India Equity Research | Media & Entertainment © May 10, 2017 Result Update Emkay Your success is our success Zee Entertainment Refer to important disclosures at the end of this report CMP Target Price Rs 516 Rs 580 (.) as of (5/10/2017) 12 months Yet another quarter of EBITDA Rating Upside outperformance ACCUMULATE (.) 12.4 %
. Once again, Zee reported better than expected operating performance. Continued benefit Change in Estimates of lower placement costs was reflected with 18% yoy decline in other operating expenses. EPS Chg FY18E/FY19E (%) NA . Underlying domestic advertisement revenue growth was 8.1% despite residual impact of Target Price change (%) NA demonetization. Reported financial are not comparable due to sale of sports business. Target Period (Months) 12 Domestic subscription revenue decline of 3% yoy was lower than our estimate of 6%. Previous Reco ACCUMULATE . As stated in our recent note Link, we expect Zee to deliver healthy advertisement revenue Emkay vs Consensus growth of 14% in FY18, backed by sustained market share in regional channels and EPS Estimates aggressive spends on acquiring movie rights. FY18E FY19E Emkay 14.9 18.4 . Revival in Zee TV’s viewership share is imperative, continued delays in the same could Consensus 16.0 19.3 weigh on stock price. We are estimating 17%/15% increase in domestic subscription Mean Consensus TP (12M) Rs 548 revenue for FY18/19E, implementation of new tariff order would be closely watched. Stock Details Another quarter of healthy operating performance Bloomberg Code Z IN Face Value (Rs) 1 Consolidated revenue at Rs15.3bn was flat on yoy basis. Ad revenues were flat on yoy basis (vs estimate of 2%) aided by robust growth of 8.6% yoy in domestic while impacted by 53% Shares outstanding (mn) 960 decline in international. Subscription revenue was down 6% yoy to Rs5580mn (vs estimate of 52 Week H/L 590 / 415 -8%), decline was due to high base on account of catch up revenue in 4Q. Domestic M Cap (Rs bn/USD bn) 496 / 7.67 subscription decline 2.7% yoy to Rs4.6bn and international subscription revenue declined Daily Avg Volume (nos.) 15,48,219 18.7% yoy to Rs1,026mn. Other operating income at Rs1.2bn vs Rs802mn in Q4FY16. Daily Avg Turnover (US$ mn) 12.5
Consolidated EBITDA at Rs4.7bn, up 14% yoy (13% beat). EBITDA margin expanded 367bps Shareholding Pattern Mar '17 yoy to 30.7%. Ex-sports EBITDA margin stood at 32.9% (+94bps yoy). Programming and Promoters 43.1% content cost was down 5.6% yoy. Advertisement spends are down 14.6% yoy and other opex is down 18.6% yoy. These factors resulted to EBITDA beat. Adjusted PAT stood at Rs2.4bn FIIs 46.4% vs Rs1.4bn, up 70% yoy (driven by higher other income and lower tax rate. Exceptional gain DIIs 4.4% was Rs12bn pertaining to sports business sale. Public and Others 6.2%
Outlook: Confident of outperforming industry growth Price Performance Increased investment towards movie satellite rights is expected to drive advertisement (%) 1M 3M 6M 12M revenue till Zee TV’s market share recovers. Higher movie revenues are also margin accretive Absolute (7) - 2 24 for Zee due to its aggressive accounting policy for amortization. However, market share loss Rel. to Nifty (9) (7) (7) 5 of Zee TV over the last few months has been the key concern as it would restrict Relative price chart outperformance to industry advertisement growth. The management has maintained its 600 Rs % 20 guidance of +30% EBITDA margin for FY18 while Zee has consistently delivered +32% margin over the last 10 years in entertainment business (except FY15 & FY16 as higher cost 560 14 was on account of &TV launch). We believe, the company can easily deliver +33% EBITDA 520 8
margin in entertainment business going forward despite aggressive content investments. 480 2
