We are cautiously optimistic about revival of ad spending in H2: Rohit Gupta, ZEEL

Zee Entertainment Enterprises Ltd (ZEEL) Chief Financial Officer (CFO) Rohit Gupta has said that given the weak macroeconomic environment, ZEEL is happy with its Q2 FY23 performance, which shows sequential improvement from the previous quarter and demonstrates the team's ability to adapt and execute in difficult times.

The network has continued to make room for strategic investments throughout this phase and is confident of emerging as a much stronger business with significant improvements in underlying health and competitive advantage in ZEEL's key businesses, he said.

Talking about on linear business, Gupta said the network has gained 30 bps network viewership share in Q2 FY23 and continues to be India's strong number two TV entertainment network.

“In our assessment, our QoQ viewership gain during Q2 FY23 is ahead of every other TV network in the country, reflecting results of our focused effort to gain network share. Specifically talking about three key channels which were going through a lean patch, in Zee TV, we have now seen consistent performance in viewership share over the last few quarters. Zee Tamil has turned the corner in Q2 FY23 with share gain and we expect to maintain that momentum. Zee Marathi is still in the process of rebuilding with a series of launches and interventions planned throughout FY23 in order to stabilize and regain our network share,” said Gupta.  

On the digital side, ZEE5 is continuing to gain healthy traction in usage, stickiness and engagement metrics, shared Gupta. Network’s Q2 FY23 DAU count is the highest ever, original content is being well received and ZEE5 app user experience has been significantly improved with ZEE5 becoming highest rated OTT app on both iOS and Android. 

ZEE5 iOS app rating has gone up from 3.9 in early April to 4.8 levels now. Android app rating has gone up from 3.7 to 4.6 for the same period. “All of these are strong affirmation of our investments in content, technology, and marketing. ZEE5 has clocked a revenue growth of 28% YoY during Q2 FY23, reflecting healthy traction and adoption,” he shared.

The network‘s total revenues for Q2 FY23 are up 10% QoQ and 2.5% YoY, aided by growth in ad revenues, subscription revenues and other sales and services. Network’s ad revenues for the quarter grew at a healthy rate of 4% QoQ but are lower by 7% YoY. 

Talking about ad revenues, Gupta said, “While the macro-economic environment in Q2 remained challenging, our QoQ growth was a result of network share gain and focused effort from our ad sales team on garnering higher shares from active spending categories, solution led deals and other levers such as right client mix to minimize the impact through this phase. We are cautiously optimistic for ad spending to revive in the second half of the year as demand picks up with the onset of the festive season,” noted Gupta. 

Subscription revenues for the quarter grew by 7% YoY and 4% QoQ. Q2 FY23 subscription revenues were aided by catch-up revenue from the previous quarter in linear business and underlying organic growth in music and ZEE5. 

On subscription revenue, Gupta mentioned that in the absence of a clear way ahead of NTO 2.0, near-term outlook for subscription growth remains uncertain and muted. “We will continue to monitor NTO 2.0 guidelines and will be prepared to implement the same for improved longer term revenue outcome.” He also stated that there is also a temporary issue with collection and recognition of subscription revenues from Siti, pending a legal proceeding. 

Speaking about the movie business, he said during the quarter, Zee Studios released 10 movies - four Hindi and six regional. Aided by these theatrical releases and other syndication deals, Q2 FY23 other sales and services were up 92% YoY. While there has been a good pickup in revenues from theatrical and movies, content performance of movies generally has been softer than expected and this has caused a drag on margins. “During the quarter, we have seen inventory increase QoQ mainly due to movies acquired for linear and digital business. Our content inventory and advances stood at Rs 78.9 billion in Q2 FY23 and the majority of this pertains to movies. In H2, we have a strong pipeline of movies under different stages of production.”

Switching gears on cost and profitability, he said during Q2 FY23, EBITDA margins came in at 14.7%; QoQ improving by 110 bps but still lower by 610 bps YoY. “We continue to be focused on optimizing costs across the businesses and are hopeful that when the macroeconomic environment and ad spends improve, our margins will recover from these levels. ZEE5 EBITDA losses for the quarter stand at Rs. 2,769 million. Losses were high YoY and QoQ as we continue to invest in our ZEE5 value proposition in line with our investment strategy.”

Meanwhile on Dish and Siti, Gupta said that they had agreed on a payment plan with Dish and have continued to collect as per that schedule, receiving current collection along with receiving a part of the old outstanding. This outstanding has substantially reduced from Rs 5.8 billion as on March ‘20 to Rs 1.5 billion in September ‘22. On Siti, the network has been recognizing revenues to the extent of collection on a conservative basis. On account of a pending legal proceeding, amounts aggregating to Rs. 525 million are yet to be collected and accounted for. PAT for the quarter came in at Rs 1,128 million. The cash and treasury investments of the company as of September ‘22 stood at Rs. 9.0 billion. The cash and treasury investments include cash and bank balance of Rs 3.1 billion, fixed deposit of Rs 5.7 billion and NCDs worth Rs 255 million.

Gupta summed up that Q2 has shown some sequential improvement in a challenging backdrop which is encouraging. “However, we still have a lot of ground to cover and expect our financial performance to gradually improve in H2. Growth revival is our key focus and Q3 will see recovery from Q2 levels given the festive seasonality. However, the key factor we are watching is how sustained and strong that underlying macro recovery is beyond just festive seasonality.”