Table of Contents Premia Research

NSE

Table of Contents Page No.

Sectoral Outlook 2

Key Global markets trends 3-7

India’s growth on global trends 8-11

Favorable factors for sector 12-14

Digitization to drive mid-term growth 15-16

OTT platforms in and its Impact 17-18

Zee Entertainment Enterprises Ltd 19-24

Sun TV Network Ltd 25-30

Shemaroo Entertainment Ltd 31-35

TV Today Network Ltd 36-40

Disclaimer 41

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Weaving a digital story Premia Research

Zee Entertainment Enterprises– BUY The ‘Digital’ wave in India (as a medium of entertainment) on the back CMP Target Upside of higher internet penetration will drive the next leg of growth for the 539 691 28% Media and Entertainment (M&E) industry. The launch of has made Sun TV Network – BUY mobile data accessible and affordable for masses (avg. mobile data CMP Target Upside price has dipped from ~`200/GB two years back to `3.2/GB currently). 782 984 26% Further, rising internet subscribers (from ~45cr in December, 2017 to – BUY ~83cr in FY21E) coupled with declining internet costs is leading the CMP Target Upside consumption pattern towards digital. Moreover, with advent of Over 481 580 21% the Top (OTT) platforms, content has become an ‘Anytime, Anywhere’ TV Today Network – BUY service, benefiting broadcasters and content aggregators/producers. CMP Target Upside Robust internet consumption to propel digital growth 412 517 25% Prices as on 02/07/2018 Given the favorable infrastructure, the total Indian mobile data

Financials (`cr) traffic/month is expected to increase to 14 Exabyte (EB) by CY23E ZEE Enter. FY19E FY20E (2.4EB in December, 2017). Moreover, rising affordability of devices Rev. 7,868 9,190 and falling data cost would result in ~3x growth of the digital platform EBITDA Mar (%) 31.4 32.1 subscribers over CY17-20E. Hence, digital subscription revenue would PAT 1,738 2,076 P/E x 29.8 24.9 register CAGR of 72.7% over CY17-20E.

Sun TV FY19E FY20E Advertisement spends to shift towards digital Rev. 3,515 4,062 The rising online video viewing audience in India is expected to EBITDA Mar (%) 68.1 67.4 increase at CAGR of ~26% over CY17-20E to ~500mn, resulting in PAT 1,401 1,649 higher time spent on internet. The trend of rising online video P/E x 22.0 18.7 consumption would lead to higher advertisement spends in the digital Shemaroo FY19E FY20E Rev. 566 635 space. Hence, digital advertising revenue would grow at CAGR of 21% EBITDA Mar (%) 29.9 30.4 over CY17-20E and is projected to contribute ~22% of total advertising PAT 99 113 revenues of M&E sector in CY20E (~17% in CY17). P/E x 13.2 11.6 We prefer (1) Zee Entertainment Enterprises, owing to launch of ZEE5 TV Today Net. FY19E FY20E (OTT platform) with strong content inventory (1,00,000+ hours) and Rev. 786 871 EBITDA Mar (%) 29.1 30.1 portfolio of channels; (2) Sun TV Network, a similar player in south PAT 154 183 region with digital platform SunNXT (4,000+ movies) and stable P/E x 16.0 13.4 financial position aiding its expansion plan; (3) TV Today Network, Source: IIFL Research given leadership of its flagship brand AajTak and acquisition of digital Analyst – Tushar Jain business from parent; and (4) Shemaroo Entertainment, considering [email protected] its huge content inventory (3,400+ titles) driving robust growth of its July 03, 2018 digital segment.

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Key Global markets trends Premia Research Global internet users reached 3.6bn in CY17 Favorable infrastructure combined with rising affordability of devices is driving overall internet consumption globally. Further, overall cost of internet is also declining and global internet penetration has reached

~49% in CY17 from ~24% in CY09.

Exhibit 1: Rising global internet users

400 16 14 300 12 10 200 8 6 100 4 2 0 0 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 Global Internet Users (cr) LHS yoy growth (%) RHS

Source: Internet Trends 2018, IIFL Research

Rising digital media usage in developed countries The hours spent (daily basis) on digital media grew at CAGR of ~9% to ~6hours over CY08-17 in US. This growth is led by time spent on mobile, which grew at CAGR of ~31% over the same period. The advertisement spends have followed the consumption pattern and mobile internet advertising revenue stood at $49.9bn in CY17 in US compared to negligible in CY08.

Exhibit 2: Daily time spent on digital media in US (hours)

7

6

5 4 3 2 1 0 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 Other Connected devices Desktop/Laptop Mobile

Considered adult users only Source: Internet Trends 2018, eMarketer, IIFL Research

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Key Global markets trends Premia Research Exhibit 3: Internet advertising growth in US (US$ bn) 100 90 80 70 60 50 40 Facebook’s annualized revenue per 30 daily user reached to US$34 in Q1CY18 20 from US$ 16 in Q1CY15 10 0 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 Non Mobile Mobile

Source: IAB internet advertising revenue report 2017, IIFL Research

Investment in content leading to subscriber addition Leading Global digital M&E company, Netflix’s content cost has increased at CAGR of 23.9% over CY12-17 and subscribers have grown from 33mn to 117mn over the same period. However, same has helped the company in attaining a revenue CAGR of 26.5% over CY12-17.

Hence, adaptability and ability of a company to produce relevant

content and predict customer behavior is of vital importance for the digital industry.

Exhibit 4: Netflix subscribers (mn)

140

120 100 80 60 Continuous focus on relevant content 40 has led to rapid geographical 20 expansion 0 CY12 CY13 CY14 CY15 CY16 CY17

US users Rest of the world

Source: Netflix, Valuewalk.com, IIFL research

Geographical expansion In CY10, Netflix launched its services in Canada, while in CY12, it became available in Europe (including UK, Ireland and Nordic countries). Further, in CY15, it was launched in Australia and New Zealand and since CY16 onwards, Netflix is available worldwide.

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Key Global markets trends Premia Research Exhibit 5: Netflix’s financial highlights (US$ mn)

12,000 10,000

8,000 6,000

4,000

2,000 0 CY12 CY13 CY14 CY15 CY16 CY17

Total revenue Content cost Operating income

Source: Netflix, Bloomberg, IIFL Research

Staying relevant is the key This FAANG (Facebook, Apple, Amazon, Netflix, Google) stock with

Market Cap of ~US$170bn has managed to grow by staying relevant to the market and transforming its products according to consumer preferences. M&E sector, one of the highest dynamic sectors,

demands huge degree of prediction of consumer behavior and their responses to technological changes.

Netflix Timeline From a DVD rental company to FAANG stock, Netflix has managed to become Year Event/Initiative Reed Hastings and Marc Randolph co-found Netflix to offer online world’s biggest entertainment 1997 company by staying relevant movie rentals 1998 Launches the first DVD rental and sales site, netflix.com

Debuts a subscription service, offering unlimited DVD rentals for one 1999 low monthly price

Introduces a personalized movie recommendation system, which uses

2000 Netflix members’ ratings to accurately predict choices for all Netflix members Makes its IPO on Nasdaq under the ticker “NFLX” with 600,000 2002 members in the US Introduces streaming, which allows members to instantly watch 2007 television shows and movies on their PCs Partners with consumer electronics companies to stream on the Xbox 2008 360, Blu-ray disc players and TV set-top boxes Partners with consumer electronics companies to stream on PS3, 2009 internet connected TVs and other internet connected devices Netflix is available on the Apple devices, the Nintendo Wii, and other 2010 internet connected devices 2013 Launches its first original content “House of Cards”

2016 Netflix is available worldwide

Source: Netflix, IIFL Research 5 | P a g e

Key Global markets trends Premia Research Better quality of content leads to higher paid subscribers Globally, subscribers are moving towards paid content. This can be witnessed by the rise in the revenues of key players like Netflix, Spotify,

etc. Further, Global Music/Audio giant Spotify’s paid subscribers stood This conversion to paid subscribers is dependent on user experiences at ~45% of monthly active users (MAU) in CY17 vs. ~26% in CY14.

