RESULT UPDATE ZEE ENTERTAINMENT ENTERPRISES
Starts year with a bang
India Equity Research| Media
Zee Entertainment Enterprises’ (ZEE) Q1FY16 revenue and PAT exceeded EDELWEISS 4D RATINGS
our and Street’s estimates. Key positives were: (i) impressive ad growth Absolute Rating BUY of 25.4% YoY on a base of 17.4% (15% YoY in Q4FY15 on high base of Rating Relative to Sector Outperformer 21.5%); (ii) strong 13.7% YoY growth in domestic subscription; and (iii) Risk Rating Relative to Sector Medium second consecutive quarter of positive sports EBITDA. As expected, Sector Relative to Market Overweight
EBITDA margin at 23.2% improved by 313bps QoQ as the launch phase of &TV is now behind. ZEE has acquired Sarthak TV (a profitable market leader in Odia language) in an all‐cash deal (INR1,150mn). The company’s MARKET DATA (R: ZEE.BO, B: Z IN) strategy of launching/acquiring new channels and strengthening its CMP : INR 376 Target Price : INR 420 market share in regional markets highlights strong execution (reflects in 52‐week range (INR) : 402 / 265 ahead‐of‐industry ad growth). Maintain ‘BUY’. Share in issue (mn) : 960.4 M cap (INR bn/USD mn) : 361 / 5,651 Ad growth boosts revenues; margins improve QoQ, down YoY Avg. Daily Vol.BSE/NSE(‘000) : 2,683.9
Ad revenues moved up 25.4% YoY (60‐65% of ad revenue comes from FMCG). This is commendable given that consumer bellwether, Hindustan Unilever, has lowered its TV SHARE HOLDING PATTERN (%)
ad spend to 70% from 90% of total. Domestic subscription revenues surged ~13.7% Current Q3FY15 Q2FY15 YoY, while LTL international revenues grew 7% YoY. The Pakistan ‐ Zimbabwe and West Promoters * 43.1 43.1 43.1
Indies ‐ England series in Q1FY16 aided syndication revenues (up 367.6% YoY). MF's, FI's & BK’s 2.2 1.0 1.4 Transmission & programming costs spurted 51.4% YoY due to &TV. Though EBITDA FII's 50.0 51.9 50.8 margins improved QoQ, we expect EBITDA margin to be flattish for FY16. PAT jumped Others 4.8 4.0 4.7 15.8% YoY, driven by high other income (up 74.5% YoY). * Promoters pledged shares : 15.9 (% of share in issue)
Q1FY16 conference call: Key takeaways PRICE PERFORMANCE (%) Ad growth was not only driven by &TV, but led by existing national and regional EW Media Stock Nifty channels. Other income was aided by forex gains. With rural data coming in next 3‐4 Index months, the company believes Zee TV will be back at No. 2 position in BARC ratings. 1 month 14.4 4.3 9.2 Sarthak TV has 25% viewership share in the Orissa market. ZEE will expand into Kerala 3 months 8.4 (1.2) 2.6 only after it stabilises in Tamil markets. ZEE will bid for IPL broadcasting rights. ZEE is 12 months 24.7 10.0 6.7
wresting ad share from print companies in regional markets.
Outlook and valuations: Growth DNA; maintain ‘BUY’ Robust ad growth (12.6% YoY projected by GroupM) and best play on digitisation are key positives. At CMP, the stock is trading at 39.9x and 30.4x FY16E and FY17E EPS, respectively. We maintain ‘BUY/SO’ with target price of INR420. Financials (INR mn) Year to March Q1FY16 Q1FY15 % change Q4FY15 % change FY15 FY16E FY17E Abneesh Roy
Revenues 13,399 10,551 27.0 13,471 (0.5) 48,837 55,677 66,263 +91 22 6620 3141 EBITDA 3,112 3,092 0.7 2,708 14.9 12,537 13,919 17,957 [email protected]
Adjusted Profit 2,438 2,106 15.8 2,308 5.6 9,775 10,479 13,348 Rajiv Berlia Dil. EPS (INR) 2.5 2.2 15.8 2.4 5.7 8.7 9.4 12.4 +91 22 6623 3377 Diluted P/E (x) 43.3 39.9 30.4 [email protected]
EV/EBITDA (x) 29.1 26.0 19.9 ROAE (%) 31.1 27.1 29.2 July 15, 2015 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL
