth: frugality, optimization, and focus on quality content.
  • Steps to be taken to optimize spends, enhance ROI, and recalibrate OTT costs.
  • Productivity will be improved through resource optimization and reducing overlaps.
  • New monetization avenues will be explored while maintaining focus on quality over quantity of content.
  • Gradual margin recovery expected in 2H25, with FY25 margins meaningfully better than FY24.
  • Goal is to achieve 18-20% industry-leading EBITDA margin in FY26.
• Financial Performance
  • Q3 FY24 was steady with festive season strength partially offset by cricket.
  • Ad revenues were up 4.9% QoQ but still down 3.4% YoY due to muted recovery.
  • Subscription revenues continue to inch up, driven by NTO 3.0 and ZEE5.
  • Other sales and services revenues declined due to fewer movie releases.
  • EBITDA margins declined to 10.2% due to lower revenues.
  • Net profit was impacted by merger expenses.
• Business Performance
  • TV viewership at a 9-quarter high, Zee portfolio has 78% share gain in FY24 YTD.
  • Zee gained 40 bps share YTD; fastest growing in South and has consolidated leadership in movies.
  • ZEE5 continues healthy growth, with 31% YoY revenue growth in 9 months.
  • ZEE5 EBITDA loss has narrowed by INR 99 million QoQ through cost management.
  • In Q3, Zee Studios released 6 movies including Hindi and regional.
• Outlook
  • Strong free cash flow generation through working capital optimization.
  • Cash and treasury investments increased to INR 8,286 million.
  • Content advances and deposits declined by INR 4.4 billion YTD showing optimization.
  • Confident about long-term growth prospects and margin improvement potential.
  • Margins may face pressure in next 3-6 months due to one-time costs of interventions.
  • Gradual margin recovery expected from 2H25 onwards.
• Business Strategy Reset
  • Sports and other initiatives will be re-evaluated to focus on most value-adding.
  • Linear TV margins were historically higher than current overall margins.
  • OTT losses have reduced indicating margin improvement there as well.
  • Growth and margin expansion will happen in parallel through optimization efforts.
• Subscription Revenue Growth
  • Price hikes across bouquets are 6-8% based on new RIO.
  • Incremental 9M subscription revenue is from both linear TV and ZEE5.
  • NTO 3.0 implementation has contributed, though split not provided.
  • Overall growth is in high single digits, close to 10% in line with past guidance.
• Linear TV Margins
  • Lower margins in Q3 due to slower recovery in heartland/FMCG ad revenues.
  • Presence of marquee sports properties also ate into inventory.
  • Not a one-off event, but due to above temporary factors.
  • Overall subscription revenue growing in high single digits as guided.