RESULT UPDATE
ZEE ENTERTAINMENT
Strong finish to year
ENTERPRISES
COMPANYNAME
India Equity Research| Media
Zee Entertainment Enterprises’ (ZEE) Q4FY16 revenue growth at 13.7%
YoY and EBITDA growth at 52.7% YoY slightly exceeded expectations. Key
positives: (i) sharp 29.1% YoY ad growth; (ii) robust 35.3% YoY growth in
international subscriptions led by catch-up revenues; and (iii) EBITDA
margin expansion by 690bps YoY with &TV launch expenses in base. ZEE
is a quasi consumer stock and we expect it to benefit from increased ad
spends by Patanjali, while other consumer companies face stiff
competition. Further, consumer companies are trading at 30-34x FY18E,
ZEE is trading at 27.6x FY18E. Maintain ‘BUY’.
Healthy rise in ad growth; sports losses under control
Ad revenue surged 29.1% YoY even though &TV was present in base for 1 month.
Domestic subscription revenue grew ~12.1% YoY. Industry is still awaiting clarification
on TV tariff rate by TRAI. The company closed the year with IN349mn losses (versus
guidance of loss of INR1bn; INR236mn loss in Q4FY16). Key negative was
depreciation jumped by 35.8% QoQ.
EDELWEISS 4D RATINGS
Absolute Rating
BUY
Rating Relative to Sector
Outperform
Risk Rating Relative to Sector
Medium
Sector Relative to Market
Overweight
MARKET DATA (R: ZEE.BO, B: Z IN)
CMP
: INR 418
Target Price
: INR 499
52-week range (INR)
: 441 / 300
Share in issue (mn)
: 960.4
M cap (INR bn/USD mn)
: 401 / 6,015
Avg. Daily Vol.BSE/NSE(‘000) : 2,430.5
SHARE HOLDING PATTERN (%)
Current
Q3FY16
Q2FY16
Promoters *
43.1
43.1
43.1
MF's, FI's & BK’s
4.2
4.2
3.5
FII's
47.1
47.6
48.4
ZEE expects to beat industry ad growth estimate of 15-16% YoY in FY17. The company
expects mid-teen growth in domestic subscription revenues and mid single-digit
growth, on dollar basis, in international subscription revenues in FY17. It expects sports
losses of >INR1bn in FY17 because of the 2 key series of India, which normally entails
higher costs. ZEE expects EBITDA margin upwards of 26% in FY17. The company has
26 original programming hours, which is expected to go up to 33 hours. &TV has 21
original programming hours, which is expected to gradually rise to 26 hours in FY17.
Others
5.6
5.1
5.0
Outlook and valuations: Growth DNA; maintain ‘BUY’
12 months
Q4FY16 conference call: Key takeaways
:
* Promoters pledged shares
(% of share in issue)
18.24
PRICE PERFORMANCE (%)
EW Media
Index
Stock
Nifty
1 month
7.3
4.4
3 months
10.1
9.3
7.3
34.9
(3.7)
18.1
Improvement in ad growth, monetisation of ZEE Anmol, HD channels and best play on
digitisation are key positives. However, we remain guarded about loss of share to
internet ads and likely doubling of investments in movie business in FY17. TV tariff
rate will be a key monitorable. We estimate ZEE to log 26.8% EPS CAGR over FY16-18. At
CMP, the stock trades at 34.3x and 27.6x FY17E and FY18E EPS, respectively. We
maintain ’BUY/SO’ with TP of INR499 (33x FY18E EPS).
Financials
Year to March
Revenues
(INR mn)
Q4FY16 Q4FY15 % change
Q3FY16 % change
FY16E
FY17E
FY17E
Abneesh Roy
15,316
13,471
13.7
15,951
(4.0) 58,515
67,685
79,318
EBITDA
4,136
2,708
52.7
4,302
(3.9) 15,096
18,275
22,130
+91 22 6620 3141
abneesh.roy@edelweissfin.com
Adjusted Profit
2,659
2,308
15.2
2,750
(3.3) 10,483
Rajiv Berlia
Adj. diluted EPS
2.4
2.0
18.1
2.5
13,130
15,971
9.4
12.2
15.1
Diluted P/E (x)
44.4
34.3
27.6
EV/EBITDA (x)
26.7
21.9
17.8
ROAE (%)
27.3
28.6
29.0
(3.8)
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
+91 22 6623 3377
rajiv.berlia@edelweissfin.com
May 10, 2016
Edelweiss Securities Limited
5.9
Media
Table 1: Trends at a glance
Revenue break up (INR mn)
Ad revenue
International ad revenue
Domestic ad revenue
Domestic subscription
International revenue
Total subscription
Sport business
Sales
Costs
EBITDA
EBITDA margin (%)
Non-sports business
Sales (non-sports)
Costs (non-sports)
EBITDA (non-sports)
EBITDA margin (non-sports) (%)
Growth rate
Ad revenues
Domestic subscription
International revenue
Total subscription revenues
% of revenue
Transmission & programming
Employee cost
EBITDA
PAT
Q4FY14
5,824
NA
NA
3,344
1,291
4,635
Q1FY15
6,221
NA
NA
3,238
1,189
4,427
Q2FY15
6,259
NA
NA
3,373
872
4,245
Q3FY15
7,426
NA
NA
3,455
1,007
4,462
Q4FY15
6,697
NA
NA
4,175
933
5,108
Q1FY16
7,799
NA
NA
3,680
945
4,625
Q2FY16
8,433
735
7,698
3,752
1,039
4,791
1,959
1,608
351
17.9
976
964
12
1.2
1,181
1,431
(250)
(21.2)
2,476
2,746
(270)
(10.9)
1,680
1,438
242
14.4
1,519
1,504
15
1.0
1,278
1,256
22
1.7
9,629
6,864
2,765
28.7
9,575