Table 1: Trends at a glance Revenue break up (INR mn) Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Ad revenue 4,792 5,301 5,833 6,843 5,824 6,221 6,259 7,426 6,697 7,799 Domestic subscription 3,374 3,168 3,350 3,322 3,344 3,238 3,373 3,455 4,175 3,680 International revenue 1,172 1,073 1,231 1,243 1,291 1,189 872 1,007 933 945 Total subscription 4,546 4,241 4,581 4,565 4,635 4,427 4,245 4,462 5,108 4,625 Sport business Sales 1,072 1,159 1,558 1,915 1,959 976 1,181 2,476 1,680 1,519 Costs 1,477 1,254 1,749 2,956 1,608 964 1,431 2,746 1,438 1,504 EBITDA (405) (95) (191) (1,041) 351 12 (250) (270) 242 15 EBITDA margin (%) (37.8) (8.2) (12.3) (54.4) 17.9 1.2 (21.2) (10.9) 14.4 1.0 Non‐sports business Sales (non‐sports) 8,571 8,574 9,455 9,969 9,629 9,575 9,997 11,161 11,791 11,880 Costs (non‐sports) 5,743 5,564 6,159 6,020 6,864 6,495 6,543 7,358 9,325 8,783 EBITDA (non‐sports) 2,828 3,010 3,296 3,948 2,765 3,080 3,455 3,803 2,466 3,097 EBITDA margin (non‐sports) (%) 33.0 35.1 34.9 39.6 28.7 32.2 34.6 34.1 20.9 26.1 Growth rate Ad revenues 15.5 18.5 10.5 34.3 21.5 17.4 7.3 8.5 15.0 25.4 Total subscription revenues 13.0 16.5 16.0 11.4 2.0 (2.8) (7.3) (2.3) 10.2 4.5 % of revenue Transmission & programming 48.4 42.2 45.8 51.3 47.0 38.2 42.1 47.3 46.0 45.6 Employee cost 8.7 9.8 9.0 8.1 8.6 10.6 9.7 8.0 9.0 10.3 EBITDA 25.1 30.0 28.2 24.5 26.9 29.3 28.7 25.9 20.1 23.2 PAT 18.7 23.0 21.5 18.0 18.7 19.9 20.3 22.5 16.9 18.1 Source: Company, Edelweiss research
Table 2: Relative share among top‐5 GECs (%) Year 2015 Relative share among top5 GECs (%) Week Star Plus Colors Zee TV Sony Life OK Wk 25 27.4 23.0 17.2 15.9 16.6 Wk 26 26.5 24.4 19.4 13.9 15.8 Source: BARC, Edelweiss research
Sarthak Entertainment Sarthak TV, the regional channel of Odisha was founded in 2010. The acquisition is already profitable.
It has average GVT of 9,500.
It reaches nearly 5mn viewers every week. It is available across the country through different DTH platforms of Tata Sky, Airtel DTH, Videocon and Dish TV.
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Ten Sports ‐ New corporate brand identity Ten Sports unveiled a new logo for the channel in its bid to acquire a new identity. Ten Sports Network owns and operates Ten Sports, Ten Cricket, Ten Action, Ten Golf, Ten HD and Ten Cricket.
The company has started using Ten Sports Network name recently. It was earlier known as Taj Television.
It holds long‐term broadcast rights of five cricket boards, WWE and exclusive broadcast rights of the US Open along with other exclusive tournament rights.
Currently, the channel is airing the India‐Zimbabwe series.
ZEE Q1FY16 Conference Call | Key Takeaways Ad growth: TV industry ad revenue is expected to grow in low teens during FY16 (FMCG, consumer durable and E‐commerce companies are main drivers of ad growth). ZEE is expected to grow higher than the industry average in FY16. The company’s non sports business ad revenue growth is in mid to high teens. Ad growth of 25.4% YoY in Q1FY16 was not only driven by &TV, but also by existing national and regional channels.
Subscription revenues: While LTL subscription revenue grew 13.6% YoY, it fell QoQ as there were one‐off components (catch‐up revenues) in domestic subscription revenues in Q4FY15. It is expected to grow in low to double digits in FY16.
Other syndication revenue: The Pakistan versus Zimbabwe, West Indies versus England and Sri Lanka versus Pakistan cricket series, the UEFA Champions League Finals, WWE Specials and MotoGP among others contributed to syndication revenues.
Sports loss: ZEE expects FY16 sports loss to be ~INR1bn, though it could be lower than this. Sport business is linked to digitisation of Phase 3 and 4 markets.
IPL: ZEE will bid for IPL broadcasting rights.
Sarthak acquisition: The channel, which has 25% viewership share, is already profitable. It will take 3 months to get all the regulatory approvals, post which it s numbers will be consolidated in the overall numbers.
Ad revenue market size of Orissa: INR1,000‐1,100mn.
Programming content: Zee TV has 30 hours of original programming content per week. Going ahead, it will stay at these levels. Similarly, &TV’s programming content will increase to 30 hours (currently 22 hours).
RIO: ZEE is currently evaluating the 27.5% TRAI case. After the ruling on the case, the company will be sure about the prices post which it will look into RIO.