440 -4 Financial Snapshot (Consolidated) 400 -10 (Rs mn) FY15 FY16 FY17E FY18E FY19E May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Revenue 48,837 58,515 64,341 66,024 75,155 Zee Entertainment (LHS) Rel to Nifty (RHS) Source: Bloomberg EBITDA 12,538 15,095 19,269 22,464 26,660 This report is solely produced by Emkay Global. The EBITDA Margin (%) 25.7 25.8 29.9 34.0 35.5 following person(s) are responsible for the production of the recommendation:
APAT 9,775 10,709 12,161 15,443 18,505 EPS (Rs) 8.9 9.9 12.4 14.9 18.4 Naval Seth EPS (% chg) (3.1) 10.9 25.8 19.9 23.4 [email protected] +91 22 66242414 ROE (%) 16.6 16.1 19.8 22.4 22.9 P/E (x) 57.9 52.2 41.5 34.6 28.0 Ashish Agrawal [email protected] EV/EBITDA (x) 38.2 31.5 25.0 21.0 17.2 +91 22 66121241 P/BV (x) 8.9 7.9 8.5 7.1 5.9
Source: Company, Emkay Research
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Zee Entertainment (Z IN) India Equity Research | Result Update
Exhibit 1: Actual vs estimates for Q4FY17 Consensus Estimate % variation (Rs mn) Actual estimate Comment (Emkay) (Bloomberg) Emkay Consensus Revenue 15,280 15,168 15,713 1% -3% Revenue was in line with estimates EBITDA 4,687 4,152 4,458 13% 5% EBITDA beat led by strict cost control EBITDA, margin 31% 27% 28% 331 bps 230 bps PAT was higher on account of exceptional gain PAT 15,129 2,879 3,068 425% 393% of Rs12bn pertaining to sports business sale Source: Company, Emkay Research
Exhibit 2: Quarterly Financials Rs mn Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY (%) QoQ (%) FY 17 FY 16 YoY (%) Ad revenue 8,472 9,120 9,592 9,555 8,469 (0.0) (11.4) 36,735 33,652 9.2 Subscription Revenue 5,944 5,282 5,833 5,935 5,580 (6.1) (6.0) 22,629 20,579 10.0 Others 802 1,315 1,529 902 1,231 53.5 36.4 4,977 3,894 27.8 Net Sales 15,218 15,716 16,954 16,391 15,280 0.4 (6.8) 64,341 58,125 10.7
Programming Cost 6,913 6,575 7,688 7,035 6,527 (5.6) (7.2) 27,825 25,984 7.1 as % of sales 45.4 41.8 45.3 42.9 42.7 43.2 44.7 Employee Expenses 1,222 1,499 1,533 1,419 1,593 30.3 12.2 6,043 4,986 21.2 as % of sales 8.0 9.5 9.0 8.7 10.4 9.4 8.6 Admin and Other expense 2,974 3,110 2,841 2,780 2,474 (16.8) (11.0) 11,205 12,019 (6.8) as % of sales 19.5 19.8 16.8 17.0 16.2 17.4 20.7 Total operating expenditure 11109 11185 12062 11233 10593 (4.6) (5.7) 45073 42989 4.8 EBITDA 4110 4532 4892 5158 4687 14.0 (9.1) 19269 15136 27.3 Depreciation 209 251 336 249 316 51.1 27.0 1,152 777 48.3 EBIT 3900 4280 4556 4909 4371 12.1 (11.0) 18116 14359 26.2 Other Income 375 734 432 525 549 46.4 4.7 2,240 1,951 14.8 Interest 1,333 75 86 90 1,122 1,372 1,598 - Exceptional Item Fair value through P&L) 835 -1,132 -829 -714 12,705 10,030 -1,003 PBT 3778 3807 4074 4630 16503 336.8 256.5 29014 13710 111.6 Tax 1,573 1,626 1,634 2,081 1,464 (6.9) (29.6) 6,805 5,491 23.9 PAT before MI 2205 2181 2440 2549 15039 582.1 490.0 22209 8218 170.2 MI -60 12 56 41 -90 50.8 (319.7) 18 -13 (236.1) PAT after MI 2265 2203 2384 2508 15129 568.0 503.3 22224 8387 165.0 PAT before comprehensive income 2,265 2,170 2,384 2,508 15,129 568.0 503.3 22,191 8,232 169.6 Adjusted PAT 1430 3335 3213 3221 2425 69.6 (24.7) 12194 9390 29.9
Margins (%) (bps) (bps) (bps) EBIDTA 27.0 28.8 28.9 31.5 30.7 367 (79) 29.9 26.0 391 EBIT 25.6 27.2 26.9 29.9 28.6 298 (134) 28.2 24.7 345 EBT 24.8 24.2 24.0 28.2 108.0 8,318 7,976 45.1 23.6 2,151 PAT 14.5 13.9 14.4 15.6 98.4 8,394 8,287 34.5 14.1 2,038 Effective Tax rate 41.6 42.7 40.1 44.9 8.9 (3,277) (3,607) 23.5 40.1 (1,660) Source: Company, Emkay Research
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ED: D. SINHA SA May 10, 2017 2 Zee Entertainment (Z IN) India Equity Research | Result Update
Exhibit 3: Quarterly performance Sports Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY (%) QoQ (%) FY 17 FY 16 YoY (%) Revenue 1,601 1,700 2,125 1,411 1,066 (33.4) (24.5) 6,302 6,312 (0) Opex 1,837 1,529 2,293 1,334 1,049 (42.9) (21.4) 6,205 6,661 (7) EBITDA (236) 171 (168) 77 17 (107.2) (77.9) 97 -349 (128) Ex-Sports Financials Revenue 13,617 14,016 14,829 14,980 14,214 4.4 (5.1) 58,039 51,813 12 Opex 9,272 9,656 9,769 9,899 9,544 2.9 (3.6) 38,868 36,328 7.0 EBITDA 4,346 4,361 5,060 5,081 4,670 7.5 (8.1) 19,172 15,485 24 EBITDA % 31.9 31.1 34.1 33.9 32.9 94 (106) 33.0 29.9 315