6,495
3,080
32.2
9,997
6,543
3,455
34.6
11,791
9,325
2,466
20.9
11,880
8,783
3,097
26.1
12,571
9,047
3,524
28.0
14,037
9,585
4,452
31.7
13,715
9,344
4,372
31.9
21.5
(0.9)
10.2
2.0
17.4
2.2
10.8
4.4
7.3
0.7
(29.2)
(7.3)
8.5
4.0
(19.0)
(2.3)
15.0
24.9
(27.7)
10.2
25.4
13.7
(20.5)
4.5
34.7
11.2
19.2
12.9
26.8
21.2
2.3
16.9
29.1
12.1
35.3
16.4
47.0
8.6
26.9
18.7
38.2
10.6
29.3
19.9
42.1
9.7
28.7
20.3
47.3
8.0
25.9
22.5
46.0
9.0
20.1
16.9
45.6
10.3
23.2
18.1
43.6
9.1
25.6
19.4
44.0
8.1
27.0
17.2
44.9
8.5
27.0
17.4
11,161
7,358
3,803
34.1
Q3FY16
9,419
812
8,607
4,188
1,030
5,218
Q4FY16
8,645
1,120
7,525
4,682
1,262
5,944
1,914
2,064
(150)
(7.8)
1,601
1,837
(236)
(14.7)
Source: Edelweiss research
Inflation linked hikes for TV tariffs: slightly negative for broadcasters
Our view: Press release by TRAI dated May 9, 2016 concluded that inflation linked rate hike
for TV services are not required at present (initially, it ordered 27.5% hike). Though deals are
done on a lump sum amount for Phase 3 and 4 markets for broadcasters, bargaining power
shifts to distributors and hence we believe this is slightly negative for broadcasters like ZEE.
2

TRAI issued tariff orders dated March 31, 2014 (eleventh tariff order) and December 31,
2014 (Thirteenth tariff order) providing for inflation linked hike applicable to rates of TV
services at wholesale level in the non CAS and addressable DAS markets

The effective inflation linked hike permitted by TRAI was 27.5%

The first installment of 15% was made effective from April, 2014 while the second
installment of 12.5% was made effective from January 2015

These tariff orders were set aside by TDSAT on April 28, 2015.

After then broadcaster approached Supreme Court however Supreme Court uphold the
TDSAT order.

TDSAT had requested TRAI to consider other inflation indices such as GDP deflator in
the calculation of inflation linked hikes.
Edelweiss Securities Limited
Zee Entertainment Enterprises

After doing the analysis as mentioned by TDSAT, TRAI concluded that inflation linked
hike is not required at present.
ZEE: Other key developments
At the advent of third week of January, Patanjali became one of the largest FMCG
advertisers on TV. The company even surged ahead of established brands like Cadbury,
Parle, Horlicks and Pond’s. As per media reports, Patanjali has set aside ~INR3bn for
advertising and promotions
ZEEL has already launched two Bollywood channels in the APAC region, namely Zee Bioskop
in Indonesia and Zee Nung in Thailand. It becomes the first Indian company to foray into the
Philippines market.
Zee Entertainment Enterprises Limited (ZEEL) is expanding internationally at a frenetic pace.
Soon after entering the Philippines market, it is gearing up to launch a free-to-air (FTA)
channel in Germany by July.
After Star India launching HD feed of its regional channels Star Jalsha and Star Pravah and
Viacom’s Colors too planning to launch high definition feed for its Marathi channel, ZEE
plans to launch Zee Marathi HD.
Zee is also the most trusted brand in the Hindi GEC category as per the report. Zee’s ranking
among the top 1,000 trusted brands in India has improved by 15 places to 176 all India in
BTR-2016 from 191 in BTR-2015.
India will tour West Indies for a four-match Test series in July-August this year, putting an
end to the long impasse between the Board of Control for Cricket in India (BCCI) and the
West Indies Cricket Board (WICB).
Taj was getting 14% commission fee from ZMCL for distributing the latter’s channels. With
ZEEL subsuming the distribution business by moving it from Taj TV, the ZMCL board has also
accorded in-principle approval for entering into a new agreement for distribution of
television channels.
Other Broadcasters | Key developments
Star India is launching HD versions of its Bengali GEC Star Jalsha and movie channel Jalsha
Movies. Last year it launched an HD version of its Malayalam GEC Asianet. It recently
received the licence to launch Star Vijay HD, which is a Tamil GEC. Star Jalsha HD and Jalsha
Movies HD will most likely be launched on 14 April, the Bengali New Year. Both the channels
have been priced at INR30 on a la carte basis.
Viacom18 is looking to expand its regional channels portfolio, especially in southern
languages. Currently it has 5 regional channels – Colors Marathi, Colors Bangla, Colors
Kannada, Colors Gujarati and Colors Oriya. Viacom18 is planning to launch HD variants of its
regional GECs—Colors Marathi, Colors Bangla and Colors Kannada.
