Prabhudas Lilladher has retained its 'Buy' rating on Zee Entertainment with a target price of Rs 101. The decision follows a weak second-quarter performance where high costs for FIFA broadcasting rights weighed on margins. Analysts are looking for a margin recovery in the second half of fiscal year 2027.
Prabhudas Lilladher has maintained its 'Buy' rating on Zee Entertainment Enterprises, setting a revised price target of Rs 101 per share. The brokerage firm adjusted its valuation multiple and earnings estimates, reflecting the recent operational challenges faced by the media company.
In the second quarter of fiscal year 2027, Zee Entertainment reported a 40 percent decline in consolidated net profit compared to the previous year, even as operating revenue grew by 13 percent. The company's operating margin, a key measure of core profitability, dropped to 3.2 percent during this period.
The decline in margins is primarily linked to heavy capital spending on securing broadcasting rights for the FIFA tournament. These increased programming and advertising costs have weighed on the company's financial performance. Analysts note that excluding these specific, one-time expenditure spikes, margins would have performed at a stronger mid-to-high single-digit level.
Looking ahead, the firm expects a gradual improvement in profitability. As the company moves past the FIFA tournament, advertising and promotional spending are expected to normalize, which could support a margin recovery in the second half of fiscal year 2027. Despite a minor reduction in earnings estimates for the upcoming fiscal years, the brokerage anticipates a 7 percent compound annual growth rate in sales over the next three years, driven by steady traction in the company's digital segment.
Investors should remain aware of potential risks. The company continues to face a challenging advertising environment, which can put pressure on revenue growth. Additionally, Zee Entertainment has been subject to ongoing regulatory scrutiny from bodies like the Securities and Exchange Board of India (SEBI), the status of which remains an important factor for market sentiment. Execution risk regarding the digital segment, particularly the ZEE5 platform, and the company's ability to control rising content costs are other areas that shareholders may monitor closely.
For investors, the key area to track in the coming quarters will be the actual recovery in profit margins and the stability of subscription-based revenue streams. Continued monitoring of regulatory developments and the company’s ability to manage its content spending while balancing growth will be essential for assessing future performance.