Exhibit 6: Spotify subscribers (mn)

75 60

50 40

25 20

0 - CY14 CY15 CY16 CY17

Subscribers(LHS) % of MAU (RHS)

Source: Spotify, Internet Trends 2018, IIFL Research

Ad-spends to shift towards digital

In CY17, proportion of daily time spent on digital media by an individual in US stood at ~49% of total time spent on media. While proportion of advertising spends on digital media in US stood at ~41% of total media advertising spends. Going forward, the advertisement spends would

move towards digital from traditional media given the popularity and

rising customer base of digital media.

Exhibit 7: Time spent on media vs. advertising spending (US)

70 60 50 40 30 20 10

- Traditional media Mobile Other digital platforms

% of time spent % of advertisement spent

Source: IAB internet advertising revenue report 2017, emarketer, Statista, IIFL Research

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Key Global markets trends Premia Research China’s online video subscribers to increase 1.6x in 3 years

China’s subscription Video-on-demand (SVOD) viewers are expected to reach ~234mn by CY20E (~144mn in CY17) aided by favorable internet infrastructure. China’s online video subscribers are closing the gap with the no. of Cable TV subscribers.

Exhibit 8: China’s SVOD viewers

250 100

200 80

150 60

100 40

50 20

0 0

CY14 CY16 CY18E CY20E

SVOD viewes (mn, LHS) % of digital video viewers (RHS)

% of cable TV subscribers (RHS) % of broadband subscription (RHS)

Source: emarketer, IIFL Research

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India’s growth on global trends Premia Research Multifold increase in the average data usage The last four years have seen boost in the data consumption owing to decline in the data cost, better network availability and rising smartphone penetration. According to Nokia MbIT report, 2018, in CY17, India’s average 4G data consumption stood at record level of ~11GB/user/month.

Exhibit 9: Average data usage/user/month (MB)

11,048 10,604 As per Ericsson’s prediction, data traffic is expected to reach 18GB/month/smartphone in CY23

2,970

680 753 849 216 220 259 320

CY14 CY15 CY16 CY17

2G 3G 4G

Source: Nokia MbIT report, 2018, Analysys Mason, IIFL research

Subscriber base is expected to reach ~83cr by FY21E India’s internet subscribers are expected to grow from ~446mn in December, 2017 to ~829mn in FY21 owing to increasing affordability As per Nokia MbiT report, installed of smartphone devices and falling data cost. As per the EY-FICCI report, base of 3G and 4G capable devices India is the second largest smart phone market in the world after grew by 1.4x and 4.6x respectively from CY15 to CY17 China. Exhibit 10: Internet subscribers in India (mn) 900 800 700 600 500 400 300 200 100 0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY21

Source: IBEF, TRAI, IIFL research 8 | P a g e

India’s growth on global trends Premia Research India’s exponential data consumption growth 4G continues to drive India’s overall data consumption. In December, 2017, 4G traffic consisted of ~82% of the total data traffic. Falling data prices, affordability of devices, development of indigenous video content and network expansion are the factors behind the spike in the data consumption. Further, with the advent of 5G, which India is aspiring to launch at par with developed countries, this data consumption trend is expected to continue on the same track.

Exhibit 11: India’s mobile data usage – per month In December, 2017, India consumed 14EB ~2,360 petabytes data, which is 48x of December, 2013 consumption

2.4EB 1EB 49PB 85PB 128PB

CY13 CY14 CY15 CY16 CY17 CY23E

Source: Nokia MbIT report, 2018, Analysys Mason, Ericsson mobility report, IIFL research, from CY13 to CY17, monthly data of December is taken; EB- Exabyte, PB- Petabyte

Indian online video audience to double by CY20E Online video viewing audience in India is expected to grow at CAGR of ~26% over CY17-20E. The growth will be faster than the developed

countries like China and US, which are expected to grow at CAGR of

~6% and ~2% respectively over the same period.

Exhibit 12: Online video audience (mn)

700 600 500 400 300 200 100

0 Brazil US India China

CY17 CY20E

Source: EY-FICCI March-18 report, IIFL Research

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India’s growth on global trends Premia Research The impact on the media sector is clearly visible, as telecom giant Reliance is investing heavily in content and OTT companies.

 In July, 2017 it had invested `413cr in the content producer

Balaji Telefilms, which gave it the access to content generated by Balaji Telefilms to be used by its platform Jio Cinema.  Further, in February, 2018, it has also announced Joint Partnership with Eros India to set up a `1,000cr fund to co- produce and consolidate content.  In March, 2018, It also executed definitive agreement for the combination of Saavn, a leading global music OTT platform with JioMusic.

Indian broadcasters have also launched their own OTT platforms like Star launched , TV18 launched VOOT and ZEE launched ZEE5.

Further, distributor has launched its mobile app for competing against Mobile TV platforms launched by Telecom players like Airtel TV, Jio TV, etc.

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India’s growth on global trends Premia Research Indian channels leading on YouTube Indian YouTube channels are clearly leading in terms of cumulative views compared to international channels in the same category. As on June 29, 2018, SET India and Zee TV channels have crossed 19.7bn and 17.1bn total views on YouTube respectively, which is higher than some of the leading international channels like ABS-CBN, ChuChu TV, etc.

Exhibit 13: YouTube stats (TV channels)

Channels Subscribers (mn) Views* (bn) Base Country SET India 26.2 19.7 India Zee TV 15.2 17.1 India ABS-CBN 10.6 15.3 Philippines Entertainment ChuChu TV (Kids 18.1 14.4 Global Songs) SAB TV 9.4 8.6 India Ch3Thailand 9.8 8.4 Thailand Colors TV 10.8 7.3 India one31 9.1 6.5 Thailand GMA Network 5.2 6.3 Philippines

Disney Junior UK 4.3 5.1 United Kingdom Source: socialbakers.com, YouTube, IIFL Research *Total uploaded video views Further, in film industry channels category also, the Indian channels like YRF, Rajshri and Shemaroo are amongst the top viewed YouTube channels with total views of 6.7bn, 4.1bn and 3.9bn respectively.

Exhibit 14: YouTube stats (Film Industry)

Channels Subscribers (mn) Views* (bn) Base Country DisneyChannelLA 8.9 7.1 Global YRF 11.9 6.8 India Teremok TV 4.0 5.1 Russia Rajshri 7.5 4.2 India Shemaroo 9.0 4.0 India Warner Bros. 5.5 3.3 Global Pictures DreamWorks TV 4.4 3.0 Global Walt Disney 3.0 2.1 Global Animation Studios Telugu Filmnagar 4.0 2.0 India Sony Pictures 2.4 2.0 US Entertainment Source: socialbakers.com, YouTube, IIFL Research *Total uploaded video views 11 | P a g e

Favorable factors for sector Premia Research

Gaming and Digital will be the fastest growing segments: Digital media and Online Gaming are the driving factors for the growth of the Indian M&E sector going ahead. The M&E sector is expected to reach `2 lakh cr by CY20E from `1.5 lakh cr in CY17, a CAGR of 11.3%. The Digital Media segment is expected to register CAGR of 23.5% over the same period, and would overtake Filmed Entertainment by CY20E.