TV18 all set to rebrand its English news channel CNN‐IBN as CNN News18. IBN, which
stands for Indian Broadcasting Network, will be dropped from the logo. The new brand
name and logo are most likely to come into effect from 18 April. TV18 has expanded its
3
Edelweiss Securities Limited
Media
regional channel bouquet with the soft launch of News18 Assam/North East, News18 Tamil
Nadu and News18 Kerala. The channels will be formally launched one after the other in June.
Sony Pictures Networks India has signed letter of intent to acquire 9X Media, the company
that runs a clutch of music channels including 9XM, for INR2200mn. 9X media is backed by
private equity fund New Silk Route, which owns close to 80% stake in the company. 9X
Media operates three music channels in Hindi, 9XM, 9X Jalwa and 9X Bajao, one in English
(9XO), Marathi (9X Jhakaas) and Punjabi (9X Tashan) each.
Star India is planning to launch an FTA Hindi movie channel under the name Star Utsav
Movies. The channel is most likely to launch in May–June. The licence was earlier under Star
Gold Romance, but recently the company got MIB clearance to change the name to Star
Utsav Movies.
Colors Marathi has taken 3 rate hike in last fiscal driven by strong viewership growth. The
rate increase has been between 60 and 110% for existing clients while new clients are
coming at new rates.
ZEE Q4FY16 Conference Call | Key Takeaways
Ad growth: Industry ad growth is expected in 15-16% YoY range in FY17. ZEE is expected to
beat the industry estimate. The company reported ad growth of 29.1% YoY in Q4FY16. LTL
ad growth for ZEE is not significantly less than 29.1% YoY in Q4FY16.
International ad growth: New market launches are driving growth. It also contains sports ad
revenues (Asia Cup - T20).
Segment-wise ad performance: FMCG is expected to be steady over next 6 months. Ecommerce is doing fine and has not fallen off the cliff. The company saw slight pickup in
auto segment and 4G will push ad growth from telecoms.
&TV: The channel recorded 25% YoY growth in urban viewership in Q4FY16. It is expected to
do well going forward.
Domestic subscriptions: Keeping NSPL’s judgement and TV tariff expected in July 30, 2016
therefore the company expects mid-teen growth in domestic subscription revenues in FY17.
It reported low mid-digit growth in Q4FY16 as some of the deals got shifted following the
NSPL judgement.
International subscription: Good in Q4FY16 due to catch up revenue. Zee expects mid
single-digit growth, on dollar basis, in FY17.
Sports losses: Zee expects losses upwards of INR1bn in FY17 as two series of India are
normally of higher cost.
Movie business investments: The company expects to invest INR1,000-1,500mn in FY17
across regional and Hindi movies. It invested INR700-800mn in the film business in FY16.
Content cost: Ex-sports, content cost per hour basis is expected to increase by inflation rate.
EBITDA margin: Better than 26% YoY in FY17.
4
Edelweiss Securities Limited
Zee Entertainment Enterprises
Original programming hours: The company has 26 hours original programming hours, which
is expected to go up to 33 hours. &TV has 21 original programming hours, which is expected
to go up to 26 hours.
ZEE and &TV content buying: The company buys over 2,000 hours content in a year.
Growth: International, digital and movie businesses will drive growth.
FTA ad market size: Currently, the FTA ad market size is INR8-10bn and expected to grow;
48-49% of the population is in the FTA market.
HD channels: Doing well for industry. Zee is waiting for licences to get approved to launch
regional HD channels. The company also looks at HD penetration.
TV tariff order: The company expects to benefit from both broadcasters and MSOs. New
deals have to be executed with new RIO when TRAI issues the tariff order.
OTT platform: The person who has best content in OTT will win the OTT platform. Netflix’s
content largely builds on broadcaster content. OTT play will be second screen to start with
due to broadband issues.
Ditto TV: Zee has 3mn subscribers. Gross ARPU is ~INR20 per month. Revenue is
predominantly from India.
Dispute with Doordarshan: The company has been in dispute with Doordarshan for long
regards sports revenue (INR400mn dispute). The latest update is that the amount has been
deposited with the court and the company expects to recover it.
Cash and equivalents: INR20.46bn.
Receivable days: 83 days in FY16. Advertising receivables slightly low compared to
subscription receivables.
Gross debt: INR9mn.
Inventory days: 11% YoY increase.
Working capital: North of INR4,000mn.
Recurring capex: Generally below INR1bn.
5
Edelweiss Securities Limited
Media
ZEE Q3FY16 Conference Call | Key Takeaways
Ad revenue: Ad revenue grew 26.8% YoY in Q3FY16. Excluding &TV, LTL ad growth was
ahead of TV ad industry growth rate of ~15% YoY.
TV ad industry: TV ad industry growth in Q3FY16 was 14-15% YoY. TV ad industry seems
optimistic given the visibility the company has over the next 2-3 quarters.
Original programming hours: The company has 34 hours’ original programming hours (up
by 6 hours YoY). Star Plus has original programming hours of more than 40 hours. &TV
original programming hour is 22 hours. For Bangla and Marathi, original programming
increased by half an hour YoY.
Sector wise ad industry: FMCG is growing at a healthy pace. Further, FMCG contribution
also remains intact (100bps point change QoQ). Internet & ecommerce is growing very high.
Telecom & auto have not fired in a big way as yet.
FTA channels: After BARC ratings, accurate measurement of the rural part has commenced.