EBITDA margin guidance: ~25% in FY16.
Other income: Increased aided by forex gain.
Cash & cash equivalents: INR17.83bn.
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BARC ratings: BARC ratings currently include only 0.1mn plus towns. With rural and urban data below 0.1mn coming in, the company believes Zee TV will be back at No. 2 position. BARC is still not used as a currency. It will be used as a currency in the second half of the year.
Regional channels: ZEE will expand into Kerala only after it stabilises in Tamil Nadu markets. Currently, ZEE enjoys number 2 position in the Kannada market, while it is number 1 in Andhra and Marathi markets.
Phase 3 subscription revenues: Zee will take 18‐24 months after digitisation of Phase 3 and 4 markets to achieve ARPU levels of Phase 1 and 2 markets.
GST impact: Neutral.
FY15 capex: INR1,200mn.
FTA advertisement market size: INR8,000‐9,000mn.
Content viewing behavior: Long form content is still watched on television, while short form content is viewed on smart devices.
ZEE Q4FY15 conference call | Key takeaways Ad growth: TV industry ad revenue is expected to grow in low teens in FY16. ZEE is expected to register higher than industry average growth. ZEE’s non‐sports business ad revenue growth was in high teens in FY15.
Subscription revenue: Like to Like (LTL) subscription revenue grew in low teens in FY15. There were one‐off components (catch‐up revenues) in domestic subscription revenues in Q4FY15. LTL international subscription revenue growth in FY15 was in mid single digits.
Sports loss: ZEE expects FY16 sports loss to be ~INR1bn. The India‐Pakistan match will be telecast by Ten Sports if the match happens outside India.
Other expenses: Increased 65.2% YoY owing to one‐time launch cost of &TV and CSR expenses. Going forward, this kind of expense will not be reported.
EBITDA margin: FY16 EBITDA margin is expected at same levels as FY15.
Other income: Surged due to opportunistic sports syndication and deals related to music.
Programming content: Zee TV has 35 hours of original programming content per week. This is expected to increase to 36‐37 hours. Similarly, &TV’s programming content will increase to 30 hours by FY16. Currently, it has 22 hours of original programming content per week.
&TV ratings: Only 4 weeks ratings are available for &TV on household basis. The Voice is expected to be telecast in &TV in June, which is expected to improve its ratings.
& brand: The & brand is doing well and can be extended to other regional genres too. However, at the current juncture, there are no plans for the same. .
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BARC rating: ZEE is currently in fourth position as per BARC ratings. However, BARC reports numbers on household levels, so there is no impact of the ratings on ad revenues.
Phase III digitisation: It is a lower ARPU market. Broadcasters and MSOs have to discover price points (content price) for these markets.
Ditto TV: The company has 15mn subscribers, out of which 1mn are paying subscribers. Net realisation per subscriber per month is INR40. Ditto TV shows all content, except Star content.
Tax rate: FY16 tax rate would be ~33%.
Cash & cash equivalents: INR20.48bn.
ZEE Annual Report 2015 | Key Details Media Industry The Indian media & entertainment industry clocked moderate growth in 2014. The industry grew from INR918bn in CY13 to INR1,026bn in CY14, up 12% YoY.
Television sector grew from INR417bn in CY13 to INR475bn in CY14, up 14% YoY.
Total advertising spending across media was INR414bn in CY14, contributing 40% to media & entertainment industry revenue.
In light of the continued economic growth, advertising revenue jumped 14% YoY in CY14.
On account of improving monetisation due to digitisation, in CY14, subscription revenue grew at an annualised growth rate 16% YoY.
Aspirations ZEE entertains 959mn viewers. However, by 2020, it aims to reach a milestone of 5x this number.
Key potential international markets are Africa, SEA and the Middle East, where it focuses on providing content that’s contemporary, engaging and relevant.
Its aim is to become a global content company. Example of one such endeavour is the introduction of Zindagi and ZEE Hiburan.
ZEE Hiburan is a GEC launched in Indonesia. It is the company’s third launch in the APAC region.
New developments in FY15 Zindagi: A unique endeavour based on the premise that despite diverse nationalities and cultural leanings, human lives and its many stories are essentially similar. The channel showcases content that is handpicked, written by top‐notch writers and universal in its appeal. The channel has garnered widespread appreciation across its varied audience base.
&TV: An all new GEC poised to deliver promising results. With interesting content formats like Sabse Shaana Kaun, Begusarai and Razia Sultan, among others, &TV is set to win a million hearts.
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ZEE Nung: A 24/7 Bollywood channel dubbed in Thai. The channel is customised and packaged for the local audience. It airs popular Bollywood movies, targeting a large pay‐TV subscriber base in Thailand.