Exhibit 15: Segment wise growth of Indian M&E sector CAGR (%) Segment (`Cr) CY16 CY17 CY18E CY20E (CY17-20E) Television 59,400 66,000 73,400 86,200 9.3 Digital media is expected to overtake Print 29,600 30,300 33,100 36,900 6.8 Filmed entertainment by CY20E Filmed Ent. 12,200 15,600 16,600 19,200 7.2 Digital media 9,200 11,900 15,100 22,400 23.5 Animation and VFX 5,400 6,700 8,000 11,400 19.2 Live events 5,600 6,500 7,700 10,900 18.8 Online gaming 2,600 3,000 4,000 6,800 31.6 Out Of Home media 3,200 3,400 3,700 4,300 8.1 2,400 2,600 2,800 3,400 9.4

Music 1,200 1,300 1,400 1,800 11.5

Total 1,30,800 1,47,300 1,66,000 2,03,200 11.3 All Figures are gross of taxes Source: EY-FICCI March-18 report, IIFL Research

Digital subscription revenues to outperform advertising revenues Indian OTT players are projected to reflect the growth pattern of Netflix and Spotify in increasing the number of subscribers. Rapid growth of device base and better connectivity will drive faster digital subscription revenue vs. advertising revenue. Subscription revenues stood at ~3% of total digital revenues in CY17, which is expected to grow to ~10% in CY20E.

Exhibit 16: Digital subscription and advertising revenues (`Cr) 30,000 2,500

25,000 2,000 The digital subscription and advertising revenues are expected to 20,000 1,500 grow at a CAGR of 72.7% and 21% over CY17-20E respectively 15,000 1,000

10,000 500

5,000 - CY16 CY17 CY18E CY20E Advertising (LHS) Subscription (RHS)

Source: EY-FICCI March-18 report, IIFL research

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Favorable factors for sector Premia Research

Rising income level to drive demand The rising proportion of high income group in overall population will drive future growth for internet consumption and smartphones. The proportion of aspirers in overall households will increase from 15% in CY17 to 20% by CY25E.

Exhibit 17: Indian households’ income groups (%)

100 Large working population with lower expenses on M&E activities presents a 80 potential opportunity for the M&E industry in India 60 40 20 0 CY05 CY16 CY17 CY25E Elite (>US$30,800) Affluent (US$15,400-30,800) Aspirers (US$7,700-15,400) Next billion (US$2,300-7,700) Strugglers (US$2,300)

Source: IBEF, IIFL research

Further, as per EY-FICCI report, the shift in the consumption pattern will be more on the basis of ability to pay rather than on geographic, gender and age criteria. Hence, by CY20E, tactical digital consumers (using Pay TV and Pay OTT) are expected to grow 3.3x from CY17, faster than mass consumers (TV+ Free OTT), which are expected to grow 2.5x

By CY20E, tactical digital consumers are over the same period. expected to grow ~3.3x from CY17, while mass consumers are expected to Exhibit 18: Customer segment in India grow 2.5x Segment CY17 CY20E Digital only (No TV) 1-1.5mn subscribers 4mn subscribers

Tactical digital consumers 6mn subscribers 20mn subscribers (Pay TV + Pay OTT) Mass consumers (Pay TV or Free TV + Free 200+ mn subscribers 500+ mn subscribers OTT) Source: EY-FICCI March-18 report, IIFL Research

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Favorable factors for sector Premia Research

M&E sectors’ growth is parallel to the economy In past, the growth patterns of advertising revenue of M&E sector have always been faster but in the same direction of the real GDP growth of the country. Further, World Bank is forecasting India’s growth rate at 7.5% both in CY19E and CY20E (aided by reforms like implementation of GST, Insolvency and Bankruptcy Code, etc.). Going forward, we expect the advertising revenue to grow parallel to

economy at CAGR of 11.4% over CY17-20E.

Exhibit 19: Advertisement revenue growth vs. Real GDP (%) 16 14

12 10 8

6 4 2 CY12 CY13 CY14 CY15 CY16 CY17

Advertising revenue growth in M&E Industry (%) Real GDP growth (%)

Source: EY-FICCI March-18 report, IIFL Research

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Digitization to drive mid-term growth Premia Research

The cable TV Digitization amendment bill was passed in 2011, which has transformed the Indian TV distribution industry. Digitization bill mandated all analog cable distributors to digital addressable system. It was implemented in four phases. Digitization is providing significant advantages to entire TV Value Chain in terms of transparency and reduction in the revenue leakages, which would result in an ARPU increase across value chain and higher taxes for the government.

As a result of forced digitization, the digital cable subscribers are expected to reach 82mn by CY20E.

Exhibit 20: Indian TV subscriber split by distribution platform (mn) 250

200 31 31 22 150 10 9 40 54 78 84 100 34 Currently, ~83% of the total TV 29 19 45 households are paying subscribers 50 69 70 76 82 47 0 1 1 CY12 CY14 CY16 CY18E CY20E

Analog Cable Digital Cable Pay DTH Free Dish

Source: FICCI-KPMG 2017 report, IIFL research

Higher revenue collection from end use customers has resulted in higher share for Multi System Operators (MSOs) and broadcasters.

Prior to digitization, Local Cable Operators (LCOs) used to under report the actual number of subscribers and availed ~70% of the customer ARPU (Average Revenue Per User). Post digitization, due to higher transparency, it has come down to ~50%. This has resulted in increase in the Broadcasters’ share from ~15% to ~25% of the total customer ARPUs.

Exhibit 21: Customer ARPU share for various players in India Stakeholders Before Digitisation (%) After Digitisation (%) Consumer ARPU 100 100 LCOs 65-80 45-55 MSOs 10-20 15-25 Broadcasters 10-20 20-30 Source: EY-FICCI March-18 report, IIFL Research

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Digitization to drive mid-term growth Premia Research

Increase in the ARPU shares for broadcasters will help them gain subscription revenue CAGR of 8.1% over CY17-20E. TV penetration in India has reached 64% taking the total number of TV viewing households to 183mn in CY17. This accounts for ~780mn viewers. TV viewing households are expected to reach to 198mn in CY20E.

Exhibit 22: Indian Broadcaster’s revenue mix (`Cr)

60,000 Increased transparency due to 50,000 digitization will lead to reduction in 40,000 revenue leakages for broadcasters 36,800 30,000 33,500 30,400 26,700 20,000 24,300 10,000 9,000 9,900 10,900 11,700 12,500 - CY16 CY17 CY18E CY19E CY20E

Subscription Advertising

Source: EY-FICCI March-18 report, IIFL research

Digitization phases

Phases Implementation Covered four metros (, Delhi, Kolkata and ) Phase I to be digitised

Phase II Focused on the 38 top cities with population more than 1mn

Phase III Rest of the urban area Phase IV Rest of India

Digitization has resulted in significant capital requirements for cable

and DTH platforms, as set top boxes were made mandatory for all the households. This can be witnessed by recent consolidations and investments.  In July, 2017, GTPL got listed and raised ~`485cr, out of which `240cr was fresh issue. Dish TV and Videocon D2H also amalgamated their businesses to gain synergy benefits.

 In November, 2017, Reliance Communication Ltd sold its DTH business, Reliance Big TV Ltd to Pantel Technologies, an Information Technology and Communication devices hardware company.

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OTT platforms in India and its impact

Premia Research

Indian platforms are still cheaper than Netflix With the advent of Netflix all the broadcasters have launched own OTT platforms. Netflix has gained huge popularity in developed countries owing to its huge content inventory. However, Indian OTT platforms

are way cheaper than Netflix. Leading Indian platforms like Hotstar, Zee5, SunNXT and Sonyliv have monthly subscription fees ranging from ~`40 to ~`83. While Netflix’s subscription fee is ~`800/month.