It will help broadcasters and advertisers. The company will look to monetise FTA channels
(rural audience).
BARC: Advertisers have not started trading on BARC currency. It will become trading
currency in next 3-4 months.
OTT investments: As of today, ZEE is one of the few OTT players who have done well given
subscription model. The company will keep evaluating strategies. OTT players will face stiff
competition from each other. However, in the broadcaster business, not a large threat due
to infrastructure constraints in the short term.
&TV progress: The company is happy with the traction. EBITDA will not necessarily improve
if investments continue in &TV. The company’s objective is to build traction.
Sports series in FY17: A few cricket matches in FY17 are India-Zimbabwe, India-West Indies,
Pakistan-West Indies, etc.
Sports business: With the digitisation progression on Phase III, subscription monetisation
will improve in 3-4 years. This will change dynamic of the sports business.
Phase III digitisation: The government has maintained the deadline. Stay orders have come
from various states High Courts. Switch-off of analogue signals will happen over a period of
time.
Web portal: The company to induct investors in web portal. India Webportal (IWPL) is a 51%
subsidiary of ZEE, whereby IWPL will issue convertible preference shares to the said investor,
which may result in potential dilution of the company’s shareholding in the said subsidiary
below 51%.
Subscription revenue: Subscription revenue increased due to catch up revenue in Q3FY16.
ZEE anticipates traction in subscription revenue and has guided for double digit growth in
FY16.
6
Edelweiss Securities Limited
Zee Entertainment Enterprises
International strategy: ZEE will offer content to various audiences in Thailand, Middle East
and Africa, which will help the international business.
Sports loss: The company continues to maintain sports losses guidance of lower than
INR1,000mn. With no India-Pakistan series, loss is expected to be lower. However,
syndication of sports has some cost associated with it. Hence, the sport loss guidance
remains intact.
Content cost: In Q3FY16, ZEE produced 2 movies and premiered 3 movies. Domestic content
cost increased in line with inflation.
Marketing spends: In past 2 years, 4 channels were launched. Hence, marketing spends
grew in past 2 years. The company expects no big launches. Hence, marketing growth will
increase in line with inflation rate.
EBITDA margin guidance: ZEE maintains flattish EBITDA margin guidance for FY16.
Other income: Exchange loss impacted other income.
Redemption of preference shares: The board has approved redemption of 22.2mn unlisted
redeemable preference shares.
Cash and equivalents: INR18.34bn.
7
Edelweiss Securities Limited
Media
Outlook and valuations: Growth DNA; maintain ‘BUY’
Improving ad outlook due to stable government, best play on digitisation, product
innovations and net cash are key positives in favour of ZEE. We believe, irrespective of
higher subscriber additions by DTH or cable operators, broadcasters like ZEE will be one of
the safest and most attractive plays on the digitisation theme. Amongst listed players, the
company is the best placed to benefit due to its huge brand and bouquet of 33 domestic and
36 international channels. Also, it is underpinned by sturdy free cash flow, a secular growth
story and stable dividend policy. Key concerns are (1) loss of ad share to internet and (2)
flattish viewership of new channels like &TV and Zindagi. Also, we remain guarded about
loss of share to internet ads and likely doubling of investments in movie business in FY17. TV
tariff rate will be a key monitorable. We have factored in the possible loss of &TV in our
numbers; we believe it could clock loss of INR7-10bn over the next 3-5 years (akin to other
mainstream Hindi GECs) and break even only thereon. We maintain our target multiple of 33x
to arrive at a target price of INR499. We maintain ‘BUY/Sector Outperformer’.
Chart 1: ZEE’s 1-year forward PE band
500
40x
35x
400
30x
25x
(INR)
300
20x
200
15x
100
May-16
Nov-15
May-15
Nov-14
May-14
Nov-13
May-13
Nov-12
May-12
Nov-11