Segmental Revenues Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY % QoQ % FY 17 FY 16 YoY % Ad Revenue 8,472 9,120 9,592 9,555 8,469 (0.0) (11.4) 36,735 33,652 9.2 Subscription revenue 5,944 5,282 5,833 5,935 5,580 (6.1) (6.0) 22,629 20,579 10.0 A) Domestic 4,682 4,179 4,675 4,818 4,554 (2.7) (5.5) 18,226 16,302 11.8 B) International 1,262 1,103 1,158 1,117 1,026 (18.7) (8.1) 4,404 4,276 3.0 Others 802 1,315 1,529 902 1,231 53.5 36.4 4,977 3,894 27.8 Total Sales 15,218 15,716 16,954 16,391 15,280 0.4 (6.8) 64,341 58,125 10.7
Source: Company, Emkay Research
Other highlights . Subscription revenue was down 6% yoy to Rs5580mn (est. of -8%), decline was due to high base on account of catch up revenue in 4Q. Domestic subscription revenue stood at Rs4,554mn while international subscription revenue stood at Rs1,026mn. . Entertainment segment (ex-sports) revenues grew 4.4% yoy to Rs14bn with EBITDA of Rs4.7bn (+7.5% yoy). EBITDA margin at 32.9% expanded 94bps yoy. . RPAT at Rs15bn was up 568% yoy. Adjusted PAT stood at Rs2.4bn vs Rs1.4bn, up 70% yoy, driven by higher other income and lower tax rate. . Tax rate (adj. for one-offs) stood at 38.5% vs 53.5% in Q4FY16 while other Income stood at Rs549mn vs Rs375mn in Q4FY16. . Exceptional gain was Rs12bn pertaining to sports business sale . Company has completed the first phase of sale of sports business during the quarter and exploring ways to extinguish preference share liability using the proceeds from the sale of sports business. . Investment in movies: During FY17, Zee had significantly increased investments in acquisition of movie rights and production of movies. A large part of increase in inventory and other current assets is on account of these investments.
Domestic advertisement revenue remain healthy . Ad revenue remain flat on yoy basis, impacted by weak international ad revenue. Domestic ad revenue registered healthy growth of 8.6% yoy while international ad revenue declined 53% yoy. . International advt. revenue declined to Rs525mn, impacted by regulatory changes made in Bangladesh and slowdown in some countries in Middle East. Non-Bangladesh advertisers were not allowed to advertise. Issues in Nigeria have been largely resolved while Bangladesh issue resolution is still in progress . Company has disclosed ad revenue for sports business which declined 85.3% yoy to Rs90mn vs Rs612mn in Q4FY16.
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ED: D. SINHA SA May 10, 2017 3 Zee Entertainment (Z IN) India Equity Research | Result Update
Exhibit 4: Subscription revenue Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Domestic Subscription Revenue 3373 3455 4175 3680 3752 4188 4682 4179 4675 4818 4554 yoy growth 1% 4% 25% 25% 11% 21% 12% 14% 25% 15% -3% International Subscription Revenue 872 1,007 933 945 1,039 1,030 1,262 1103 1,158 1,117 1,026 yoy growth -29.2% -19.0% -27.8% -20.5% 19.2% 2.3% 35.3% 16.7% 11.5% 8.4% -18.7% Total Subscription 4,245 4,461 5,108 4,625 4,791 5,218 5,944 5282 5,833 5,935 5,580 yoy growth -7.3% -2.3% 10.2% 12.2% 12.9% 17.0% 16.4% 14.2% 21.7% 13.7% -6.1% Source: Company, Emkay Research International operations . Advertisement revenue declined to 53.1% yoy Rs525mn and subscription revenue declined 18.7% yoy to Rs1,026mn. Other operating income was up to Rs663mn (+216% yoy and 11% qoq). Due to ongoing issues in Bangladesh and economic slowdown in some of the Middle East countries might impact growth in FY18. Management is expecting Nigeria issue to get resolved soon while there is still lack of clarity on resolution of Bangladesh issue.
