Prabhudas Lilladher has reiterated a ‘BUY’ call on Zee Entertainment Enterprises (ZEE), setting a new target price of Rs179 per share, up from the previous Rs137. The research house’s optimism is anchored in ZEE’s ambitious execution roadmap, a significant promoter stake increase, and a clear path to digital profitability. The report underscores the company’s strategic deployment of fresh capital, robust cost rationalization, and a renewed focus on content and digital expansion. Investors are advised to monitor key levels: the current market price (CMP) stands at Rs144, with a 52-week range of Rs89–Rs164. The following analysis distills the report’s core findings and actionable insights for market participants.

Promoter Stake Infusion: A Vote of Confidence

Promoter stake to rise to 18.3% via warrant conversion, signaling enhanced execution comfort.
ZEE’s promoters are set to convert approximately 169.5 million fully convertible warrants at Rs132 each, raising their stake from 4% to 18.3% over the next 18 months. This capital infusion of Rs22.4 billion is a strong endorsement of management’s vision and is expected to lower execution risk, providing a solid foundation for the company’s aspirational targets.

Strategic Capital Deployment: Fueling Growth Engines

Rs10 billion earmarked for new business verticals, Rs7.1 billion for inorganic expansion.
The preferential proceeds will be strategically allocated:

Launching a short-form content app

Developing edutainment content for children

Expanding sports content and live event properties

Enhancing distribution and investing in 3D content R&D

Pursuing M&A opportunities to diversify revenue streams

This multi-pronged approach is designed to offset the stagnation in linear TV and position ZEE as a diversified media powerhouse.

Digital Ambitions: ZEE5 on the Cusp of Profitability

ZEE5 targets EBITDA break-even by FY27, with losses expected to narrow sharply in FY26.
ZEE5, the company’s digital arm, reported EBITDA losses of Rs5,480 million in FY25. Management is resolute in achieving break-even by FY27, with projected losses shrinking to Rs2,108 million in FY26. The strategy hinges on optimizing content costs, launching multi-language packs, and driving ARPU growth, all while maintaining a robust pipeline of original content.

Operational Excellence: Cost Rationalization and Margin Expansion

EBITDA margin set to expand by 540 basis points over two years, driven by cost discipline and digital turnaround.
ZEE’s relentless focus on cost optimization—evident in a 10.4% reduction in content costs and a 9% cut in employee expenses in FY25—has already yielded a 390 bps improvement in EBITDA margin. The company is targeting an EBITDA margin of 18–20% in FY26, with further gains expected as ZEE5 approaches profitability.

Financial Projections: Robust Growth Trajectory

Sales CAGR of 7.5% and double-digit EPS growth forecasted through FY27.
The report projects a modest yet resilient revenue CAGR of 7.5% from FY25 to FY27, with EPS expected to grow from Rs8.0 in FY25 to Rs11.9 in FY27. The company’s free cash flow to PAT ratio is targeted at 1.2x, underscoring a strong cash generation profile.

Key Financial Metrics and Valuation

Valuation re-rated to 15x FY27E EPS, reflecting improved risk profile and growth prospects.

Stock Levels and Investor Guidance

Current Market Price: Rs144 | Target Price: Rs179 | 52-Week Range: Rs89–Rs164
Investors are advised to accumulate the stock at current levels, with a clear upside to the Rs179 target. The risk-reward profile is favorable, given the promoter’s renewed commitment, digital break-even visibility, and robust cost controls.

Execution Risks and Market Outlook

Execution of aspirational goals is pivotal; ad-market recovery remains a key variable.
While ZEE’s targets for FY26—TV viewership share of 17.5%, ad revenue growth of 8–10%, and EBITDA margin of 18–20%—are ambitious, recent show launches and the return of Z Anmol to FTA bode well for near-term viewership and ad revenue. However, a prolonged slowdown in the advertising market could temper the pace of recovery.

Bottomline: A Re-Rating in the Making

Preferential allotment and digital strategy set the stage for a structural re-rating.
Prabhudas Lilladher’s bullish stance is underpinned by ZEE’s strategic capital deployment, digital transformation, and improved governance. The stock’s re-rating potential is significant, with the next 12–18 months likely to be pivotal for value creation. Investors should watch for execution on digital profitability and sustained ad-revenue momentum as key catalysts for further upside.