May-11
Nov-10
May-10
Nov-09
May-09
Nov-08
May-08
0
Source: Bloomberg, Edelweiss research
Chart 2: Overall ad revenues
50.0
35.0
(%)
20.0
5.0
Q4FY16
Q3FY16
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
(25.0)
Q1 FY12
(10.0)
Source: Company, Edelweiss research
8
Edelweiss Securities Limited
Zee Entertainment Enterprises
Chart 3: Costs (as a % of revenue)
60.0
48.0
(%)
36.0
24.0
Transmission & programming
Employee expenses
Q4FY16
Q3FY16
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
0.0
Q1 FY12
12.0
S G &A expenses
Chart 4: Sports business reported EBITDA
2,880
(INR mn)
1,920
960
0
(960)
Sports revenues
Q4FY16
Sports EBITDA
Chart 5: Operational performance (ex-sports)
5,000
45.0
40.0
3,000
35.0
2,000
30.0
1,000
25.0
0
20.0
(%)
4,000
Q1 FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
(INR mn)
Q3FY16
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
(1,920)
EBITDA (ex sports)
EBITDA Margin (ex sports)
Source: Company, Edelweiss research
9
Edelweiss Securities Limited
Media
Table 2: Sports business
(INR mn)
Sales
Costs
EBITDA
EBITDA margin (%)
Q4FY14
1,959
1,608
351
17.9
Table 3: EBITDA margin (non-sports)
(INR mn)
Q4FY14
Sales (non-sports)
9,629
Costs (non-sports)
6,864
EBITDA (non-sports)
2,765
EBITDA margin (non-sports) (%)
28.7
Q1FY15
976
964
12
1.2
Q2FY15
1,181
1,431
(250)
(21.2)
Q3FY15
2,476
2,746
(270)
(10.9)
Q4FY15
1,680
1,438
242
14.4
Q1FY16
1,519
1,504
15
1.0
Q2FY16
1,278
1,256
22
1.7
Q3FY16
1,914
2,064
(150)
(7.8)
Q4FY16
1,601
1,837
(236)
(14.7)
Q1FY15
9,575
6,495
3,080
32.2
Q2FY15
9,997
6,543
3,455
34.6
Q3FY15
11,161
7,358
3,803
34.1
Q4FY15
11,791
9,325
2,466
20.9
Q1FY16
11,880
8,783
3,097
26.1
Q2FY16
12,571
9,047
3,524
28.0
Q3FY16
14,037
9,585
4,452
31.7
Q4FY16
13,715
9,344
4,372
31.9
Table 4: Sports business – Annual performance
(INR mn)
FY11
FY12
Revenues
4,411
3,934
Costs
6,489
5,414
EBITDA
(2,078)
(1,480)
EBITDA Margin (%)
(47.1)
(37.6)
FY13
4,960
5,830
(870)
(17.5)
FY14
6,591
7,567
(976)
(14.8)
FY15
6,313
6,579
(266)
(4.2)
FY16E
6,500
7,100
(600)
(9.2)
FY17E
6,400
7,500
(1,100)
(17.2)
FY18E
6,600
7,200
(600)
(9.1)
Source: Company, Edelweiss research
Table 5: ZEE’s sports schedule
Sport
Country/ Tournament
Cricket
South Africa
West Indies
Sri Lanka
Zimbabwe
Pakistan
Tenure of rights
CY12-20
CY13-19
CY13-20
CY12-19
CY15-19
Entire Tenure - Overall
281
258
202
153
54
60
Tennis
US Open
CY13-16
Football
UEFA Champions League
UEFA Europa League
French Football League
The League Cup
The Football League
CY15-18
CY15-18
CY12-15
CY12-15
CY12-15
Wrestling
WWE
CY15-19
Golf
European Tour
Asian Tour
CY13-18
CY13-18
Entire Tenure - India specific
37
47
22
16
9
Source: Company, Edelweiss research
10
Edelweiss Securities Limited
Zee Entertainment Enterprises
Table 6: Pakistan Cricket Board sports schedule
Sport
Country/ Tournament
Start date
Against
Oct-15 England
Total number of matches
9
Dec-15 India
Cricket Pakistan
10
Oct-16 West Indies
9
Oct-17 Sri Lanka
9
Oct-18 Australia
6
Oct-18 New Zealand
9
Mar-19 Australia
3
Source: Company, Edelweiss research
Table 7: Consolidated balance sheet
(all values are in INR mn)
Shareholders funds
Share capital (including preference)
Reserves & surplus
Minority Interest
Share application money
Total non-current liabilities
Long-term borrowings
Long term provisions
Other non current liabilities
Current liabilties
Short term borrowings
Trade payables
Other current liabilties
Short-term provisions
Total equity and liabilities
Non-current assets
Fixed assets
Goodwill on consolidation
Non-current invesments
Deferred tax assets (net)
Long-term loans and advances
Other non-current assets
Current assets
Current investments
Inventories
Trade receivables
Cash and cash equivalents
Short-term loans and advances
Other current assets
Total assets
31.03.2016
62,314
21,130
41,184
85
863
9
550
304
15,678
5,194
6,355
4,129
78,941
25,071
5,810
9,150
3,048
556
5,913
594
53,870
7,391
13,160
13,245
9,733
8,810
1,532
78,941
31.03.2015
55,498
21,152
34,346
4
780
12
480
288
13,775
4,204
4,979
4,592
70,058
20,340
4,368
7,887
1,464
531
5,710
380
49,718
8,291
11,878
10,692
7,365
10,167
1,325
70,058
% change
12.3
(0.1)
19.9
1825.0
10.6
(23.6)
14.8
5.3
13.8
NM
23.6
27.6