Exhibit 23: Various OTT platforms in India OTT Platform Revenue model Monthly price (`) Global entrants Netlfix SVOD ~800 In freemium model, companies offer Amazon prime SVOD ~83 free subscription for some episodes, Broadcasters while some content is provided on paid basis. Hotstar Freemium ~83 VOOT AVOD - Sony liv Freemium ~42 Zee5 Freemium ~83 SunNXT SVOD ~40 New entrants TVF AVOD - Producers ALT Freemium ~25

EROS Freemium ~79

Audio Saavn Freemium ~83

Gaana Freemium ~33 Telcos Jio Cinema Free - Source: IIFL Research; AVOD- Advertising Video-on-demand, SVOD- Subscription Video-on-demand

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OTT platforms in India and its impact Premia Research

Segment wise impact of OTT platforms Players Impact Reasons

Launched own OTT platforms. All

Broadcasters Neutral channels are available on Telecom platforms like Jio TV, Airtel TV, etc. Competition intensity of OTT Content Positive players and Telecom operators will Producers/Aggregators drive overall content demand. Film producers may sell rights of small budget movies directly to OTT platforms. Big budget movies with Exhibitors Moderate special effects are bound to go for theatrical releases in order to realize higher costs. Declining internet costs will take away the lower cost advantage of distributors in medium term. DTH/Cable operators Negative However, for small cities and rural markets, the threat is limited in medium term due to lower internet penetration. No impact expected on Print Media/Radio from OTT players, as Radio/Print Media Neutral both these serve different purposes to the consumers.

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Zee Entertainment Enterprises Ltd Premia Research CMP: ` 539; 1-year target: ` 691

Zee Entertainment Enterprises Ltd (ZEEL), one of the largest Sector M&E houses in India is set to benefit from its newly launched Recommendation BUY digital platform ZEE5 and its collaboration with telcos. Further, it is Upside 28% also considering to enter into new market in FY19E.

Hence, we forecast revenue and PAT CAGR of 17.2% and 24.3% Stock Data Sensex 35,264 respectively over FY18-20E. Further, ZEEL is debt free at net debt level 52 Week h/l (`) 619/477 We recommend BUY with a target price of `691 (32x FY20E EPS). Market cap (` Cr) 51,768 Digital offerings to drive growth: In February, 2018, ZEEL had BSE Code 505537 launched its OTT platform ZEE5 with 100,000+ hours of video content, NSE Code ZEEL which has received favorable initial response. ZEE5 has already crossed FV (`) 1 10mn+ installs on PlayStore, which is further expected to reach 60mn+ Div yield (%) 0.51 by FY20E. Further, ZEEL has guided to host 90+ original shows on its platform by March 2019 from ~20 in April, 2018. Hence, we expect Shareholding Pattern ZEEL to generate ~`150cr from ZEE5 platform in FY20E. Sep-17 Dec-17 Mar-18 Increasing viewership to lead to higher ad revenue: ZEEL’s network Promoters 43.07 43.07 41.62 market share improved from 16% in FY17 to 18% in FY18. This DII+FII 50.52 50.65 52.18 combined with improved films content will drive viewership gains. Individuals 6.41 6.27 6.20 Source: ACE Equity, IIFL Research Further, we expect consumption boost owing to positive macros like higher disposable and per capita income, which will drive higher ad Share Price Trend spends. Thus, we expect 19.8% ad revenue CAGR over FY18-20E. Zee Entertainment Enterprises Ltd. Sensex Outlook & Valuation: Management has guided faster than industry 650 growth of 10% in FY19E. We have a very positive outlook on ZEEL owing 35000 550 to its plan to expand in new genres, growth of subscription revenues supported by digitization and movies in pipeline. The company is 450 30000 currently trading at a valuation of 24.9x FY20E EPS (~47% discount Jun-17 Oct-17 Feb-18 Jun-18

from its 5 years’ average valuation). Prices as on 02/07/2018 Financial Summary Consolidated `Cr FY16 FY17 FY18 FY19E FY20E Revenue 5,813 6,434 6,686 7,868 9,190 YoY Growth (%) 19.0 10.7 3.9 17.7 16.8 EBITDA Margin (%) 26.0 29.9 31.1 31.4 32.1 PAT 857 997 1,343 1,738 2,076 PAT Growth (%) -12.3 16.4 34.7 29.4 19.4 RoE 16.6 17.4 18.8 21.1 21.2 P/E x 60.4 51.9 38.5 29.8 24.9 EV/EBITDA x 33.1 25.2 24.4 20.3 16.7 Source: Company, IIFL Research

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Zee Entertainment Enterprises Ltd Premia Research

Company Overview ZEEL is present across broadcasting, movies, music, live entertainment and digital businesses, both within India and overseas. It has more than 240,000 hours of television content, offered through 32 domestic and 39 international channels.

ZEEL houses the world’s largest Hindi film library and has rights to more than 4,200 movie titles across various languages. ZEEL has also produced several movies for theatrical release and is the fastest growing music label in India. It has recently launched digital platform, ZEE5, with 100,000 hours of multilingual content.

Exhibit 1: ZEEL (Revenue segments, FY18)

Exhibit 2: Leading in FTA* GEC**

1,000

800

600

400

200

0

Jul-17

Jan-18

Jun-17

Oct-17

Apr-18

Sep-17 Feb-18

Dec-17

Aug-17

Nov-17

Mar-18 May-17 Sony Pal Zee Anmol Star Utsav Rishtey

Weekly/mn impressions; Source: BARC, IIFL Research; *FTA – free to air; GEC General entertainment channel

ZEEL has been maintaining its leadership position in Hindi FTA GEC space. Its Kumkum Bhagya and Kundali Bhagya are two of the most popular shows in India.

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Zee Entertainment Enterprises Ltd Premia Research

Exhibit 3: Clear winner in Marathi 350 300 250 200 150 100 In Marathi space, Zee Marathi got ~270mn 50 weekly average impressions in last one year 0 vs. ~93mn and ~90mn of Colors Marathi and

Star Pravah

Jul-17 Jul-17

Jan-18 Jan-18

Jun-17

Oct-17

Apr-18 Apr-18

Sep-17 Sep-17 Feb-18

Dec-17

Aug-17

Nov-17 Nov-17

Mar-18 May-18 May-17

Zee Marathi Colors Marathi Zee Talkies Star Pravah Weekly/mn impressions, Source: BARC, IIFL Research

Exhibit 4: Stiff competition in Telugu space

650 600 550 500 450 400 350 300 250 200

Jul-17 Jul-17

Jan-18 Jan-18

Jun-17

Oct-17

Apr-18 Apr-18

Sep-17 Sep-17 Feb-18

Dec-17

Aug-17

Nov-17 Nov-17

Mar-18 May-18 May-17 ETV Telugu Maa TV Zee Telugu Gemini TV

Weekly/mn impressions, Source: BARC, IIFL Research

Exhibit 5: Hindi GEC pay channel: Competing with Colors

800 700 600 500 400 300 In Hindi Primary GEC space, Zee TV got 200 ~594mn weekly average impressions in last one year vs. ~546mn of Colors 100

Jul-17 Jul-17

Jan-18 Jan-18

Jun-17

Oct-17

Apr-18 Apr-18

Feb-18 Sep-17 Sep-17

Dec-17

Aug-17 Nov-17

Nov-17

Mar-18

May-18 May-17

Star Plus Colors Zee TV Sony

Weekly/mn impressions, Source: BARC, IIFL Research

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Zee Entertainment Enterprises Ltd Premia Research

Exhibit 6: Growth of subscription revenues

3,000 20

2,500 15 10 2,000 5 1,500 - 1,000 -5

500 -10

- -15 FY16 FY17 FY18 FY19E FY20E Subscription revenue (Rs cr) LHS Growth (%) RHS

Source: Company, IIFL Research Digitization has increased transparency, which is leading to lesser leakages of We expect ZEEL’s subscription revenue CAGR of ~12.4% over FY18-20E revenues for Broadcasters driven by digitization and increase in ARPU. Consolidation of distribution platform operators (DPOs) will give them greater pricing power, which ultimately bodes well for the company. Further, its

partnership with telcos will also drive subscription revenues.

Margin expansion to improve return ratios: The company’s EBITDA margin is estimated to expand from 31.1% in FY18 to 32.1% in FY20E owing to expected viewership gains, higher advertisement revenues, sell of loss making sports business and partnership with telcos. The higher margin will drive growth of return ratios going forward. We expect ROE and ROCE to expand by ~230bps and ~340bps to 21.2% and 24.8% by FY20E.