Exhibit 5: International revenue break-even Rsmn Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY % QoQ % Ad revenue 1120 705 792 817 525 (53.1) (35.7) Subscription revenue 1262 1103 1158 1117 1026 (18.7) (8.1) Other sales and services 210 598 672 596 663 215.7 11.2 Total Revenue 2592 2406 2622 2530 2214 (14.6) (12.5) Source: Company, Emkay Research Sports segment . Sport was present only for 2 month in Q4FY17. Revenue was at Rs1.1bn vs Rs1.6bn while EBITDA was Rs17mn vs loss of Rs236mn in Q4FY16. . Sports Ad revenue was down 33.4% to Rs90mn vs Rs612mn in Q4FY16 while subscription revenue stood at Rs789mn vs Rs839mn in Q4FY16. Other revenue stood at Rs187mn vs Rs150mn in Q4FY16.
Exhibit 6: Sport segment revenue detail Q4FY16 Q4FY17 % yoy Total Revenue 1,601 1,066 (33.4) Advertising Revenue 612 90 (85.3) Subscription Revenue 839 789 (6.0) Other Sales & Services 150 187 24.7 Total Cost 1,837 1,049 (42.9) Source: Company, Emkay Research
Exhibit 7: Sports revenue Sports Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Revenue 1181 2476 1680 1519 1278 1914 1601 1700 2125 1411 1066 Opex 1431 2746 1438 1504 1256 2064 1837 1529 2293 1334 1049 EBITDA -250 -270 242 15 22 -150 -236 171 -168 77 17 Source: Company, Emkay Research
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ED: D. SINHA SA May 10, 2017 4 Zee Entertainment (Z IN) India Equity Research | Result Update
Exhibit 8: Key revenue assumptions Zee TV (Rs mn) FY13 FY14 FY15 FY16 FY17 FY18E FY19E Advertisement revenue 19639 23801 26603 34297 36735 40610 46868 yoy Growth 24% 21% 12% 29% 7% 11% 15% Subscription revenue 16235 18022 17935 20579 22629 21413 24087 yoy Growth 23% 11% 0% 15% 10% -5% 12% Domestic subscription 11648 13184 13936 16302 18226 17670 20268 yoy Growth 26% 13% 6% 17% 12% -3% 15% International subscription 4586 4839 4001 4276 4404 3743 3818 yoy Growth 14% 6% -17% 7% 3% -15% 2% others 1122 2394 4299 3639 4977 4000 4200 yoy Growth -15% 113% 80% -15% 37% -20% 5% Total revenue 36996 44218 48839 58514 64342 66024 75155 yoy Growth 22% 20% 10% 20% 10% 3% 14% Source: Company, Emkay Research
Increased investment in movie satellite rights to aid advertisement growth in FY18 Zee has increased investment towards acquiring movie satellite rights. Zee has acquired higher number of Bollywood movie titles in FY17 as compared to last 4-5 years, which include big ticket titles like Dangal, Raees and others. This, would aid advertisement growth in FY18 till Zee TV recovers viewership share. At the initial stage, monetization of movies rights is margin accretive due to accounting policy for amortization. Zee amortizes movie rights over the period of 5 years, the same has been in place from last 20 years. In our view, a new movie rakes in +50% of its expected lifetime revenue (with 4-5 re-runs) while annual amortization is 20% and some additional marketing spends, this leads to revenue-cost mismatch and push margin upwards in the 1-2 years of movie monetization. Therefore, this also result in rise in inventory.
Movie satellite rights- Highlighted portion in case of Zee indicates those movies which are yet to be telecasted.