(10.1)
12.7
23.3
33.0
16.0
108.2
4.6
3.5
56.6
8.4
(10.9)
10.8
23.9
32.1
(13.3)
15.6
12.7
Source: Edelweiss research
11
Edelweiss Securities Limited
Media
Financial snapshot
Year to March
Advertisement
Subscription
Others
Net revenues
Total revenues
Transmission and prog
Staff costs
SG&A
Total expenditure
EBITDA
Depreciation
EBIT
Other income
Interest
Add: Prior period items
Add: Exceptional items
Profit before tax
Provision for taxes
Minority interest
Associate profit share
Reported net profit
Adjusted Profit
Diluted shares (mn)
Adjusted Diluted EPS
Diluted P/E (x)
EV/EBITDA (x)
ROAE (%)
Tax Rate
As % of net revenues
Transmission and Prog
Employee cost
SG&A
EBITDA
Reported net profit
Q4FY16
8,645
5,944
727
15,316
15,316
6,881
1,297
3,002
11,181
4,136
273
3,862
458
42
Q4FY15
6,697
5,108
1,666
13,471
13,471
6,201
1,209
3,353
10,763
2,708
174
2,534
564
30
% change
29.1
16.4
(56.4)
13.7
13.7
11.0
7.3
(10.5)
3.9
52.7
57.1
52.5
(18.9)
41.3
Q3FY16
9,419
5,218
1,314
15,951
15,951
7,023
1,288
3,337
11,649
4,302
201
4,101
290
45
% change
(8.2)
13.9
(44.7)
(4.0)
(4.0)
(2.0)
0.7
(10.0)
(4.0)
(3.9)
35.8
(5.8)
57.9
(4.7)
4,278
1,618
-
39.4
116.2
(100.0)
(100.0)
15.2
15.2
4,346
1,602
(6)
(1.6)
1.0
(100.0)
2,659
2,659
960
2.4
37.8
3,068
749
(25)
(37)
2,308
2,308
960
2.0
24.4
2,750
2,750
960
2.5
36.9
(3.3)
(3.3)
44.9
8.5
19.6
27.0
17.4
46.0
9.0
24.9
20.1
16.9
12
44.0
8.1
20.9
27.0
17.2
FY16
34,296
20,579
3,640
58,515
58,515
26,049
5,232
12,139
43,419
15,096
840
14,255
2,016
123
(331)
15,818
5,528
18
(4)
10,268
10,483
960
9.4
44.4
26.7
27.3
35.0
44.5
8.9
20.7
25.8
17.9
FY17E
40,470
23,216
4,000
67,685
67,685
29,917
5,956
13,537
49,410
18,275
918
17,357
2,263
105
(INR mn)
FY18E
47,754
27,564
4,000
79,318
79,318
34,900
6,821
15,467
57,188
22,130
1,015
21,115
2,733
100
19,515
6,440
(55)
23,747
7,837
(60)
13,130
13,130
960
12.2
34.3
21.9
28.6
33.0
15,971
15,971
960
15.1
27.6
17.8
29.0
33.0
44.2
8.8
20.0
27.0
19.3
44.0
8.6
19.5
27.9
20.1
Edelweiss Securities Limited
Zee Entertainment Enterprises
Company Description
ZEE Entertainment Enterprises (ZEE) is one of the largest media companies in India. It owns
and operates Zee TV and Zee Cinema, both leading channels in the Hindi GEC and movies
segments, respectively. Besides these two, the company has an attractive bouquet of
several other channels including Ten Sports, Ten Cricket, Ten Action, &pictures, &TV, Anmol,
Zindagi, Zing, Zee Classic, Zee Action, Zee Café and Zee Studios. With the likes of Zee
Marathi, Zee Bangla, Zee Telugu, and Zee Kannada, the company has an impressive bouquet
of regional channels.
Investment Theme
GDP recovery, improvement in its market share in regional and movies genres and new
launches will aid ad revenue growth. Higher penetration of DTH and the digitisation process
augur well for faster growth in subscription revenue over the long term. We believe ZEE is
well poised to benefit from this favourable environment.
Key Risks
Delay in monetisation benefit from digitisation.
Rise in new investments may pressurise margins longer than expected.
Slowdown in ad spends due to lower than expected GDP growth.
Increased sports losses.
13
Edelweiss Securities Limited
Media
Financial Statements
Key Assumptions
Year to March
Income statement
FY15
FY16
FY17E
FY18E
Macro
GDP(Y-o-Y %)
Inflation (Avg)
7.2
5.9
7.4
4.8
7.9
5.0
8.3
5.2
Repo rate (exit rate)
7.5
6.8
6.0
6.0
61.1
65.0
67.5
67.0
USD/INR (Avg)
Sector
Year to March
Net revenue
Direct costs
Employee costs
FY16
FY17E
FY18E
58,515
26,049
67,685
29,917
79,318
34,900
4,498
5,232
5,956
6,821
10,408
12,139
13,537
15,467
EBITDA
12,537
15,096
18,275
22,130
673
840
918
1,015
11,864
14,255
17,357
21,115
2,278
2,016
2,263
2,733
103
123
105
100
-
(331)
-
-
14,039
15,818
19,515
23,747
Depreciation
10.0
15.0
15.0
15.0
EBIT
TV industry sub. gr (%)
10.0
14.0
20.0
20.0
Add: Other income
Company
Less: Interest Expense
Sales assumptions
Add: Exceptional items
Domestic sub rev gr (%)
FY15
48,837
21,393
Total SG&A expenses
TV industry ad gr (%)
Ad revenue growth (%)
(INR mn)
11.8
28.9
18.0
18.0
Profit Before Tax
8.0
14.5
15.0
22.0
Less: Provision for Tax
4,284
5,528
6,440
7,837
Internat sub rev gr (%)
(17.3)
6.9
4.5
5.0