Exhibit 7: EBITDA margins and return ratios 34 31 29 32 ROCE and ROE would increase on account of improving margin profile and low debt 27 30 25 28 23 26 21 24 19 17 22 15 20 FY16 FY17 FY18 FY19E FY20E

EBITDA margins (%) RHS ROE (%) LHS ROCE (%) LHS

Source: Company, IIFL Research

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Zee Entertainment Enterprises Ltd Premia Research

Exhibit 8: Balance sheet summary and key ratios Consolidated ~ ` Cr FY16 FY17 FY18 FY19E FY20E Cash & Cash equivalent 1,722 3,800 2,981 2,844 3,438 Inventories 1,318 1,696 2,628 3,092 3,637 Receivable 1,348 1,242 1,537 1,787 2,062 Other Current Assets 1,035 1,389 1,444 1,651 1,691 Creditors 477 834 1,150 1,353 1,580 Other Current Liabilities 382 272 621 273 307 Net Current Assets 4,565 7,021 6,820 7,748 8,940 Fixed Assets 1,443 956 1,413 1,262 1,312

Investments 389 271 315 326 326

Other Long-term assets 711 902 812 885 964

Total net assets 7,107 9,151 9,359 10,221 11,542

Borrowings 2,271 2,460 1,783 1,257 857 Other long-term liabilities 30 - - - - Shareholders' equity 4,806 6,691 7,576 8,964 10,685 Total liabilities 7,107 9,151 9,359 10,221 11,542

Key Ratios Valuation ratios EV/sales 8.6 7.5 7.6 6.4 5.4 EV/EBITDA 33.1 25.2 24.4 20.3 16.7 P/E 60.4 51.9 38.5 29.8 24.9 P/B 10.8 7.7 6.8 5.8 4.9 Working capital days Inventory days 83 96 143 143 144 Debtor days 85 70 84 83 82 Creditors days 30 47 63 63 63 Source: Company, IIFL Research

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Zee Entertainment Enterprises Ltd Premia Research

Rationale for PE multiple: We have assigned target multiple of 32x FY20E EPS, which is at ~16% discount to its 5 years’ average valuation considering its expected increase in the content cost. However,

considering its high return ratios, debt free position at net debt level

and launch of its OTT platform, ZEE5, it deserves such valuation. The stock is currently trading at a valuation of 24.9x FY20E EPS.

Exhibit 9: 1-Year forward PE band

50 45 40 35 30 25 20 15

Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

Sep-15 Sep-14 Sep-16 Sep-17

Dec-14 Dec-15 Dec-16 Dec-17

Mar-16 Mar-17 Mar-18 Mar-15

Source: ACE Equity, IIFL Research

Key Risks

 Rising content cost may affect its margins.  Pricing pressure due to competition intensity may affect advertisement revenues.

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Sun TV Network Ltd

Premia Research CMP: ` 782; 1-year target: ` 984

Sun TV Network Ltd (STV) is a part of one of the largest Indian media Sector M&E conglomerates – the Sun Group. STV is set to benefit from TRAI’s Recommendation BUY pricing order for ala carte offerings post which ARPUs are expected Upside 26% to grow. To ride on the OTT wave, it has already launched its digital

platform SunNXT with 4,000+ movies, originals and live TV. It already Stock Data Sensex 35,264 has 5mn+ installs on PlayStore, which we expect to cross 20mn by 52 Week h/l (`) 1097/652 FY20E. Hence, we project revenue CAGR of ~17% and PAT CAGR of Market cap (` Cr) 30,799 ~21% over FY18-20E. STV is debt free with RoE and RoCE of ~26% and BSE code 532733 ~37% (FY18) respectively. We recommend BUY with target price of NSE code SUNTV `984 (23.5x FY20E EPS). FV (`) 5 Digitization to drive subscription revenues: Currently, 4.5mn Div yield (%) 1.08 households have been digitized in and ~9mn more households are expected to be digitized by FY19E. STV has also Shareholding Pattern concluded an agreement with Tamil Nadu’s Arasu Cable TV Sep-17 Dec-17 Mar-18 Corporation. ARPU for Arasu has increased from ~`70 to ~`90, out of Promoters 75.00 75.00 75.00 this ~`40 ARPU share is expected for STV, driving domestic DII+FII 16.82 16.99 16.86 subscription revenue CAGR of ~19% over FY18-20E. Individuals 8.18 8.01 8.14 Source: ACE Equity, IIFL Research STV’s share in Tamil GEC and movie market to improve: STV continues to hold more than 50% market share in Tamil GEC and movie Share Price Trend market and which is expected to improve further. We expect STV to Sun TV Network Ltd. Sensex launch second Tamil GEC channel and enter a new regional market in

38000 FY19E driving advertising revenue CAGR of ~12% over FY18-20E.

1050 36000 Outlook & Valuation: We have a very positive outlook on STV given 850 34000 32000 optimization in movie capex, IPL franchisee turning profitable, fading 650 30000 political headwinds and strong ad revenue growth. The company is Jun-17 Oct-17 Feb-18 Jun-18 currently trading at a valuation of 18.7x FY20E EPS. (~26% discount

Prices as on 02/07/2018 from its 2 years’ average valuation). Financial Summary Consolidated `Cr FY16 FY17 FY18 FY19E FY20E Revenue 2,474 2,646 2,963 3,515 4,062 YoY Growth (%) 3.3 7.0 12.0 18.6 15.6 EBITDA Margin (%) 70.0 66.9 67.6 68.1 67.4 PAT 904 1,030 1,135 1,401 1,649 PAT Growth(%) 15.6 14.0 10.2 23.4 17.7 RoE 26.1 27.5 26.0 27.2 26.6 P/E x 33.4 29.9 27.1 22.0 18.7 EV/EBITDA x 17.1 16.7 14.4 11.9 10.0 Source: Company, IIFL Research

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Sun TV Network Ltd Premia Research

Company Overview Sun TV Network is part of India’s largest media conglomerate – the Sun Group, run by . The network has a power packed 33 TV channels in four south Indian languages. These channels are present in general entertainment, news, movies and kids’ entertainment genres with the reach of more than 95mn households in India.

Primarily, it caters to the south Indian markets. Moreover, its channels can be viewed in 27 foreign countries. Further, it has huge movie library with perpetual rights. In CY12, the company had acquired franchise of (IPL). Its production studio, has also produced movies like and Siragugal starring and Vikram respectively.

Exhibit 1: STV (Revenue segments, FY18)

Subscription revenues include international subscription as well

Caters to strongest TV market of the country: As per EY-FICCI report, daily time spent by south Indian individuals on TV is higher by ~38mm than that of other Hindi speaking markets (HSM; Week 40-52, 2017). Further, daily and weekly tune-ins are also higher for south Indian market.

Exhibit 2: Individual tune-ins on TV and daily time spent in India Weekly Tune- Daily Daily Time spent on TV Geographies ins (%) Tune-ins (%) (HH:MM:SS) HSM 91.80 68.40 03:31:36 South 94.80 78.30 04:09:25 India 92.70 71.50 03:44:28 Source: EY-FICCI, All India/Individual/Week 40-52, 2017, IIFL Research

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Sun TV Network Ltd Premia Research Exhibit 3: Overall TV Industry viewership by geographies (bn)

11.1

18.1 South geographies include Telngana/AP, Tamilnadu/pondicherry, Karnataka, Kerala

HSM South

Source: EY-FICCI, All India/Individual/Week 40-52, 2017, IIFL Research

Strong foothold in Tamil and market: is the

strongest market for TV broadcasters in terms of viewership and daily

time spent. STV has clear leadership in Tamil market. Its flagship channel, Sun TV, has generated ~952mn weekly average impressions

compared to ~405mn of Star .