ZEE Hiburan: Launched in Indonesia, this is a GEC featuring popular Indian serials that are localised for the mainstream Indonesian audience. The channel has been positioned as ‘Color Your Life’ and is aimed at showcasing human emotions and stories in a way that’s endearing, vibrant and heartfelt.
ZEE World: ZEE World is the first English GEC with Indian content to be launched in Africa. The channel reaches over 6.6mn households across the continent.
Main stream channels The company’s flagship channel, Zee TV, continued to maintain the second spot in the Hindi GEC space during the year with the launch of several successful shows, including Kumkum Bhagya, Jamai Raja, DID 4 and Sa Re Ga Ma Pa Lil Champs.
Zee TV continued to hold the second spot in the Hindi GEC genre with an average weekly channel share of 18.6% amongst the top 6 GECs.
In the Hindi movie genre, ZEE has 6 channels viz., Zee Cinema, Zee Action, Zee Classic, Zee Cinema HD, &pictures and &pictures HD. The cinema cluster continued to have a leading share in the movie genre in HSM with an average weekly channel share of 32.3% amongst all Hindi movie cluster.
Other channels performance ZEE Marathi has attained an indisputable 51% market share in Marathi GECs in FY15 and 21% YoY increase in ‘gross TVTs.
ZEE Telugu registered highest ever yearly viewership averages and shares across all genres with 22.4% relative share in FY15.
ZEE Anmol emerged a leader in the FTA category from the position of challenger in the previous year. It led the way to reach with 3.2mn average viewers per week.
The Ten Sports Network reaches to 150mn plus homes in over 12 countries. It comprises 5 dedicated channels in India and 3 international channels.
Zee Bangla continued to be a strong player in the Bangla GEC space and performed extremely well in the non‐fiction genre, driven by shows like Dadagiri Unlimited‐5 and Sa Re Ga Ma Pa.
Zee Kannada garnered 14% market share in the Karnataka market and has added shows like Srirastu Subhamastu and Jothe Jotheyali in fiction and shows like Life Super Guru and Maharshi Vani in non‐fiction formats.
Zee Tamil is a strong No.3 player among all Tamil GECs, with shows like Solvathellam Unmai and CID.
Zee Café and Zee Studio are the company’s English language offerings. Zee Café is one of the leading players in the English GEC category.
Digital platform By CY15 end, India alone is expected to have 213mn mobile internet users. Global mobile connections are projected to increase to almost 9.5bn in CY19 from around 6.9bn in CY14 on account of rapid growth in mobile phones, tablets and other devices.
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ZEE is in sync with this process of change and is geared to offer its entertainment content through ‘NOW media’ i.e., through digital tools and OTT platforms, among others. It is also adopting cutting‐edge, advance formats like ‘high definition’ and ‘4K’.
Ditto TV has 20mn plus users and nearly 50,000 hours of content, and is consistently growing.
Content provider Essel Vision, the production arm, is a step in the content‐innovation direction. It creates proprietary and differentiated content across genres and formats including TV shows and feature films.
ZEE Music Company is another one of the initiatives that seeks to close the loop in terms of genre offerings from ZEE.
ZEE Music Company’s repertoire of projects comprises 36 Hindi movies, 15 Marathi movies, 2 Punjabi movies and 30 popular single numbers.
Risk factors Competition from other players.
Ever changing trends in the media sector.
Cost of programming mix may affect its bottom line. Investments in new channels.
Slowdown in DTH/digital rollout.
Sluggish consumer uptake in international markets. Increase in cost of acquisition for some key sports properties.
Investments In 2014, ZEE invested in mutual funds like Socrates, First Global and Globex Fund. However, in 2015, the company exited these mutual funds and invested in Poseidon Opportunity Fund.
APLAB is recognised as a technology driven professional company in business sectors like Telecommunication, Information Technology, Retail Banking and Power Control & Conditioning. The company has 4 independent product divisions—Test and Measurement Equipments, Power Conversion & UPS Systems, Self‐Service Terminals for Banking Sector.
Morpheus Fund helps Indian entrepreneurs build great brands of next wave. This typically includes FMCG, Home and Personal Care, Consumer Services such as Education and Healthcare and Speciality Retail such as apparel and footwear.
Poseidon Opportunity Fund is an open end fund incorporated in Liechtenstein. The fund’s objective is capital appreciation. It invests in equities, indices, ETFs, hedge funds, private equity, futures and options.