Less: Minority Interest
(57)
18
(55)
(60)
Sports revenues (INR mn)
6,313
6,500
6,400
6,600
Associate profit share
(37)
(4)
-
-
8.8
6.2
5.9
5.0
9,775
10,268
13,130
15,971
43.8
44.5
44.2
44.0
Adjusted Profit
Othr oper inc (% of rev)
Cost assumptions
Trans costs (% of rev)
Reported Profit
Exceptional Items
-
(222)
-
-
9,775
10,489
13,130
15,971
Shares o /s (mn)
960
960
960
960
Diluted shares o/s (mn)
960
960
960
960
8.7
9.4
12.2
15.1
Personnel cost(% of rev)
9.2
8.9
8.8
8.6
Sell & Adm exp(% of rev)
21.3
20.7
20.0
19.5
6.1
5.5
4.7
4.0
Adjusted Diluted EPS
Ad & pub exp(% of rev)
Promotion exp (% of rev)
Sports losses (INR mn)
4.5
4.1
3.5
3.0
Dividend per share (DPS)
2.3
2.4
3.0
3.7
(266)
(600)
(1,100)
(600)
Dividend Payout Ratio(%)
26.6
27.1
26.5
26.5
Year to March
FY15
FY16
FY17E
FY18E
21.3
43.8
20.7
44.5
20.0
44.2
19.5
44.0
Financial assumptions
Common size metrics
Tax rate (%)
30.5
35.0
33.0
33.0
Capex (INR mn)
636
1,424
1,400
1,500
78
80
80
80
201
200
200
200
S G & A expenses
Direct Cost
EBITDA margins
25.7
25.8
27.0
27.9
Net Profit margins
19.9
18.0
19.3
20.1
Year to March
FY15
FY16
FY17E
FY18E
Revenues
EBITDA
10.4
4.1
19.8
20.4
15.7
21.1
17.2
21.1
9.6
7.3
25.2
21.6
(6.7)
8.6
29.2
24.3
Debtor days
Inventory days
Payable days
58
60
60
60
Cash conversion cycle
222
220
220
220
Int rate on debt (%)
5.6
5.6
5.6
5.6
Dep. (% gross block)
10.3
11.4
11.4
11.4
Growth ratios (%)
Adjusted Profit
EPS
14
Edelweiss Securities Limited
Zee Entertainment Enterprises
Balance sheet
(INR mn)
Cash flow metrics
FY15
FY16
FY17E
FY18E
FY15
FY16
FY17E
FY18E
Share capital
Reserves & Surplus
960
34,346
960
40,582
960
48,832
960
59,174
Operating cash flow
Investing cash flow
6,809
(3,661)
7,483
(1,133)
10,555
(1,400)
12,525
(1,501)
Shareholders' funds
35,306
41,542
49,792
60,134
Financing cash flow
(9,723)
4
22
(33)
(93)
Short term borrowings
10
10
10
10
Long term borrowings
20,204
20,204
20,204
16,170
Total Borrowings
20,214
20,214
20,214
16,180
As on 31st March
Minority Interest
Long Term Liabilities
Year to March
(3,427)
(4,235)
(4,936)
Net cash Flow
(279)
2,115
4,219
1,301
Capex
(636)
(1,424)
(1,400)
(1,500)
(2,601)
(2,783)
(3,483)
(4,237)
Year to March
FY15
FY16
FY17E
FY18E
ROAE (%)
ROACE (%)
31.1
27.4
27.3
27.7
28.6
29.7
29.0
32.6
Inventory Days
Dividend paid
Profitability and efficiency ratios
768
768
768
768
(531)
(531)
(531)
(531)
55,761
62,015
70,210
76,458
5,853
3,213
6,553
3,165
7,353
3,125
8,153
2,994
201
200
200
200
878
850
850
850
Debtors Days
78
80
80
80
Intangible Assets
8,163
8,823
9,345
9,961
Payable Days
58
60
60
60
Total Fixed Assets
12,254
12,838
13,319
13,804
Cash Conversion Cycle
222
220
220
220
1,464
1,464
1,464
1,464
Current Ratio
4.1
4.3
4.7
4.8
Cash and Equivalents
15,656
17,480
21,699
23,002
Gross Debt/EBITDA
1.6
1.3
1.1
0.7
Inventories
11,878
14,273
16,393
19,123
Gross Debt/Equity
0.6
0.5
0.4
0.3
Sundry Debtors
10,692
12,825
14,835
17,385
Adjusted Debt/Equity
1.1
0.9
0.8
0.6
Loans & Advances
15,877
15,877
15,877
15,877
Net Debt/Equity
115.6
115.9
165.3
211.1
Def. Tax Liability (net)
Sources of funds
Gross Block
Net Block
Capital work in progress
Non current investments
Other Current Assets
1,706
1,706
1,706
1,706
40,153
44,681
48,811
54,091
Trade payable
4,204
4,886
5,522
6,341
Year to March
FY15
FY16
FY17E
FY18E
Other Current Liab
9,562
9,562
9,562
9,562
Total Current Liab
13,766
14,448
15,084
15,903
Total Asset Turnover
Fixed Asset Turnover
0.9
4.4
1.0
5.0
1.0
5.5
1.1
6.2
Net Curr Assets-ex cash
26,387
30,233
33,727
38,188
Equity Turnover
1.6
1.5
1.5
1.4
Uses of funds
55,761
62,015
70,210
76,458
36.8
43.3
51.9
62.6
Year to March
FY15
FY16
FY17E
FY18E
Adj. Diluted EPS (INR)
Y-o-Y growth (%)
8.7
(6.7)
9.4
8.6
12.2
29.2
15.1
24.3
Adjusted Cash EPS (INR)
10.9
11.8
14.6
17.7
Diluted P/E (x)
48.2
44.4
34.3
27.6
P/B (x)
11.4
9.7
8.1
6.7
8.3
6.9
5.9
5.0
32.3
0.5
26.7
0.6
21.9
0.7
17.8
0.9
Current Assets (ex cash)
BVPS (INR)
Free cash flow
(INR mn)
Year to March
FY15
FY16
FY17E
FY18E
Reported Profit
Add: Depreciation
9,775
673
10,268
840
13,130
918
15,971
1,015
71
82
70
67
(1,474)
139
(70)
(67)
Less: Changes in WC
2,236
3,846
3,494
4,461
Operating cash flow
6,809
7,483
10,555
12,525
636
1,424
1,400
