New Delhi: Zee Entertainment reported a challenging third quarter of fiscal year 2025, marked by subdued advertising demand. The company, however, expressed optimism that ad volumes and pricing will improve once Fast-Moving Consumer Goods (FMCG) companies experience growth.
Zee's Q3 results were in line with expectations, primarily driven by an 8.4% year-over-year decline in ad revenue due to weak FMCG demand. While subscription revenue grew 6.6% thanks to the NTO 3.0 framework, muted movie releases impacted Zee Studio's revenue. Despite this, EBITDA margin remained strong at 16.1% due to improved gross margins. The company maintained its near-term EBITDA margin guidance of 18-20%.
During the earnings call, Zee CEO Punit Goenka acknowledged the challenging macroeconomic environment. He noted that while there were initial signs of economic recovery at the beginning of the quarter, the pace of recovery failed to accelerate as anticipated. This, coupled with subdued spending by FMCG brands during the festive season, further slowed industry growth.
Goenka attributed the weak demand to a lackluster urban market, despite recognizing marginal improvement in rural consumption. He expressed hope that the upcoming union budget would include measures to revive consumer spending and stimulate industry growth.
"We are hopeful that the upcoming union budget will encompass pertinent steps by the finance minister to revive the consumption cycle in order to spur the industry," he said. "On the back of these factors, we remain optimistic about a gradual recovery in the new fiscal that will enable us to capitalise on the increased spending by advertisers."
Mukund Galgali, Deputy CEO of Zee, emphasised that the impact of weak consumption and the resulting slowdown in FMCG ad spending was more pronounced in urban areas and the heartland, while other language markets and the southern region performed relatively better.
Goenka reiterated the company's focus on profitability and long-term growth. He highlighted that Zee is actively identifying gaps and developing innovative solutions to enhance its competitive advantage. He also expressed confidence in the company's new leadership structure, which allows for greater focus and efficiency across business segments.
Q4 and FY26 Outlook:
- Maintaining current margins will depend on accelerating revenue growth.
- Ad volumes and pricing are expected to improve as FMCG companies experience growth.
- While the rural segment continues to perform well, Zee is exploring opportunities in sectors beyond FMCG to drive advertising revenue growth.
- The company is targeting specific international markets, such as South Africa, to mitigate the impact of the slowdown in the international ad market.
- Zee is actively seeking value-accretive opportunities within the sector.
- The company may consider lowering channel prices in select regions to enhance market penetration.
- Zee is working towards an 18% margin, however, growth remains uncertain due to the current macroeconomic environment.
- The company anticipates lower tax rates in the future due to deferred tax assets.