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Outlook and valuations: Growth DNA; maintain ‘BUY’ Improving ad outlook (12.6% YoY growth estimated by GroupM) due to stable government, best play on digitisation, product innovations and net cash of ~INR18bn 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 34 domestic (excluding 9x channel closing next month and including Sarthak TV) and 36 international channels. Also, it is underpinned by sturdy free cash flow, a secular growth story and stable dividend policy. We have factored in the possible loss of &TV in our numbers; we believe it could clock loss of INR5‐7bn over the next 3‐5 years (akin to other mainstream Hindi GECs) and break even only thereon. Driven by robust ad growth and strong subscription revenue growth (further proved by Q1FY16 numbers), we assign a target P/E of 34x to FY17E EPS; target price is pegged at INR420. We maintain ‘BUY/Sector Outperformer’.
Chart 1: ZEE’s 1‐year forward PE band 500
400 35x 30x 300 25x 20x
(INR) 200 15x 10x 100
0 15 14 13 12 11 10 09 08 15 14 13 12 11 10 09 08 07 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jul Jul Jul Jul Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Jan Jan Jan
Source: Edelweiss research
Chart 2: Overall ad revenues 88.0
66.0
44.0 (%) 22.0
0.0
(22.0) FY11 FY11 FY11 FY12
Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2 Q3 Q4 Q1
Source: Edelweiss research
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Chart 3: Content costs (as a % of revenue) 60.0
48.0
36.0 (%) 24.0
12.0
0.0 FY11 FY11 FY11 FY12
Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2 Q3 Q4 Q1
Transmission & programming Employee expenses S G &A expenses
Chart 4: Sports business reported EBITDA 2,880
1,920
960 mn)
(INR 0
(960)
(1,920) FY12
Q2FY11 Q3FY11 Q4FY11 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q1
Sports revenues Sports EBITDA
Chart 5: Operational performance (ex‐sports) 4,200 47.6
3,360 43.0 38.4 2,520 mn) 33.8 (%) 1,680 (INR 29.2
840 24.6
0 20.0 FY12
Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY11 Q3FY11 Q4FY11 Q1 EBITDA (ex sports) EBITDA Margin (ex sports)
Source: Company, Edelweiss research
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Table 3: Sports business (INR mn) Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Sales 1,078 1,072 1,159 1,558 1,915 1,959 976 1,181 2,476 1,680 1,519 Costs 1,164 1,477 1,254 1,749 2,956 1,608 964 1,431 2,746 1,438 1,504 EBITDA (86) (405) (95) (191) (1,041) 351 12 (250) (270) 242 15 EBITDA margin (%) (8.0) (37.8) (8.2) (12.3) (54.4) 17.9 1.2 (21.2) (10.9) 14.4 1.0
Table 4: EBITDA margin (non‐sports) stood at 20.9% in Q4FY15 (INR mn) Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Sales (non‐sports) 8,310 8,571 8,574 9,455 9,969 9,629 9,575 9,997 11,161 11,791 11,880 Costs (non‐sports) 5,613 5,743 5,564 6,159 6,020 6,864 6,495 6,543 7,358 9,325 8,783 EBITDA (non‐sports) 2,697 2,828 3,010 3,296 3,948 2,765 3,080 3,455 3,803 2,466 3,097 EBITDA margin (non‐sports) (%) 32.5 33.0 35.1 34.9 39.6 28.7 32.2 34.6 34.1 20.9 26.1
Table 5: Sports business – Annual performance (INR mn) FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Revenues 3,151 4,411 3,934 4,960 6,591 6,313 6,500 6,400 Costs 3,727 6,489 5,414 5,830 7,567 6,579 7,400 7,000 EBITDA (576) (2,078) (1,480) (870) (976) (266) (900) (600) EBITDA Margin (%) (18.3) (47.1) (37.6) (17.5) (14.8) (4.2) (13.8) (9.4)
Table 6: ZEE’s sports schedule Sport Country/ Tournament Tenure of rights Entire Tenure ‐ Overall Entire Tenure ‐ India specific Cricket South Africa CY12‐20 281 37 West Indies CY13‐19 258 47 Sri Lanka CY13‐20 202 22 Zimbabwe CY12‐19 153 16 Pakistan CY15‐19 54 9
Tennis US Open CY13‐16 60