1,500
6,173
6,059
9,155
11,025
Interest (Net of Tax)
Others
Less: Capex
Free Cash Flow
Operating ratios
Valuation parameters
EV / Sales (x)
EV / EBITDA (x)
Dividend Yield (%)
Peer comparison valuation
Market cap
(USD mn)
Name
Zee Entertainment Enterprises
DB Corp
DEN Networks
Dish TV India
Hathway Cable & Datacom
Sun TV Network
Diluted P/E (X)
FY17E
FY18E
EV / EBITDA (X)
FY17E
FY18E
ROAE (%)
FY17E
FY18E
6,015
909
34.3
15.6
27.6
14.1
21.9
8.5
17.8
7.4
28.6
25.6
29.0
25.2
(0.1)
234
(34.5)
(66.4)
6.8
5.7
(1.4)
1,458
30.0
26.6
8.8
7.2
NM
NM
456
NM
NM
10.6
10.0
(12.2)
(17.0)
2,132
13.1
11.2
6.0
5.0
28.2
29.8
Source: Edelweiss research
15
Edelweiss Securities Limited
Media
Additional Data
Directors Data
Subhash Chandra
Lord Gulam K. Noon
Prof. Sunil Sharma
Subodh Kumar
Non-Executive Chairman
Independent Director
Independent Director
Executive Vice Chairman
Ashok Kurien
Punit Goenka
Prof. (Mrs.) Neharika Vohra
Manish Chokhani
Non-Executive Director
Managing Director & CEO
Independent Director
Independent Director
Auditors - M/S MGB & Co
*as per last annual report
Holding - Top10
Perc. Holding
Perc. Holding
Oppenheimer Funds Inc
9.94
Vanguard Group Inc
3.10
Schroder Investment Mgmt Group
1.97
Blackrock Fund Advisors
1.72
Gic Private Limited
1.67
Columbia Wanger Asset Management
1.49
Birla Sun Life Asset Management
1.33
Goldman Sachs Asia Llc
1.17
Icici Prudential Life Insurance
0.72
Nordea Inv Management Ab
0.60
*as per last available data
Bulk Deals
Data
Acquired / Seller
B/S
Qty Traded
Price
No Data Available
*in last one year
Insider Trades
Reporting Data
Acquired / Seller
B/S
Qty Traded
No Data Available
*in last one year
16
Edelweiss Securities Limited
RATING & INTERPRETATION
Company
Absolute
Relative
Relative
reco
reco
risk
Company
Absolute
Relative
Relative
reco
reco
DB Corp
BUY
SO
M
DEN Networks
Risk
HOLD
SP
Dish TV India
BUY
SO
M
H
Hathway Cable & Datacom
BUY
SP
M
Jagran Prakashan
BUY
SP
Sun TV Network
BUY
SP
M
PVR
BUY
SO
M
H
Zee Entertainment Enterprises
BUY
SO
M
ABSOLUTE RATING
Ratings
Expected absolute returns over 12 months
Buy
More than 15%
Hold
Between 15% and - 5%
Reduce
Less than -5%
RELATIVE RETURNS RATING
Ratings
Criteria
Sector Outperformer (SO)
Stock return > 1.25 x Sector return
Sector Performer (SP)
Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU)
Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING
Ratings
Criteria
Low (L)
Bottom 1/3rd percentile in the sector
Medium (M)
Middle 1/3rd percentile in the sector
High (H)
Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings
Criteria
Overweight (OW)
Sector return > 1.25 x Nifty return
Equalweight (EW)
Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW)
Sector return < 0.75 x Nifty return
17
Edelweiss Securities Limited
Media
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com
Nirav Sheth
Head Research
nirav.sheth@edelweissfin.com
Coverage group(s) of stocks by primary analyst(s): Media
DB Corp, DEN Networks, Dish TV India, Hathway Cable & Datacom, Jagran Prakashan, PVR, Sun TV Network, Zee Entertainment Enterprises
Recent Research
Date
Company
Title
Price (INR)
Recos
25-Apr-16
Jagran
Prakashan
Focused on multi-pronged
growth; Visit Note
167
Buy
22-Apr-16
Den
Networks
Shedding flab, core
competency to the fore;
Visit Note
89
Hold
20-Apr-16
DB Corp
Ad growth to revive;
Visit Note
324
Buy
Distribution of Ratings / Market Cap
Rating Interpretation
Edelweiss Research Coverage Universe
Rating Distribution*
* 3 stocks under review
Buy
Hold
153
63
> 50bn
743
Market Cap (INR)
Reduce
11
227
Between 10bn and 50 bn
< 10bn
158
Rating
Total
62
7
Expected to
Buy
appreciate more than 15% over a 12-month period
Hold
appreciate up to 15% over a 12-month period
Reduce
depreciate more than 5% over a 12-month period
One year price chart
446
450
297
400
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jun-14
Jul-15
Jul-14
May-14
Jun-15
250
Apr-14
300
Apr-16
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Oct-15
Sep-15
Aug-15
200
May-15
(INR)
Feb-14
-
350
Mar-14
149
Jan-14
(INR)
594
Zee Entertainment Enterprise
18
Edelweiss Securities Limited
Zee Entertainment Enterprises
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