- Revenue rose 15% YoY, driven by theatrical releases and subscription growth.
- Domestic ad spend fell 10%, pulling down overall margins.
- EBITDA slipped 25% as content and rights investments accelerated.
- Zee5 posted its first positive EBITDA, with 73% YoY revenue growth.
- Current valuation is under 5x FY28E EV/EBITDA – a rarity in media.
- Neutral rating hinges on cheapness, not on growth momentum.
You overlooked Zee’s 15% revenue jump, and that could cost you today.
Why Zee Entertainment’s Revenue Growth Beats Industry Lag
Zee’s third‑quarter topline rose 15% year‑over‑year, matching consensus expectations. The lift came primarily from the blockbuster theatrical release “Kantara 2,” which added a sizable bump to the company’s non‑advertising income. Meanwhile, its over‑the‑top (OTT) arm Zee5 continued to attract new subscribers, pushing subscription revenue higher. In a market where many Indian broadcasters are still grappling with a post‑pandemic advertising slump, a double‑digit revenue increase is a notable outlier. It signals that Zee’s diversification into content‑driven revenue streams is beginning to pay off, even if the overall profit picture remains murky.
Impact of Weak Domestic Ad Spend on Zee’s Bottom Line
While revenue grew, domestic advertising revenue slumped 10% YoY. This mirrors the broader Indian media environment, where ad budgets are being re‑allocated to digital platforms and performance‑based channels. The decline eroded the gross margin, contributing to a 25% drop in EBITDA. For investors, the key takeaway is that ad volatility can swing profitability more than topline growth in traditional broadcasters. The ad weakness also highlights the importance of tracking ad‑price indices and brand‑spending trends when evaluating media stocks.
Zee5’s First Positive EBITDA: A Turning Point for Digital Media
Zee5 delivered a striking ~73% YoY revenue surge, finally crossing the break‑even threshold to post a positive EBITDA. The catalyst was a strategic repricing of telco partnership deals, which improved per‑user revenue while retaining volume. This is the first quarter the OTT platform has shown operating profit, suggesting that its cost structure—primarily content acquisition and technology spend—is now aligned with cash inflows. In the context of the Indian OTT battle, where giants like Disney+ Hotstar and Amazon Prime Video are still loss‑making, Zee5’s profitability offers a potential moat and a template for scaling subscription models profitably.
Valuation Snapshot: Why 5x FY28E EV/EBITDA Still Feels Cheap
Motilal Oswal’s revised target price of INR 90 implies a forward FY28 earnings multiple of about 12× P/E, but the more striking figure is the sub‑5× FY28EV/EBITDA multiple. Historically, Indian media houses trade at 8‑10× EV/EBITDA, reflecting the capital‑intensive nature of content creation and the cyclicality of ad spend. A sub‑5× multiple suggests the market is pricing in significant risk—chiefly the ad‑revenue slump and the heavy capex on new content. For value‑oriented investors, this discount could be a catalyst if the company can sustain its subscription growth and improve operating leverage.
Competitive Landscape: How Tata Sky, Sony, and Disney+ Are Positioning
Peers such as Tata Sky (now Tata Play), SonyLIV, and Disney+ Hotstar are all accelerating their direct‑to‑consumer (D2C) offerings. Tata Play has launched a bundled broadband‑plus‑OTT package, SonyLIV is investing heavily in regional originals, and Disney+ continues to leverage its blockbuster film pipeline. Compared to these rivals, Zee’s advantage lies in its extensive terrestrial and cable footprint, which provides a built‑in distribution channel for both linear and digital content. However, the competitive pressure is intensifying, and Zee must convert its linear audience into paying digital subscribers faster than its peers to protect margins.
Historical Parallel: Media Turnarounds in India Over the Last Decade
India’s media sector has seen two notable turnarounds: Star India’s aggressive sports rights acquisition in 2017 and Sony’s strategic pivot to regional content in 2020. Both companies faced short‑term profit compression due to high upfront rights fees, yet they emerged with stronger subscriber bases and higher ARPU (average revenue per user). Zee’s current trajectory—higher content spend, a focus on regional theatrical releases, and a profitable OTT platform—resembles those past playbooks. If history repeats, investors could see earnings acceleration over the next 18‑24 months as the upfront investments mature into recurring subscription cash flows.
Investor Playbook: Bull vs. Bear Scenarios for Zee Entertainment
Bull Case
- Subscription revenue continues to grow >20% YoY as Zee5 expands telco bundling.
- Advertising market rebounds, narrowing the –10% ad‑revenue gap.
- Content investments yield higher-margin library assets, boosting EBITDA margin above 15%.
- Valuation multiples re‑rate to 7‑8× EV/EBITDA, delivering >30% upside.
Bear Case
- Ad spend continues to decline, forcing deeper discounting on ad inventory.
- Content costs overshoot forecasts, dragging EBITDA deeper into negative territory.
- OTT competition erodes Zee5’s subscriber growth, returning to loss‑making status.
- Market re‑prices the stock to sub‑4× EV/EBITDA, compressing upside and risking a downside of 15%.
In sum, Zee Entertainment sits at a crossroads where cheap valuation meets a mixed performance narrative. Your decision should weigh the upside potential of a successful OTT pivot against the downside risk of a prolonged ad‑revenue slump.