Football UEFA Champions League CY15‐18 UEFA Europa League CY15‐18 French Football League CY12‐15 The League Cup CY12‐15 The Football League CY12‐15
Wrestling WWE CY15‐19
Golf European Tour CY13‐18 Asian Tour CY13‐18
Table 7: Pakistan Cricket Board sports schedule Sport Country/ Tournament Start date Against Total number of matches Oct‐15 England 9 Dec‐15 India 10 Oct‐16 West Indies 9 Cricket Pakistan Oct‐17 Sri Lanka 9 Oct‐18 Australia 6 Oct‐18 New Zealand 9 Mar‐19 Australia 3 Source: Company, Edelweiss research
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Financial snapshot (INR mn) Year to March Q1FY16 Q1FY15 % change Q4FY15 % change FY15 FY16E FY17E Revenues 13,399 10,551 27.0 13,471 (0.5) 48,837 55,677 66,263 Advertisement 7,799 6,221 25.4 6,697 16.5 26,603 31,924 38,628 Subscription 4,625 4,121 12.2 5,108 (9.4) 17,935 20,253 24,085 Others 974 208 367.6 1,666 (41.5) 4,299 3,500 3,550 Transmission and programming 6,108 4,034 51.4 6,201 (1.5) 21,393 26,001 30,282 Staff costs 1,380 1,117 23.5 1,209 14.2 4,498 4,900 5,632 SG&A 2,799 2,308 21.3 3,353 (16.5) 10,408 10,857 12,391 Total expenditure 10,287 7,459 37.9 10,763 (4.4) 36,300 41,758 48,305 EBITDA 3,112 3,092 0.7 2,708 14.9 12,537 13,919 17,957 Depreciation & amortization 168 196 (14.1) 174 (3.4) 673 644 707 EBIT 2,944 2,896 1.7 2,534 16.2 11,864 13,276 17,250 Other income 680 390 74.5 564 20.5 2,278 2,397 2,678 Interest 15 22 (29.2) 30 (49.0) 103 100 80 Add: Prior period items Add: Exceptional items Profit before tax 3,608 3,264 10.6 3,068 17.6 14,039 15,573 19,848 Provision for taxes 1,185 1,164 1.9 749 58.4 4,284 5,139 6,550 Minority interest (15) (5) NA (25) NA (57) (45) (50) Share in profit from associates (37) (100.0) (37) Reported net profit 2,438 2,106 15.8 2,308 5.6 9,775 10,479 13,348 Adjusted Profit 2,438 2,106 15.8 2,308 5.6 9,775 10,479 13,348 Diluted shares (mn) 960 960 960 960 960 960 Adjusted Diluted EPS 2.5 2.2 2.4 8.7 9.4 12.4 Tax Rate 32.9 35.6 24.4 30.5 33.0 33.0
As % of net revenues Transmission and Programming (% of revenue) 45.6 38.2 46.0 43.8 46.7 45.7 Employee cost 10.3 10.6 9.0 9.2 8.8 8.5 SG&A 20.9 21.9 24.9 21.3 19.5 18.7 EBITDA 23.2 29.3 20.1 25.7 25.0 27.1 Reported net profit 18.1 19.9 16.9 19.9 18.7 20.1
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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 Jagran, Zee Premier, Zee Classic, Zee Action, Zee Cafe, Zee Studios, and Zee Trendz. 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.
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Financial Statements Key Assumptions Income statement (INR mn) Year to March FY14 FY15 FY16E FY17E Year to March FY14 FY15 FY16E FY17E Macro Net revenue 44,217 48,837 55,677 66,263 GDP(Y‐o‐Y %) 4.7 5.4 6.3 7.3 Direct costs 20,688 21,393 26,001 30,282 Inflation (Avg) 9.5 6.8 5.5 5.5 Employee costs 3,895 4,498 4,900 5,632 Repo rate (exit rate) 8.0 7.8 6.8 6.3 Total SG&A expenses 7,591 10,408 10,857 12,391 USD/INR (Avg) 60.5 61.0 62.0 62.0 EBITDA 12,043 12,537 13,919 17,957 Sector Depreciation & Amortization 501 673 644 707 TV industry ad growth (%) 9.0 10.0 15.0 15.0 EBIT 11,542 11,864 13,276 17,250 TV industry sub. growth (%) 20.0 10.0 14.0 20.0 Add: Other income 1,807 2,278 2,397 2,678 Company Less: Interest Expense 158 103 100 105 Sales assumptions Profit Before Tax 13,191 14,039 15,573 19,823 Ad revenue growth (%) 21.2 11.8 20.0 21.0 Less: Provision for Tax 4,291 4,284 5,139 6,550 Domestic sub. rev. growth (%) 20.0 20.0 13.0 22.0 Less: Minority Interest (19) (57) (45) (50) International sub. rev. growth (%) 5.5 (17.3) 4.0 7.0 Add: Share of profit from 2 (37) ‐ ‐ Sports revenues (INR mn) 6,591 6,313 6,500 6,400 Reported Profit 8,921 9,775 10,479 13,323 