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ED: D. SINHA SA May 10, 2017 5 Zee Entertainment (Z IN) India Equity Research | Result Update
Exhibit 9: Movie satellite rights Zee Entertainment Sony Entertainment Colors Star Entertainment Shubh Mangal Savdhaan Bahubali- The conclusion
Sarkar 3 Jolly LLB 2
Half girlfriend Robot 2 Welcome 3 FY18* Munna Michael Badshaho Jagga jasoos Robot -2 Hera pheri 3 Baaghi Sultan Ki and Ka Housefull-3 Dear Zindagi Fan Rangoon Mohenjo Daro A Flying Jatt Azhar Camaando 2 Dishoom Camaando 2 Te3n Shivaay Sardaar Gabbar Singh Dear zindagi Aligarh Rustom Rocky handsome Pink Happy Bhaag Jayegi Befikre Akira Rock On 2 Saala Khadoos Kabali (Hindi) Banjo Jungle Book FY17 Bar Bar Dekho M.S. Dhoni – The Untold Story Neel Batte Sanatta Ae Dil Hai Mushkil Kahani 2 Tum bin 2 Raaz Reboot Mirzya Happy bhag jayegi Udta punjab Raees Dangal Sanam Teri Kasam
Singh Is Bliing Baahubali Airlift Baby I (Hindi Version) ABCD 2 Bajirao Mastani Bajrangi Bhaijaan Tanu weds Manu return Detective Byomkesh Bakshy Pyaar Ka Punchnama 2 Drishyam
Dil Dhadakne do Dum Laga Ke Haisha Shaandaar Bhaag Johnny FY16
Welcome Back Piku Brothers Talvar Aligarh Dilwale Force2 Prem Ratan Dhan Payo Fitoor Kapoor and Sons Roy Tamasha Ghayal Once Again Neerja Holiday PK Hasee Toh Phasee KICK Entertainment Dedh Ishqiya Humpty Sharma Ki Dulhania Singham Returns Happy New year Gunday Mary Kom Jai Ho Mai Tera Hero Queen Bombay Velvet Raja Natwarlal Bhoothnath Returns Bang Bang Gulaab Gang Action Jackson FY15 Entertainment Hamshakals Haider Bobby Jasoos Yaariyan Shaadi Ke Side Effects 2 States Ek Villain Source: Emkay Research, Company. * Expected to release in April 2017. Bold highlights successful performance at box office
Balance sheet At the end of FY17, advances for movies stood at Rs4,461mn. Advances are paid for acquisition of future rights and advance purchase of rights of movies under production.
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ED: D. SINHA SA May 10, 2017 6 Zee Entertainment (Z IN) India Equity Research | Result Update
Exhibit 10: Balance sheet EQUITY AND LIABILITIES (Rs mn) FY16 H1FY17 FY17 (a) Share Capital 961 961 961 (b) Reserves and Surplus 47,079 48909 65608 Sub-total - Shareholders’ Funds 48,040 49870 66,569 Minority Interest 22 26 10 Share Application Money Non-Current Liabilities (a) Long-term Borrowings 17149 19088 15272 (b) Long term Provisions 534 725 767 (c) Other Non-Current Liabilities 304 379 Sub-total - Non-current Liabilities 17987 20192 16039 Current Liabilities (a) Trade Payables 4,768 5313 4891 (b) Other Current Liabilities 2433 (c) Short-term Provisions 77 68 89 (d) Short-term Borrowings 5,557 9173 others 3208 5244 3597 Sub-total - Current Liabilities 13610 13057 17750 Total 79659 83145 100368 ASSETS Non-current Assets (a) Fixed Assets 6,695 6963 8369 (b) Goodwill on Consolidation 8,843 8585 2676 (c) Non-current Investments 2,780 1824 1392 (d) Deferred Tax Assets (Net) 648 745 903 (e) Long Term Loans and Advances 0 (f) Other Non-current Assets 6,462 6114 6087 Sub-total - Non-current Assets 25,428 24231 19,427 Current Assets (a) Current Investments 7,592 10363 11868 (b) Inventories 13,180 14481 16844 (c) Trade Receivables 13,482 17035 13059 (d) Cash and Bank Balances 9,631 5129 26133 (e) Short-term Loans and Advances 1,750 1500 1542 (f) Other Current Assets 8,596 10407 11495 Sub-total - Current Assets 54231 58914 80941 Minority Interest Total 79659 83,145 100368 Source: Company, Emkay Research
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ED: D. SINHA SA May 10, 2017 7 Zee Entertainment (Z IN) India Equity Research | Result Update