Exhibit 4: Maintaining leadership in Tamil Market

1280

Digitization in Tamil Nadu leading to 1080 greater visibility which bodes well for STV

880 680

480

280

80

Jul-17 Jul-17

Jan-18 Jan-18

Jun-17

Oct-17 Apr-18

Apr-18

Sep-17 Sep-17 Feb-18

Dec-17

Aug-17

Nov-17 Nov-17

Mar-18 May-18 May-17

Sun TV Zee Tamil Star Vijay

Weekly/mn impressions, Source: BARC, IIFL Research

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Sun TV Network Ltd Premia Research

STV’s another channel Udaya TV has been gaining viewership continuously over last one year (refer Exhibit 5). As per BARC data, its average weekly impressions for first four weeks of May, 2018 stood at ~214mn compared to ~147mn in June, 17.

Exhibit 5: Udaya gaining viewership in Kannada

500 450 400 350 300 250 200 150 100 50 0

Jul-17 Jul-17

Jan-18 Jan-18

Jun-17

Oct-17

Apr-18 Apr-18

Sep-17 Sep-17 Feb-18

Dec-17

Aug-17

Nov-17 Nov-17

Mar-18

May-17 May-18

Colors Kannada Udaya TV Suvarna Zee Kannada

Weekly/mn impressions, Source: BARC, IIFL Research

However, there is no clear winner in Telugu market. Its channel Gemini TV faces tough competition from Maa TV and Zee Telugu (refer Exhibit 6).

Exhibit 6: Stiff competition in Telugu market for Gemini 700

600

500 400

300

200 100

Jul-17 Jul-17

Jan-18 Jan-18

Jun-17

Oct-17

Apr-18 Apr-18

Sep-17 Sep-17 Feb-18

Dec-17

Aug-17

Nov-17 Nov-17

Mar-18 May-18 May-17 ETV Telugu Maa TV Zee Telugu Gemini TV

Weekly/mn impressions, Source: BARC, IIFL Research

Robust revenue growth ahead: Digitization, ARPU increase and IPL franchisee’s increasing popularity will aid STV to clock ~12% and ~19%

advertising and domestic subscription revenue CAGR over FY18-20E

respectively. Further, consumption boost, entry into new regional markets and higher internet penetration bodes well for the company.

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Sun TV Network Ltd Premia Research Exhibit 7: Advertising and domestic subscription revenues

2500 25

2000 20 15 Strong balance sheet with debt free 1500 position will help company to fund for 10 expansion plans in newer geographies 1000 5 with internal accruals 500 0

0 -5 FY16 FY17 FY18E FY19E FY20E Advertising revenues Subscription revenues Advertising revenue growth yoy (%) Subscription revenue growth yoy (%)

Source: Company, IIFL Research IPL franchisee turning profitable: We expect the company’s IPL franchisee to turn profitable in FY19E, as IPL franchisee cost is decided at ~20% revenue share vs. `85.5cr fee earlier. STV’s Hyderabad franchisee won its maiden IPL title in 2016, while stood second in 2018. Rationale for PE multiple: In our opinion, a company like STV deserves premium valuation considering its high return ratios, debt

As per EY-FICCI report, overall industry free position and strong foothold in South market. Further, political subscription and advertising revenues headwinds are also fading, as the ruling party in Tamil Nadu is in its are expected to grow at a CAGR of 8.3% second term and is no longer as powerful as it was during Jayalalitha’s and 11.4% over CY17-20E Era. The stock is currently trading at 18.7x FY20E EPS. We have valued the stock at its last 2 years’ average valuation of 23.5x.

Exhibit 8: 1 Year Forward PE band

35

30

25

20

15

10

5

0 Jul-16 Jul-17 Jan-17 Jan-18 Jun-17 Jun-18 Oct-16 Oct-17 Apr-17 Apr-18 Sep-16 Feb-17 Sep-17 Feb-18 Dec-16 Dec-17 Aug-16 Aug-17 Nov-16 Nov-17 Mar-17 Mar-18 May-17 May-18

Source: Ace Equity, IIFL Research

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Sun TV Network Ltd Premia Research

Exhibit 9: Balance Sheet summary and key ratios Consolidated ~ ` Cr FY16 FY17 FY18 FY19E FY20E Cash & Cash equivalent 1,149 1,334 1,888 2,428 3,444 Inventories 1 1 0 1 2 Receivable 776 773 1,064 1,252 1,436 Other Current Assets 396 156 149 217 262 Creditors 56 72 84 96 111 Other Current Liabilities 192 208 409 278 321 Net Current Assets 2,075 1,982 2,608 3,525 4,713 Fixed Assets 846 1,213 1,189 1,138 1,108

Investments 392 615 636 680 680

Other Long-term assets 200 287 350 364 380

Total net assets 3,512 4,098 4,782 5,707 6,881

Borrowings - - - - - Other long-term liabilities 35 65 90 92 94 Shareholders' equity 3,477 4,032 4,692 5,615 6,786 Total liabilities 3,512 4,098 4,782 5,707 6,881

Key Ratios Valuation ratios EV/sales 12.0 11.1 9.8 8.1 6.7 EV/EBITDA 17.1 16.7 14.4 11.9 10.0 P/E 33.4 29.9 27.1 22.0 18.7 P/B 8.9 7.6 6.6 5.5 4.5 Working capital days Inventory days 0 0 0 0 0 Debtor days 115 107 131 130 129 Creditors days 8 10 10 10 10 Source: Company, IIFL Research

Key Risks

 Competitive intensity in south Indian market may put pricing pressure on the company.  Rise in the content cost may affect its margins.

 Political instability might put regulatory risk on the company in the Tamil market.

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Shemaroo Entertainment Ltd

Premia Research CMP: ` 481; 1-year target: ` 580

Shemaroo Entertainment Ltd (Shemaroo), one of the largest content Sector M&E aggregator s of India is set to benefit from rising internet usage Recommendation BUY leading to robust growth of its digital business. We forecast revenue Upside 21% CAGR of ~14% over FY18-20E. Further, Reduction in debt leading to

reduction in finance cost will drive PAT CAGR of 26% over FY18-20E. Stock Data Sensex 35,264 Considering its strengthening balance sheet with ROE and ROCE of 52 Week h/l (`) 595/325 17.5% and 23.7% (FY18) respectively, we recommend BUY with a

Market cap (` Cr) 1,310 target price of `580 (14x FY20E EPS). BSE code 538685 Robust growth of Digital segment: The average price for mobile data NSE code SHEMAROO has fallen from ~`200/GB two years back to `3.2/GB currently. FV (`) 10 Currently, Shemaroo’s content gets ~700mn monthly views on Div yield (%) 0.31 YouTube compared to ~300mn two years back. This bodes well for the company’s digital segment. Hence, we expect digital revenue CAGR of Shareholding Pattern ~23% over FY18-20E. Sep-17 Dec-17 Mar-18 Investment phase is over: Company’s inventory grew by ~`72cr p.a. Promoters 65.82 65.82 65.82 over FY13-18 due to heavy investment in movie titles. However, going DII+FII 18.24 18.12 16.59 forward we expect it to grow by only ~`40cr p.a. in both FY19E/20E, as Individuals 15.94 16.06 17.59 Source: ACE Equity, IIFL Research company now has sufficient inventory (+3,400 titles) to monetize from. Hence, we expect the net debt to equity to come down from ~0.4x in Share Price Trend FY18 to ~0.2x in FY20E. Shemaroo Entertainment Ltd. Outlook & Valuation: We are positive on Shemaroo owing to its Sensex strong movie inventory, launch of new spiritual applications and higher 38000 content expenditure guidance by the broadcasters (customers of 530 36000 Shemaroo). Company is reasonably priced at 11.3x FY20E EPS (trading 34000 430 32000 at a discount to Balaji Telefilms, 33.8x FY20E EPS).

