Zee Entertainment Enterprises (ZEE) is gaining momentum on the back of cost restructuring, narrowing digital losses, and expectations of a modest ad-revenue rebound. Despite macroeconomic headwinds and weak ad sentiment, Prabhudas Lilladher has upgraded ZEE from “HOLD” to “BUY” with a revised price target of Rs137, reflecting an 11x FY27E EPS multiple. Margin recovery, sharper earnings trajectory, and significantly improved ZEE5 unit economics have underpinned this re-rating. The firm believes ZEE is on the cusp of operating leverage and that an 8% ad-revenue CAGR from the FY25 base could deliver a 440-bps EBITDA margin expansion over the next two fiscal years.

Upgrade to BUY on Margin Expansion and Valuation Support

Prabhudas Lilladher has upgraded ZEE to BUY with a target price of Rs137, up from the earlier Rs123, citing better-than-anticipated operating metrics and improving digital losses. The valuation uplift from a 10x to 11x FY27E earnings multiple stems from confidence in the company’s ability to sustain operating leverage, particularly if ad-spend improves in FY26.

Despite a 27% YoY decline in domestic ad revenue in Q4FY25, ZEE’s cost discipline has yielded a stronger EBITDA margin of 13.1% against street expectations of 12.5%. This included a 10.4% YoY cut in content cost and a 9.0% drop in employee expenses. Total revenue for the quarter stood flat YoY at Rs21,841mn.

Ad Revenue Under Pressure but Signs of Recovery Emerge

Domestic advertising revenue fell sharply by 27.0% YoY to Rs7,786mn, weighed by macroeconomic softness, deferral of the Zee Cine Awards, and high comparison base. However, management expects a rebound in FY26, aided by Zee Anmol’s re-entry into the FTA segment.

International ad revenue, in contrast, grew 33.3% YoY to Rs589mn, mitigating some of the domestic pain. The total ad revenue for the quarter dipped 24.6% YoY to Rs8,375mn.

Subscription and Syndication Income Offer Stability

Total subscription revenue grew 3.9% YoY to Rs9,865mn, driven primarily by a 4.5% rise in domestic subscription to Rs8,855mn. International subscriptions saw a minor 1.0% dip.

Notably, other sales and services rose a staggering 226.4% YoY to Rs3,601mn, thanks to increased movie releases and syndication deals—signaling ZEE’s pivot toward diversified monetization strategies.

ZEE5 Losses Narrow, Digital Business Stabilizes

The digital arm ZEE5 has shown marked improvement. Revenue surged 15.8% YoY to Rs2,747mn, while EBITDA losses narrowed to Rs753mn—the lowest ever.

The platform launched 16 new titles, including 4 originals in Q4FY25. Even after adjusting for one-off syndication revenue, sequential operating improvement remained intact.

Profitability Outpaces Estimates

Adjusted PAT surged 342.4% YoY to Rs1,761mn in Q4FY25, driven by lower tax rates and reduced other expenses, particularly a reversal of provisions on bad debts. EBITDA rose 35.6% YoY to Rs2,852mn, with margin expansion of nearly 400 bps YoY.

FY26–27 Forecasts: Margin Tailwinds and Earnings Growth

ZEE is guiding for EBITDA margins of 18–20% in FY26E, a significant uplift from 14.4% in FY25. EPS for FY26E is estimated at Rs10.7, rising to Rs12.5 in FY27E, with revenue projections at Rs88,630mn and Rs95,876mn respectively.

Strong content cost control, enhanced digital monetization, and selective movie investments are expected to maintain profitability. PAT is expected to grow by 33.2% in FY26E and 16.9% in FY27E.

Strategic Priorities and Content Strategy

ZEE released 20 movies in FY25 and plans another 18–21 titles in FY26. The content inventory now comprises 90% movie rights, reflecting a tilt toward high-ROI cinematic content.

ZEE’s strong cash position, with Rs24,064mn in cash and treasury assets, provides the flexibility to fund content and tech investments.

Valuation and Investment Thesis

ZEE trades at 10.4x FY26E and 8.9x FY27E EPS, with EV/EBITDA multiples of 5.1x and 4.0x respectively. This implies attractive valuation support as the company pivots toward growth and profitability.

The stock offers a dividend yield of 2.2% in FY25, estimated to rise to 2.8% by FY27. With a RoCE set to improve to 11.4% in FY27, ZEE stands as a value proposition among Indian media stocks.

Risks to Outlook

ZEE’s performance remains contingent on macroeconomic stability and ad-spend recovery. Prolonged weakness in ad revenues or content underperformance could derail the margin expansion narrative. Additionally, regulatory changes affecting OTT or broadcasting frameworks may pose headwinds.

BUY for Long-Term Value Creation

Zee Entertainment’s turnaround is gaining traction, aided by disciplined cost controls, digital monetization, and content pipeline execution. With a forecasted margin uplift, strong cash position, and strategic focus on OTT efficiency, ZEE offers an attractive risk-reward profile at current valuations. Prabhudas Lilladher’s upgrade to BUY with a target of Rs137 signals conviction in this re-rating thesis.

Disclaimer: Investors are advised to perform their own due diligence and consult with a financial advisor before making any investment decisions. Stock market investments are subject to risk, including potential loss of capital.