Exhibit 11: BARC ratings trends (quarterly average) Hindi GEC Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 STAR Plus 15% 14% 14% 15% 14% 14% Colors 14% 14% 14% 12% 14% 13% Zee TV 13% 13% 12% 12% 10% 10% Zee Anmol 14% 12% 10% 10% 9% 9% STAR Utsav 10% 9% 10% 10% 8% 9% Life Ok 9% 9% 9% 9% 8% 8% Sony Pal 6% 8% 10% 9% 9% 11% Sony Entertainment Television 7% 6% 6% 8% 9% 9% Sony Sab 7% 7% 8% 8% 8% 8% Rishtey 6% 8% 7% 7% 9% 10% Hindi Movies Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 STAR Gold 22% 25% 20% 21% 17% 19% Zee Cinema 24% 24% 20% 22% 22% 20% Sony MAX 27% 25% 37% 25% 24% 23% Movies OK 16% 14% 13% 13% &pictures 11% 12% 13% 13% Marathi Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Zee Marathi 41% 39% 38% 42% 49% 50% Colors Marathi 21% 25% 27% 22% 19% 16% Zee Talkies 19% 18% 16% 17% 14% 16% Fakt Marathi 9% 8% 9% 7% 8% Zee 24 Taas 9% 9% STAR Pravah 12% 11% 8% 10% 10% 10% Telugu Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 ETV Telugu 26% 25% 23% 23% 22% 22% Maa TV 23% 22% 22% 20% 21% 21% Zee Telugu 21% 24% 25% 22% 21% 22% Gemini TV 19% 18% 20% 25% 27% 27% Gemini Movies 12% 11% 10% 10% 9% 9% Tamil Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Sun TV 59% 61% 59% 56% 58% 57% KTV 19% 17% 18% 15% 14% 14% STAR Vijay 11% 12% 11% 12% 10% 12% Zee Tamil 6% 8% 11% 13% 12% Jaya TV 5% 6% 5% Polimer 6% 5% 5% 5% 4% Kannada Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Colors Kannada 33% 31% 29% 31% 31% 31% Udaya TV 17% 16% 16% 16% 11% 12% Star Suvarna 17% 19% 17% 17% 20% 19% Udaya Movies 18% 17% 19% 16% 16% 16% Zee Kannada 15% 18% 19% 19% 22% 22% Bangla Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 STAR Jalsha 46% 46% 43% 44% 46% 49% Zee Bangla 28% 29% 30% 32% 29% 29% Jalsha Movies 13% 12% 13% 11% 12% 10% Colors Bangla 6% 6% 7% Zee Bangla Cinema 6% 7% 7% 6% 6% 6% Aakaash Aath 7% 7% 7% 6% Source: BARC, Emkay Research
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ED: D. SINHA SA May 10, 2017 8 Zee Entertainment (Z IN) India Equity Research | Result Update
Conference call highlights
. For Q4FY17, TV industry advertisement revenue growth was flat to negative while Zee grew 8.6% yoy. After demonetization impact, advertisement spends are coming back to normalized level. In FY18, advertisement revenue growth is expected to grow at low double digit and company would strive to outperform the industry advertisement revenue growth . Zee TV programming hours: The company in process in fixing the prime time content to drive ratings, which is expected to happen by next quarter. After that company would look for increase number of hours. . There is no business sense to convert pay channel to FTA. FTA advertisement revenue market size is Rs10bn. . Domestic subscription: Domestic non-sports subscription revenue growth for FY17 was 13.5%. One channel (Zee TV) rating fall would not impact overall domestic subscription. The company refrained from guiding growth for FY18 due to lack of clarity n implementation of new tariff order. If broadcasters do realistic pricing based on the pull of the channel then, it would benefit all the stakeholders in the value chain. If tariff order is implemented in current form then, subscription revenue growth would be in high teens for FY18. As per the management, there could be differential pricing for regular and DD dish, however, there clarity is yet to get emerge on the same. Majority of free DD Dish subscriber addition is happening in Phase IV and subscribers who wanted to have pay content have already moved to DTH. . Industry HD subscribers stand at 9mn. . International revenues: Advertisement revenue was impacted by regulatory changes made in Bangladesh and slowdown in some countries in Middle East. Non-Bangladesh advertisers were not allowed to advertise. Issues in Nigeria have been largely resolved while Bangladesh issue resolution is still in progress. . Margin guidance: EBITDA margin can go up to 34%-35% but continued investment would keep blended margins at +30% levels. Margin guidance include investment across the business verticals, across the channels and digital as well. . Movie production: Aggressive spends would continue as it is one of the integral part of growth strategy. . Investment in Margo: The company developed the technology to develop digital content . Preference share redemption: The company would approach board during Q2FY18 board meeting