330 30000 Financial Summary Jun-17 Oct-17 Feb-18 Jun-18 Consolidated `Cr FY16 FY17 FY18 FY19E FY20E

Prices as on 02/07/2018 Revenue 375 426 489 566 635 YoY Growth (%) 16.0 13.5 14.8 15.9 12.1 EBITDA Margin (%) 28.7 30.0 29.1 29.9 30.4 PAT 52 61 71 99 113 PAT Growth (%) 27.5 17.9 15.7 38.9 14.3 RoE 15.3 15.5 15.4 18.2 17.5 P/E x 25.1 21.3 18.4 13.2 11.6 EV/EBITDA x 14.1 12.6 10.6 8.7 7.4 Source: Company, IIFL Research

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Shemaroo Entertainment Ltd Premia Research

Company Overview Shemaroo is an established Filmed Entertainment “content house” with activities across content aggregation & ownership, value addition to content and content distribution with a library of over 3,400 titles. Shemaroo is engaged in the distribution of content for satellite channels, physical formats and emerging digital technologies like mobile, internet, broadband and DTH among others.

Shemaroo purchases titles of movies from TIPS, Sohail Khan Productions, Viacom 18, etc. Its customers include OTT players like Netflix, Broadcasters like Star Gold, Set Max, Zee Cinema, etc. It also sells it content to other media like overseas and in flight.

Company typically participates in the second and subsequent cycles of film monetization, which is after 5-7 years of release of the movies. These subsequent cycles contribute 5-10% of the producers’ revenue. There is a lower risk in these cycles due to visibility of performance of movies during first cycle of launch.

The company has agreements with major telecom operators namely Airtel, , Idea, etc. It also distributes its contents to other media platforms like In-flight entertainment, Overseas, International Film festivals, etc., with presence in US, UK, Canada, UAE, Australia, Singapore, etc.

Exhibit 1: Mobile internet consumption in India Installed base of 3G and 4G capable device base grew by 1.4x and 4.6x respectively from CY15 to CY17 CY16 CY21E

File sharing Video Streaming Audio Other India is second largest smart phone

market in the world after China Source: FICCI-KPMG 2017 report, IIFL Research

Video content is dominating mobile internet usage and going forward the same trend is expected to continue further. The contribution from videos in overall internet consumption is expected to grow to ~75% in CY21E from ~49% in CY16.

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Shemaroo Entertainment Ltd Premia Research

Exhibit 2: Shemaroo’s content views on YouTube (lakhs per day)

Shemaroo’s content on YouTube gets over 7,000lakhs views a month or more than 200lakhs hits per day

Source: Company, IIFL Research

Shemaroo is amongst the most viewed channel partners for YouTube in India. It has more than 40 channels of its own on YouTube. Till now, its two flagship channels Shemaroo and FilmiGaane have already crossed 4bn and 3bn cumulative views respectively.

Shemaroo’s digital segment to outperform traditional business

Rising internet penetration will drive faster digital revenue growth at a

CAGR of 23% over FY18-20E compared to 10.5% of traditional over the

Overall industry’s digital media is same period. Digital revenue contribution is expected to reach to ~31% expected to grow at a CAGR of 23.5% over CY17-20E by FY20E in overall revenue from ~27% in FY18.

Exhibit 3: Traditional and Digital segment revenues

500 80 70 400 60

300 50 40 200 30 20 100 10 - 0 FY16 FY17 FY18 FY19E FY20E Traditional Media (Cr) Digital Media (Cr) Traditional Media growth (%) Digital Media growth (%)

Source: Company, IIFL Research

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Shemaroo Entertainment Ltd Premia Research

Exhibit 4: Return ratios to improve with margin expansion

35 25

30 20 25 15 20 10 15

10 5

5 0 FY16 FY17 FY18 FY19E FY20E EBITDA margin (%) LHS PAT margin (%) LHS ROE (%) RHS ROCE (%) RHS

Source: Company, IIFL Research

We expect ROE and ROCE to expand by ~210bps and ~440bps to 17.5%

and 23.7% respectively owing to margin expansion. Increase in the

monetization opportunities going forward will help company to

expand its PAT margin by ~320bps over the same period.

Rationale for PE multiple and peer comparision: Current scenario

of rising internet penetration with higher per capita disposable income

bodes well for content players. We prefer Shemaroo over EROS and

Balaji Telefilms considering its consistency in the profitability and

higher return ratios. Hence, we assign it a target multiple of 14x FY20E

EPS. Stock is currently trading at 11.3x FY20E EPS, which is at a huge

discount from its peer Balaji Telefilms’ multiple of 33.8x FY20E EPS.

Exhibit 5: 1 Year forward PE

18 16

14

12 10

8

6 4

Jun-15 Jun-16 Jun-17 Jun-18

Oct-14 Oct-15 Oct-16 Oct-17

Apr-15 Apr-16 Apr-17 Apr-18

Feb-15 Feb-16 Feb-17 Feb-18

Dec-14 Dec-15 Dec-16 Dec-17

Aug-16 Aug-17 Aug-15

Source: ACE Equity, IIFL Research

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Shemaroo Entertainment Ltd Premia Research

Exhibit 6: Peer comparison P/E EV/EBITDA ROE

FY19E FY20E FY19E FY20E FY19E FY20E Balaji Telefilms 38.2 33.8 16.3 13.4 3.1 3.3 Shemaroo Enter 13.2 11.6 8.7 7.4 18.2 17.5 Source: Bloomberg, IIFL Research

Exhibit 7: Balance Sheet summary and key ratios Consolidated ~ ` Cr FY16 FY17 FY18E FY19E FY20E Cash & Cash equivalent 2 2 1 2 3 Inventories 388 500 530 565 615 Receivable 107 191 141 157 174 Other Current Assets 68 36 16 34 38 Creditors 11 19 18 21 24 Other Current Liab. 18 34 17 19 22 Net Current Assets 535 677 653 717 784 Fixed Assets 31 35 33 33 33

Investments 8 7 10 11 11

Other Long-term assets 9 9 3 3 4

Total net assets 584 728 700 765 831 Borrowings 212 296 202 171 131 Other long-term liab. 7 8 5 5 6 Shareholders' equity 364 423 493 589 695 Total liabilities 584 728 700 765 831 Key Ratios Valuation ratios EV/sales 4.0 3.8 3.1 2.6 2.3 EV/EBITDA 14.1 12.6 10.6 8.7 7.4 P/E 25.1 21.3 18.4 13.2 11.6 P/B 3.6 3.1 2.6 2.2 1.9 Working capital days Inventory days 377 429 396 366 354 Debtor days 104 164 105 101 100 Creditors days 10 16 14 14 14 Source: Company, IIFL Research

Key Risks:

 Competition intensity may negatively affect realizations for its content.  Content library management is always a challenge; any irrelevant content acquisition can lead to cash burns.

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TV Today Network Ltd Premia Research CMP: ` 412; 1-year target: ` 517

TV Today Networks Ltd (TTNL) is one of the leading media companies Sector M&E with flagship channel Aaj Tak in Hindi new genre. TTNL is set to Recommendation BUY benefit from strong TV broadcasting revenue growth owing to Upside 25% digitization and acquisition of digital segment from parent. Hence,

we expect revenue CAGR of ~10% over FY18-20E. Further, the sale of Stock Data Sensex 35,264 loss making radio business will drive PAT CAGR of ~17% over the 52 Week h/l (`) 558/211 same period. Currently, it is debt free with RoE and RoCE of 21.7% Market cap (` Cr) 2,462 and 26.9% (FY18) respectively. We recommend BUY with target price BSE code 532515 of `517. (16x FY20E EPS). NSE code TVTODAY Acquisition of digital business from parent: In Q3FY18, it had FV (`) 5 acquired digital business from its parent at a reasonable valuation of Div yield (%) 0.43 0.33x price/sales. Rising time spend on the internet is driving advertisement shift towards digital. Hence, we expect the company to Shareholding Pattern post digital revenue CAGR of ~22% over FY18-20E. Sep-17 Dec-17 Mar-18 Margin expansion owing to sale of radio business: Company has Promoters 57.42 57.42 57.42 recently announced its exit from radio business. Its radio segment DII+FII 20.78 21.96 22.81 reported losses of ~14cr in FY18. It is selling all 3 radio stations to Individual 21.18 20.62 19.76 s Entertainment Network for which it is awaiting Ministry of Information Source: ACE Equity and Broadcasting’s approval. With this sale, we expect expansion of Share Price Trend company’s EBITDA margin by ~130bps to 30.1% over FY18-20E.

