ZEE Entertainment Stock Analysis and Future Outlook

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Overview:

Let’s delver deeper into ZEE Entertainment Stock Analysis and its future prospects.

ZEE Entertainment Fundamental Analysis and Future Outlook

Zee Entertainment is a Global Media and Entertainment conglomerate with a presence across television broadcasting, movies, music, live entertainment and digital businesses. The group has been faced with certain issues recently regarding their solvency but the debt is not on their infrastructure business. The business of ZEE entertainment is growing without any problems.

The company’s shares have 52 weeks price band of INR 439-114 and a total market capitalization of INR 144 billion which makes it a Large-Cap company. The shares have a P/E ratio of 9.07 and a dividend yield of 2.34%

Now, let’s take a deep dive into the fundamentals of the company.

The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022.

The categories are as follows.

  1. Economic Moat
  2. Business Model and Management
  3. Growth Ratios
  4. Profitability Ratios
  5. Cash Flow Ratios
  6. Liquidity and Solvency Ratios
  7. Efficiency Ratios
  8. Valuation Ratios
  9. ROE (Du Pont Analysis)
  10. Future Prospects

(All units are INR Millions except ratios and per share data)

1.Economic Moat (★ ★ ★ ☆ ☆)

The company operates in the media and entertainment industry where market dominance comes through reach, viewer base and infrastructure. ZEE has a wide presence across television broadcasting, movies, music, live entertainment and digital business. The company has a 19.7% network share and a presence in 173+ countries. The channels operate in 19+ different languages and reach to over 1.3+ billion people every day.

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Over the years the company grew from an Indian television broadcaster into a global content company and expanded its footprint from South Asia to almost the whole world. This overall shows the wide infrastructure and assets that the company operates.

However, the industry is becoming highly competitive and the corporate governance issues have weakened the economic moat of the company. Therefore this category gets 3 stars in ZEE Entertainment fundamental analysis.

2. Business Model and Management (★ ★ ★ ☆ ☆)

The company majorly operates across 5 main verticals namely domestic broadcast business, digital business, Movies and music, Live events and theatre and International broadcast business.

They have also launched Zee Punjabi and three movie channels – Zee Biskope, Zee Thirai and Zee Picchar to strengthen the regional portfolio. The company is banking on ZEE5 to drive subscription growth, going forward. Management has guided for lower movie purchases and reduced working capital requirement in FY 2021.

Mr Punit Goenka is the MD and CEO of Zee Entertainment Ltd. He is also responsible for expanding the company’s international presence across 173 countries, and its reach to over 1.3 billion viewers.

Mr R. Gopalan is the Chairman of the company and has a career spanning 36+ years. Overall the management is capable but the company has week corporate governance. Therefore this category gets 3 stars in ZEE Entertainment fundamental analysis.

3. Growth Ratios (★ ★ ★ ★ ★)

ZEE Entertainment Fundamental Analysis and Future Outlook

The revenue has shown a growth of 14.63% CAGR over the last 10 years. The operating income and net income has also grown at 14.4% and 10.57% CAGR respectively. This shows declining efficiency and profitability for the company. The working capital is also positive and has shown a linear growth. Capital expenditure has remained flat even with an increased scale. Therefore this category gets 5 stars in ZEE Entertainment fundamental analysis.

4. Profitability Ratios (★ ★ ★ ★ ★)

ZEE Entertainment Fundamental Analysis and Future Outlook

The gross margin has been increasing over the years due to declining costs of services delivered. The other margins along with return on assets have declined recently. This is a nature of media and entertainment business where certain unavoidable costs increase with scale. Overall the company has seen good profitability over the years which is likely to improve in the future. Therefore this category gets 5 stars in ZEE Entertainment fundamental analysis.

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5. Cash Flow Ratios (★ ★ ★ ☆ ☆)

ZEE Entertainment Fundamental Analysis and Future Outlook

The net income margin has seen a slight decline over the years along with the Cap-Ex as a percentage of sales. The free cash flow as a percentage of net income has been positive and declining over the years. The free and operating cash flow growth has also been declined significantly. Overall the company has shown a weak cash flow position. Therefore this category gets 3 stars in ZEE Entertainment fundamental analysis.