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ED: D. SINHA SA May 10, 2017 9 Zee Entertainment (Z IN) India Equity Research | Result Update
Exhibit 12: P/E band Exhibit 13: P/B band
50.0 12.0 40.0 10.0 8.0 30.0 6.0 20.0 4.0 10.0 2.0
0.0 0.0
Jul-11
Jul-11
Oct-09 Apr-06 Apr-13 Oct-16
Jun-07 Jan-08 Jun-14 Jan-15
Apr-06 Oct-09 Apr-13 Oct-16
Mar-09 Feb-12 Mar-16
Jun-07 Jan-08 Jun-14 Jan-15
Nov-06 Aug-08 Dec-10 Sep-12 Nov-13 Aug-15
Mar-09 Feb-12 Mar-16
May-10
Nov-06 Dec-10 Nov-13
Aug-08 Sep-12 Aug-15 May-10 1yr Fwd PE (x) Mean STd+1 STd-1 1yr Fwd PB (x) Mean STd+1 STd-1
Source: Company, Emkay Research Source: Company, Emkay Research
Exhibit 14: EV/EBITDA band
30.0 25.0 20.0 15.0 10.0
5.0
Jul-07 Jul-12
Apr-06 Oct-08 Apr-11 Oct-13 Apr-16
Jan-10 Jun-10 Jan-15 Jun-15
Feb-12 Feb-07 Mar-09 Mar-14 Feb-17
Sep-06 Dec-07 Aug-09 Nov-10 Sep-11 Dec-12 Aug-14 Nov-15 Sep-16
May-08 May-13 1yr fwd Ev/Ebitda Mean STd+1 STd-1
Source: Emkay Research
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ED: D. SINHA SA May 10, 2017 10 Zee Entertainment (Z IN) India Equity Research | Result Update
Key Financials (Consolidated) Income Statement Y/E Mar (Rs mn) FY15 FY16 FY17E FY18E FY19E Revenue 48,837 58,515 64,341 66,024 75,155 Expenditure 36,299 43,420 45,073 43,560 48,495 EBITDA 12,538 15,095 19,269 22,464 26,660 Depreciation 673 777 1,152 1,327 1,415 EBIT 11,865 14,318 18,116 21,136 25,245 Other Income 2,278 2,016 2,240 2,600 3,135 Interest expenses 103 123 1,372 300 300 PBT 14,040 16,211 18,984 23,436 28,080 Tax 4,285 5,491 6,805 7,968 9,547 Extraordinary Items 0 (331) 10,063 0 0 Minority Int./Income from Assoc. (37) (4) (5) (48) (56) Reported Net Income 8,564 9,168 22,013 14,332 17,687 Adjusted PAT 9,775 10,709 12,161 15,443 18,505
Balance Sheet Y/E Mar (Rs mn) FY15 FY16 FY17E FY18E FY19E Equity share capital 21,152 21,130 960 960 960 Reserves & surplus 34,346 41,297 57,338 68,861 83,739 Net worth 55,499 62,427 58,298 69,822 84,700 Minority Interest 4 85 33 33 33 Loan Funds 12 9 20,179 15,979 11,779 Net deferred tax liability (531) (531) (531) (531) (531) Total Liabilities 54,984 61,990 77,980 85,303 95,981 Net block 11,376 13,856 14,096 13,769 13,354 Investment 9,755 10,439 10,939 15,939 20,939 Current Assets 47,519 52,797 68,811 70,567 82,233 Cash & bank balance 7,365 9,544 22,206 24,438 28,785 Other Current Assets 1,707 2,126 2,332 2,393 2,724 Current liabilities & Provision 14,544 15,979 16,744 15,850 21,423 Net current assets 32,975 36,818 52,066 54,717 60,810 Misc. exp 0 0 0 0 0 Total Assets 54,984 61,990 77,980 85,303 95,981
Cash Flow Y/E Mar (Rs mn) FY15 FY16 FY17E FY18E FY19E PBT (Ex-Other income) (NI+Dep) 11,762 14,195 16,744 20,836 24,945 Other Non-Cash items 0 0 0 0 0 Chg in working cap (4,350) (1,664) (2,586) (419) (1,746) Operating Cashflow 6,274 9,573 20,738 16,352 18,175 Capital expenditure (1,197) (3,257) (1,393) (1,000) (1,000) Free Cash Flow 5,077 6,316 19,346 15,352 17,175 Investments (1,465) (684) (500) (5,000) (5,000) Other Investing Cash Flow 0 0 0 0 0 Investing Cashflow (384) (1,925) 348 (3,400) (2,865) Equity Capital Raised 22 (22) (20,170) 0 0 Loans Taken / (Repaid) (5) (3) 20,170 (4,200) (4,200) Dividend paid (incl tax) (3,812) (3,805) (3,020) (3,920) (3,627) Other Financing Cash Flow 5,373 5,849 5,513 19,906 21,603 Financing Cashflow 1,475 1,896 1,120 11,486 13,476 Net chg in cash 7,365 9,544 22,206 24,438 28,785 Opening cash position 5,645 7,365 9,544 22,206 24,438 Closing cash position 7,365 9,544 22,206 24,438 28,785 Source: Company, Emkay Research