TV Today Network Ltd. Sensex Outlook & Valuation: We have a positive outlook on TTNL given expected breakeven in its print segment by FY20E and cash rich balance sheet providing opportunities of expansion/acquisition. 400 35000 Further, going forward, the election years will aid company to clock broadcasting revenue CAGR of ~11% over FY18-20E. The stock is 200 30000 Jun-17 Oct-17 Feb-18 Jun-18 currently trading at a valuation of 13.4x FY20E EPS (trading at a

Prices as on 29/06/2018 discount to Zee Media, ~21x FY20E EPS). Financial Summary Consolidated `Cr FY16 FY17 FY18 FY19E FY20E Revenue 582 652 721 786 871 YoY Growth (%) 22.0 12.1 10.5 9.1 10.8 EBITDA Margin (%) 27.8 24.9 28.8 29.1 30.1 PAT 92 92 133 154 183 PAT Growth (%) 13.6 -0.2 44.5 15.6 19.0 RoE 20.0 17.4 21.4 21.4 21.7 P/E x 26.7 26.8 18.5 16.0 13.4 EV/EBITDA x 14.3 13.6 10.9 9.4 7.8 Source: Company, IIFL Research

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TV Today Network Ltd Premia Research

Company Overview TV Today Network (TTNL), is one of the leading Indian news television networks. Company’s segments include TV broadcasting, , newspaper publishing and digital. Its flagship channel Aajtak is leader in Hindi news genre, while other channels include India Today, Tez and Dilli Aaj Tak. The company also operates three radio stations under brand ISHQ 104.8 FM in Delhi, Mumbai and Kolkata.

Its newspaper publication business publishes Mail Today newspaper in Delhi covering stories like politics, entertainment, automobiles, fashion, etc. Its digital business includes e-newspaper, websites and mobile applications.

Exhibit 1: TV Today Network (Revenue segments, FY18)

Aaj Tak amongst leaders on YouTube: Aaj Tak is clearly a leader in terms of subscribers on YouTube amongst its peer channels. As on June 29, 2018, Aaj Tak has 7.4mn subscribers while India TV and ABP News have 5.2mn and 4.9mn subscribers respectively. In terms of total views, it has 2.3bn views, which is just behind India TV’s views (2.5bn

views).

Exhibit 2: YouTube stats (TV channels) Channels Subscribers (mn) Views* (bn) India TV 5.2 2.5 Aaj Tak 7.4 2.3 ABP News 4.9 1.9 News 18 India 1.5 0.3 Source: socialbakers.com, YouTube, IIFL Research *Total uploaded video views

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TV Today Network Ltd Premia Research

TV Broadcasting revenues to benefit from digitization Digitization has led to reduction in the revenue leakages for broadcasters. This will be very positive for the company, as Aaj Tak is leader in both rural and urban areas. Hence, we expect TV broadcasting revenues to grow at CAGR of ~11% over FY18-20E.

Exhibit 3: TV Broadcasting revenues (`Cr)

800 18

700 16

600 14 12 500 10 400 8 300 6 200 4 100 2 0 0 FY16 FY17 FY18 FY19E FY20E TV Broadcasting revenues Growth (%) yoy

Source: Company, IIFL Research

As per EY-FICCI, overall industry We expect company to attain breakeven in its Print business by FY20E. broadcasters’ revenue is expected to grow at a CAGR of 10.4% over CY17-20E Further, with the sale of radio business, EBITDA margins are expected

to expand by ~130bps over FY18-20E. This will aid the company to

improve its return ratios.

Exhibit 4: Strong EBITDA margin and return ratios

30 35 28 26 30 24 22 25 20 18 20 16 14 15 12 10 10 FY16 FY17 FY18 FY19E FY20E

ROE (%) LHS ROCE (%) LHS EBITDA margin (%) RHS

Source: Company, IIFL Research

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TV Today Network Ltd Premia Research

Strong balance sheet with cash surplus: Company has a debt free balance sheet with disciplined working capital cycle. This will lead to continuous increase in the cash surplus for the company. We expect company to have cash surplus of ~`410cr by FY20E from `200cr in FY18 given its disciplined working capital cycle. This gives the company ability to acquire/expand for continues market share gains and growth.

Exhibit 5: Cash rich balance sheet (`Cr)

1000 900 800 700 600 500 400 300 200 100 0 FY16 FY17 FY18 FY19E FY20E

Equity Cash and Cash Equivalents Total Debt

Source: Company, IIFL Research

Rationale for PE multiple: Company is currently trading at a valuation of 13.4x FY20E EPS, which is at cheaper valuation than its peer Zee Media (~21x FY20E EPS) despite better return ratios. Further, considering its debt free position of the company, strong foothold in Hindi news genre, acquisition of digital business and upcoming elections we assign it a multiple of 16x FY20E EPS.

Exhibit 6: 1 Year forward PE band (x)

25

20

15

10

5

0

Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

Sep-14 Sep-15 Sep-16 Sep-17

Dec-14 Dec-15 Dec-16 Dec-17

Mar-16 Mar-17 Mar-18 Mar-15

Source: Ace Equity, IIFL Research

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TV Today Network Ltd Premia Research

Exhibit 7: Peer comparison P/E EV/EBITDA ROE Company FY19E FY20E FY19E FY20E FY19E FY20E Zee Media 27.3 21 11.6 9.9 6.8 7.8 TV Today 16.0 13.4 9.4 7.8 21.4 21.7 Source: Bloomberg, IIFL Research

Exhibit 8: Balance Sheet summary and key ratios Consolidated ~ ` Cr FY16 FY17 FY18 FY19E FY20E Cash & Cash equivalent 170 263 199 298 420 Inventories 1 2 2 2 4 Receivable 151 179 185 200 219 Other Current Assets 57 63 71 77 85 Creditors 70 91 87 95 105 Other Current Liabilities 47 49 73 80 88 Net Current Assets 263 366 297 402 535 Fixed Assets 219 204 255 259 264 Investments 7 6 5 6 6 Other Long-term assets 41 50 117 120 122 Total net assets 531 627 674 786 926 Borrowings 49 35 - - - Other long-term 9 11 13 13 14 liabilities Shareholders' equity 472 581 662 773 912 Total liabilities 531 627 674 786 926 Key Ratios Valuation ratios EV/sales 4.0 3.4 3.1 2.7 2.3 EV/EBITDA 14.3 13.6 10.9 9.4 7.8 P/E 26.7 26.8 18.5 16.0 13.4 P/B 5.2 4.2 3.7 3.2 2.7 Working capital days Inventory days 1 1 1 1 2 Debtor days 95 100 94 93 92 Creditors days 44 51 44 44 44 Source: Company, IIFL Research

Key Risks:

 Too much dependency on Aaj Tak.  Launch of new Hindi news channels, increasing competitive intensity, aggressive pricing strategy by competitors.  Poaching of Anchors by other news channels

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Disclaimer Premia Research

Recommendation Parameters for Fundamental/Technical Reports:

Buy – Absolute return of over +10% Accumulate – Absolute return between 0% to +10% Reduce – Absolute return between 0% to -10% Sell – Absolute return below -10%

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