 

6.Liquidity and Solvency Ratios (★ ★ ★ ★ ☆)

The company does not have any significant debt in its capital structure therefore the financial leverage and debt to equity ratio has been flat over the years. 

The profitability margins have been stable over the years hence there is no significant concern to the solvency of the company. The current and quick ratio has declined but is still way above the minimum threshold which shows a good liquidity position. Therefore this category gets 4 stars in ZEE Entertainment fundamental analysis.

ZEE Entertainment Fundamental Analysis and Future Outlook

7. Efficiency Ratios (★ ★ ☆ ☆ ☆)

The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.

ZEE Entertainment Fundamental Analysis and Future Outlook

Overall the business efficiency reduced significantly over the years and this is because of the nature of the business and increased competition. The payables period has increased and the receivables days have declined. The cash conversion cycle has only seen a steady increase from 141 days to 369 days remains positive.

This shows significant deterioration in efficiency. Therefore this category gets 2 stars in ZEE Entertainment fundamental analysis.

8. Valuation Ratios (★ ★ ☆ ☆ ☆)

The company has seen a significant deterioration in valuation since the ZEE Group crisis. However, ZEE entertainment remains solvent and a thriving business.

However, the valuations are not expected to improve much in the near future as the company is also going to be excluded from the Nifty 50 Index. Therefore this category gets 2 stars in ZEE Entertainment fundamental analysis.

9. ROE 5 way Du Pont Analysis (★ ★ ★ ☆ ☆)

The leverage ratio along with asset turnover has seen a slight decline in the recent years. 

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The interest burden ratio has remained at 100% due to no interest-bearing debt in the capital structure of the company. The operating margin has seen stability and the tax efficiency has improved. Overall the Return on Equity has been stable. Therefore this category gets 3 stars in ZEE Entertainment fundamental analysis.

10. Future Prospects (★ ★ ★ ☆ ☆)

Some insights for the coming years from the analysis, management discussions and con calls are as follows.

  • The company recently unveiled a cinema-to-home service platform called as ZEE Plex. The new digital distribution model for producers, Zee Plex, would be available on over-the-counter (OTT) platform Zee5, both in the country as well as overseas. Read more here.
  • The major problem the company is facing is of corporate governance. Improved disclosures, potential strengthening of the company’s board and the reporting of ZEE5 financials give a positive image to the company.
  • The company’s Q1 result for 2021 showed a profit slump of 94% due to Covid-19 effects on Ad revenue. The media and entertainment industry is expected to suffer from declined spending on advertisements in the near future.

The company is doing well but there is no significant growth prospect ahead due to the increasing competition in the industry. Therefore this category gets 3 stars in ZEE Entertainment fundamental analysis.

 

Bonus: ZEE Entertainment Concall Summary by TrendyLine

The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.

Overall Fundamental Rating:

ZEE ENTERTAINMENT SHARES (3.3/5)

Therefore it is a 3-star stock

★ ★ ★ ☆ ☆

ZEE Entertainment Shares  
Economic Moat ★ ★ ★ ☆ ☆
Business & Management ★ ★ ★ ☆ ☆
Growth Ratios ★ ★ ★ ★ ★
Profitability Ratios ★ ★ ★ ★ ★
Cash Flow Ratios ★ ★ ★ ☆ ☆
Liquidity & Solvency ★ ★ ★ ★ ☆
Efficiency Ratios ★ ★ ☆ ☆ ☆
Valuation Ratios ★ ★ ☆ ☆ ☆
ROE (Du Pont Analysis) ★ ★ ★ ☆ ☆
Future Prospects ★ ★ ★ ☆ ☆
Overall Fundamental Rating ★ ★ ★ ★
ZEE Entertainment Fundamental Analysis

(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)


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