Other sales and services (% of rev.) 5.4 8.8 6.3 5.4 Adjusted Profit 8,921 9,775 10,479 13,323 Cost assumptions No. of Diluted shares outstanding 960 960 960 960 Trans. & Prog. costs (% of rev.) 46.8 43.8 46.7 45.7 Adjusted Diluted EPS 9.3 8.7 9.4 12.4 Personnel cost (% of rev.) 8.8 9.2 8.8 8.5 Dividend per share (DPS) 2.0 2.3 2.4 3.5 Selling & Adm expenses (% of rev.) 17.2 21.3 19.5 18.7 Dividend Payout Ratio (%) 25.2 26.6 26.5 30.1 Ad & publicity expenses (% of rev.) 5.6 6.1 5.7 4.8 Business promotion expenses (% of rev.) 4.2 4.5 4.3 3.6 Common size metrics Sports losses (INR mn) (976) (266) (900) (600) Year to March FY14 FY15 FY16E FY17E Financial assumptions S G & A expenses 17.2 21.3 19.5 18.7 Tax rate (%) 32.5 30.5 33.0 33.0 Direct Cost 46.8 43.8 46.7 45.7 Capex (INR mn) 2,168 636 1,324 1,000 EBITDA margins 27.2 25.7 25.0 27.1 Debtor days 83 78 85 85 Net Profit margins 20.1 19.9 18.7 20.0 Inventory days 181 201 180 180 Payable days 55 58 55 55 Growth ratios (%) Cash conversion cycle (days) 209 222 210 210 Year to March FY14 FY15 FY16E FY17E Interest rate on o/standing debt (%) 5.6 5.6 5.6 5.6 Revenues 19.5 10.4 14.0 19.0 Depreciation as % of gross block 7.9 10.3 8.7 8.7 EBITDA 26.2 4.1 11.0 29.0 Adjusted Profit 24.0 9.6 7.2 27.1 EPS 23.2 (6.7) 8.5 31.5
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Balance sheet (INR mn) Cash flow metrics As on 31st March FY14 FY15 FY16E FY17E Year to March FY14 FY15 FY16E FY17E Share capital 960 960 960 960 Operating cash flow 3,829 6,809 8,268 11,078 Reserves & Surplus 26,247 34,346 40,638 48,579 Investing cash flow (2,059) (3,661) (289) (1,000) Shareholders' funds 27,207 35,306 41,598 49,539 Financing cash flow (1,444) (3,427) (4,232) (5,457) Minority Interest 61 4 (41) (91) Net cash Flow 326 (279) 3,747 4,621 Short term borrowings 12 10 10 10 Capex (2,168) (636) (1,324) (1,000) Long term borrowings 20,187 20,204 20,204 20,204 Dividend paid (2,247) (2,601) (2,780) (4,005) Total Borrowings 20,199 20,214 20,214 20,214 Long Term Liabilities & Provisions 659 768 768 768 Profitability and efficiency ratios Deferred Tax Liability (net) (298) (531) (531) (531) Year to March FY14 FY15 FY16E FY17E Sources of funds 47,828 55,761 62,008 69,899 Return on Average Equity (ROAE) 26.8 31.1 27.1 29.2 Gross Block 5,613 5,853 6,553 7,253 Pre‐tax Return on Capital 30.7 27.4 26.7 30.3 Net Block 3,025 3,213 3,343 3,412 Inventory Days 181 201 180 180 Capital work in progress 997 878 750 750 Debtors Days 83 78 85 85 Intangible Assets 7,708 8,163 8,841 9,065 Payble Days 55 58 55 55 Total Fixed Assets 11,730 12,254 12,934 13,227 Cash Conversion Cycle 209 222 210 210 Non current investments 5,812 7,093 6,349 6,349 Current Ratio 3.5 3.6 4.0 4.2 Cash and cash equivalents 10,993 15,656 19,112 23,733 Gross Debt/EBITDA 1.7 1.6 1.5 1.1 Inventories 11,736 11,878 12,822 14,934 Gross Debt/Equity 0.7 0.6 0.5 0.4 Sundry Debtors 10,281 10,692 12,966 15,431 Adjusted Debt/Equity 1.4 1.1 0.9 0.8 Loans & Advances 8,224 10,248 10,248 10,248 Net Debt/Equity 73.1 115.6 132.8 164.3 Other Current Assets 1,243 1,706 1,706 1,706 Total Current Assets (ex cash) 31,484 34,524 37,742 42,319 Operating ratios Trade payable 5,050 4,204 4,522 5,167 Year to March FY14 FY15 FY16E FY17E Other Current Liabilities & Short 7,141 9,562 9,608 10,562 Total Asset Turnover 1.0 0.9 0.9 1.0 Total Current Liabilities & 12,191 13,766 14,130 15,729 Fixed Asset Turnover 4.3 4.4 4.7 5.4 Net Current Assets (ex cash) 19,293 20,758 23,612 26,590 Equity Turnover 1.3 1.6 1.4 1.5 Uses of funds 47,828 55,761 62,008 69,899 Book Value per share (INR) 28.3 36.8 43.3 51.6 Valuation parameters Year to March FY14 FY15 FY16E FY17E
