ZEEL's Punit Goenka expects advertising growth to be back in H2, moderate sub growth for FY 21

Currently, the advertising rebound is strongest in FMCG sector

KOLKATA: The unprecedented Covid2019 crisis has had a major impact on media and entertainment business, the leading player Zee Entertainment Enterprises Limited (ZEEL) reported a revenue decline of 34.7 per cent YoY in the first quarter (Q1) of the financial year (FY) 21, led by the sharp decline in ad revenues. As the economy has started showing signs of slow recovery, ZEEL MD and CEO Punit Goenka expect the growth of the advertising to be back in the second half of the year.

“On the advertising side, our outlook is quite positive. We do expect the growth to be back in the second half of the year. We are targeting growth from the third quarter itself. We have factored in IPL into the same number. I don’t want to comment on what IPL is going to do, what is the industry going to do. It’s a very normal feature now,” Goenka stated in an investors call after declaring Q1 results.

The company executives stated that the recovery has already begun and the advertisers are coming back as consumer spending has started again. ZEEL is seeing improvement in ad revenue on a month-on-month basis. 

Goenka also mentioned that FMCG is the largest sector of advertisement that ZEEL gets. Hence, this sector is the first one to start moving for the broadcaster to have any semblance of growth coming back. 

“If we look at the initial days, almost all discretionary companies completely stopped advertising and advertising was primarily dominated by FMCGs in the month of April. So, as things have progressed, FMCGs have been scaling up their investments. On top of that, we are seeing discretionary categories like Auto, Handset all are coming back. But primarily, it is FMCG where the rebound is strong. As festive seasons kicks in we will expect other categories like telecom, consumer durables, e-commerce to scale up their investment. And on the basis of that, we are projecting that we will see acceleration starting September,” ZEEL corporate strategy and investor relations head Bijal Shah said.

ZEEL does not predict any major enhancement in CAPEX for the FY. Although it will be better positioned to guide the EBIDTA margin at the end of Q2 given the persisting uncertainties, it emphasizes that there will be an improvement compared to Q1. ZEEL expects the margin to improve sequentially every quarter, gradually inching back to 30 per cent. If everything is normal, it expects the margin to be at 30 per cent or above at FY 22. 

The broadcaster will go back to its normal run rate on content cost in q2 itself because all channels have started going back to normal production level which was before pre-COVID. However, the content cost-revenue ratio may go up for this FY given the drop in advertising revenue. 

“We have been really working on collections. While the receivables went up last year, we will see our receivables coming up as things settle down. In the coming quarters of FY 21, our receivables should be in line with what there were in earlier years,” ZEEL CFO Rohit Gupta said.

“ In terms of domestic subscription revenue, we have factored in several price increases in channels and bouquets. Since a stay has been put on NTO 2.0, we have not been able to take those hikes. We do expect the domestic subscription growth will be moderated for the current year. NTO 2.0, whenever implemented, will have very short term impact as we do believe our content has the ability for consumption pull. Our ZEE5 subscription growth will also aid the growth,” Goenka commented. 

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