Zee Entertainment subscription growth and FIFA boost face persistent advertising weakness

Investment View and Valuation

In its August 10, 2026 1QFY27 results update, Motilal Oswal Financial Services described Zee Entertainment’s quarter as subdued. The broker retained its Neutral rating and Rs 100 target price against a CMP of Rs 94. Robust subscription growth and improving Zee5 profitability were offset by continuing weakness in linear television advertising and profitability.

Motilal Oswal believes a sustainable recovery in advertising revenue is essential for a potential re-rating of Zee Entertainment’s valuation multiples. The unchanged target price is based on 14 times September 2028E EPS of Rs 6.9.

1QFY27 Financial Performance

Zee Entertainment reported consolidated 1QFY27 revenue of Rs 19.1 billion, up 4.5 per cent year on year but down 6 per cent quarter on quarter, broadly in line with Motilal Oswal’s estimate.

Revenue Trends

Advertising revenue declined 11.5 per cent year on year to Rs 6.7 billion, although it was 7 per cent above the broker’s muted expectation. Domestic advertising revenue fell about 11 per cent amid the West Asia conflict and cricket. The report noted improved trends in June following the acquisition of FIFA rights.

Subscription revenue rose 16 per cent year on year and 11 per cent quarter on quarter to Rs 11.4 billion, supported by linear subscription price increases, digital subscriber growth and higher ARPU. Other sales and services revenue increased 17 per cent year on year to Rs 1 billion.

Cost Pressure and Profitability

Programming costs rose around 6 per cent year on year, while advertising and promotional spending jumped 62 per cent year on year due to FIFA 2026 marketing. Employee cost declined around 3 per cent, but other expenses rose around 5 per cent.

Reported EBITDA fell 65 per cent year on year to Rs 789 million, 7 per cent below Motilal Oswal’s estimate, with margin contracting to 4.1 per cent. Reported PAT declined 48 per cent year on year to Rs 743 million, aided by prior-period tax reversals and other income that rose 2.1 times year on year. Adjusted for the tax reversals, PAT was Rs 474 million, down 67 per cent year on year and 11 per cent below the broker’s estimate.

Zee5 and Linear Television Performance

Zee5 revenue grew 58 per cent year on year to Rs 4.6 billion, driven by stable usage and engagement metrics. Zee5 reported EBITDA of Rs 44 million versus a Rs 84 million loss in the preceding quarter and achieved adjusted EBITDA profitability for the third consecutive quarter.

However, excluding Zee5, the linear television business recorded a 5.5 per cent year-on-year revenue decline and an approximately 75 per cent EBITDA decline to Rs 745 million. Its margin fell 14 percentage points year on year to 5.1 per cent.

Management Commentary and Strategic Initiatives

Management said it was cautiously optimistic about an advertising recovery during the festive season following a marginal improvement near the end of 1QFY27. It stated that FIFA subscription growth would be more fully reflected in 2QFY27, alongside the related content costs.

• Zee has launched four sports channels and secured FIFA, Bundesliga and Serie A rights.
• FIFA 2026 reached more than 400 million consumers across Zee’s linear and digital platforms.
• Management said sports-property selection would remain prudent to scale the business sustainably.
• Selective sports re-entry, kid entertainment and micro drama were cited as strategic interventions.

On fundraising, Zee has sought regulatory clarification, appealed to the Securities Appellate Tribunal and awaits the outcome before deciding its next action. Management sees no strategic rationale currently to demerge Z Music, except if a strategic-sale opportunity emerges.

Broker Estimate Revisions and Outlook

Motilal Oswal cut its FY27E and FY28E EBITDA estimates by 24.0 per cent and 14.2 per cent, respectively, citing subdued advertising and higher content investment. It reduced FY27E and FY28E adjusted PAT estimates by 21.9 per cent and 14.5 per cent, respectively.

The broker forecasts revenue CAGR of 4 per cent over FY26 to FY29E and advertising revenue CAGR of around 2 per cent. It flags downside risk from the structural migration of advertising expenditure to digital media and expects FY29E EBITDA and PAT to remain below FY25 levels.

Key Risks and Re-rating Trigger

The key potential re-rating trigger is a sustainable recovery in advertising revenue. Motilal Oswal continues to highlight the risk that the structural migration of advertising expenditure to digital media could constrain advertising growth and keep future EBITDA and PAT below earlier levels.