Free cash flow (INR mn) Adjusted Diluted EPS (INR) 9.3 8.7 9.4 12.4 Year to March FY14 FY15 FY16E FY17E Y‐o‐Y growth (%) 23.2 (6.7) 8.5 31.5 Reported Profit 8,921 9,775 10,479 13,323 Adjusted Cash EPS (INR) 9.8 10.9 11.6 14.6 Add: Depreciation 501 673 644 707 Diluted Price to Earnings Ratio 40.4 43.3 39.9 30.4 Interest (Net of Tax) 107 69 67 70 Price to Book Ratio (P/B) (x) 13.2 10.2 8.7 7.3 Others (796) (1,472) (67) (45) Enterprise Value / Sales (x) 8.4 7.5 6.5 5.4 Less: Changes in WC 4,904 2,236 2,854 2,977 Enterprise Value / EBITDA (x) 30.7 29.1 26.0 19.9 Operating cash flow 3,829 6,809 8,268 11,078 Dividend Yield (%) 0.5 0.6 0.6 0.9 Less: Capex 2,168 636 1,324 1,000 Free Cash Flow 1,661 6,173 6,944 10,078
Peer comparison valuation Market cap Diluted Price to Earnings Enterprise Value / EBITDA (X) Return on Average Equity Name (USD mn) FY16E FY17E FY16E FY17E FY16E FY17E Zee Entertainment Enterprises 5,651 39.9 30.4 26.0 19.9 27.1 29.2 DEN Networks 405 (28.4) 67.6 15.2 8.5 (3.6) 3.5 Dish TV India 1,836 115.0 57.2 13.2 10.1 ‐ ‐ Hathway Cable & Datacom 643 ‐ ‐ 15.9 11.2 (16.5) (7.5) Jagran Prakashan Ltd 628 13.6 11.6 7.4 6.6 23.8 24.3 PVR 465 34.2 25.0 13.0 10.2 18.1 22.8 Sun TV Network 1,723 11.9 9.8 4.8 3.8 24.8 26.9 Source: Edelweiss research
14 Edelweiss Securities Limited Zee Entertainment Enterprises
Additional Data Directors Data Subhash Chandra Non‐Executive Chairman Ashok Kurien Non‐Executive Director Lord Gulam K. Noon Independent Director Prof. R. Vaidyanathan Independent Director Punit Goenka Managing Director & CEO Prof. Sunil Sharma Independent Director Prof. (Mrs.) Neharika Vohra Independent Director Subodh Kumar Executive Vice Chairman
Auditors ‐ M/S MGB & Co *as per last annual report
Holding ‐ Top10 Perc. Holding Perc. Holding Oppenheimer Funds Inc 10.47 Vanguard Group Inc 3.26 Schroder Investment Mgmt Ltd 2.18 Ontario Teachers Pension Plan Bo 1.85 Columbia Wanger Asset Management 1.78 New World Fund Inc 1.68 Capital World Investors 1.67 Blackrock Fund Advisors 1.47 Gic Private Limited 1.41 Birla Sun Life Asset Management 1.13 *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 10 Feb 2015 Oppenheimer Funds Inc. as FII and relevant Sub Sell 290000.00 06 Feb 2015 OppenheimerFunds Sell 290000.00
*in last one year
15 Edelweiss Securities Limited RATING & INTERPRETATION
Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk DEN Networks HOLD SU H Dish TV India BUY SO M Hathway Cable & Datacom BUY SP M PVR BUY SP M Sun TV Network BUY SP 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
16 Edelweiss Securities Limited Zee Entertainment Enterprises
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91‐22) 4009 4400, Email: [email protected]
Nirav Sheth
Head Research
Coverage group(s) of stocks by primary analyst(s): Media DEN Networks, Dish TV India, Hathway Cable & Datacom, PVR, Sun TV Network, Zee Entertainment Enterprises
Recent Research
Date Company Title Price (INR) Recos
06‐Jul‐15 Media Moderate growth in ad revenues; multiplexes impress; Result Preview 15‐Jun‐15 PVR Consolidating moves; 644 Buy Company Update 01‐Jun‐15 PVR Tough quarter; content 673 Buy pipeline enticing; Result Update
Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 155 45 8 208 Buy appreciate more than 15% over a 12‐month period * stocks under review Hold appreciate up to 15% over a 12‐month period > 50bn Between 10bn and 50 bn < 10bn
Reduce depreciate more than 5% over a 12‐month period Market Cap (INR) 151 54 3
One year price chart
473 421 370
(INR) 318 267 215 15 14 15 14 15 15 14 15 14 14 14 15 15 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jul Jul Jan Jun Oct Apr Sep Feb Dec Aug Nov Mar May Zee Entertainment Enterprises
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