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ED: D. SINHA SA May 10, 2017 11 Zee Entertainment (Z IN) India Equity Research | Result Update
Key Ratios Profitability (%) FY15 FY16 FY17E FY18E FY19E EBITDA Margin 25.7 25.8 29.9 34.0 35.5 EBIT Margin 24.3 24.5 28.2 32.0 33.6 Effective Tax Rate 30.5 33.9 35.8 34.0 34.0 Net Margin 20.0 18.3 18.9 23.4 24.7 ROCE 27.7 27.9 29.1 29.1 31.3 ROE 16.6 16.1 19.8 22.4 22.9 RoIC 34.3 36.7 42.6 48.0 56.5
Per Share Data (Rs) FY15 FY16 FY17E FY18E FY19E EPS 8.9 9.9 12.4 14.9 18.4 CEPS 9.6 10.7 13.6 16.3 19.9 BVPS 57.8 65.0 60.7 72.7 88.2 DPS 3.5 3.5 2.7 3.7 3.4
Valuations (x) FY15 FY16 FY17E FY18E FY19E PER 57.9 52.2 41.5 34.6 28.0 P/CEPS 53.7 48.2 37.8 31.6 25.9 P/BV 8.9 7.9 8.5 7.1 5.9 EV / Sales 9.8 8.1 7.5 7.1 6.1 EV / EBITDA 38.2 31.5 25.0 21.0 17.2 Dividend Yield (%) 0.7 0.7 0.5 0.7 0.6
Gearing Ratio (x) FY15 FY16 FY17E FY18E FY19E Net Debt/ Equity (0.3) (0.3) (0.2) (0.3) (0.4) Net Debt/EBIDTA (1.4) (1.3) (0.7) (1.1) (1.4) Working Cap Cycle (days) 191.4 170.1 169.4 167.4 155.5
Growth (%) FY15 FY16 FY17E FY18E FY19E Revenue 10.4 19.8 10.0 2.6 13.8 EBITDA 4.1 20.4 27.6 16.6 18.7 EBIT 2.8 20.7 26.5 16.7 19.4 PAT (3.1) 7.0 140.1 (34.9) 23.4
Quarterly (Rs mn) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Revenue 15,854 15,218 15,716 16,954 16,391 EBITDA 4,295 4,110 4,532 4,892 5,158 EBITDA Margin (%) 27.1 27.0 28.8 28.9 31.5 PAT 2,671 1,430 2,203 2,384 2,508 EPS (Rs) 2.8 1.5 2.3 2.5 2.6 Source: Company, Emkay Research
Shareholding Pattern (%) Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Promoters 43.1 43.1 43.1 43.1 43.1 FIIs 47.1 48.1 48.0 46.6 46.4 DIIs 4.1 3.8 3.5 4.3 4.4 Public and Others 5.7 5.0 5.4 6.0 6.2 Source: Capitaline
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ED: D. SINHA SA May 10, 2017 12 Zee Entertainment (Z IN) India Equity Research | Result Update
RECOMMENDATION HISTORY TABLE RECOMMENDATION HISTORY CHART Closing Period Date TP Rating Analyst BUY Hold Sell Price (months) Add Reduce Price Target Price 09-Mar-17 517 580 12m Accumulate Naval seth 700 20-Feb-17 529 580 12m Accumulate Naval seth 600 25-Jan-17 498 506 12m Hold Naval seth 500 24-Nov-16 439 500 12m Hold Naval seth 400 300 25-Oct-16 514 546 12m Hold Naval seth 200 01-Sep-16 535 546 12m Accumulate Naval seth 100 27-Jul-16 488 505 12m Buy Naval seth 0 27-Jul-16 488 505 12m Buy Naval seth
29-Jun-16 445 475 12m Buy Naval seth
11-Jul-14 11-Jul-15 11-Jul-16
11-Jan-15 11-Jan-16 11-Jan-17
11-Mar-15 11-Mar-16 11-Mar-17
11-Sep-14 11-Nov-14 11-Sep-15 11-Nov-15 11-Sep-16 11-Nov-16
11-May-15 11-May-16 11-May-16 448 475 12m Buy Naval seth 11-May-14 Source: Bloomberg, Company, Emkay Research 10-Feb-16 379 475 12m Buy Naval seth 18-Jan-16 394 450 12m Buy Naval seth 15-Oct-15 419 450 12m Buy Naval seth 15-Jul-15 376 420 12m Buy Naval seth 29-Jun-15 356 400 12m Buy Naval seth 21-May-15 317 400 12m Buy Naval seth 21-Jan-15 382 400 12m Buy Naval seth 20-Oct-14 330 330 12m Buy Naval seth 29-Sep-14 303 330 12m Buy Naval seth 18-Jul-14 295 325 12m Buy Naval seth 21-May-14 294 315 12m Buy Naval seth
Source: Company, Emkay Research
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ED: D. SINHA SA May 10, 2017 13 Zee Entertainment (Z IN) India Equity Research | Result Update
Emkay Rating Distribution BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months. ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months. HOLD Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months. REDUCE Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months. SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.
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ED: D. SINHA SA May 10, 2017 14