Zee Entertainment Enterprises Ltd. Q3fy18

ZEE ENTERTAINMENT ENTERPRISES LTD.

Q3FY18

Leading the entertainment genre

Leading the entertainment genre Zee becomes the no 1 entertainment network in India

Zee became the No. 1 non-sports entertainment television network, with a viewership share of 18.3%. Revenues grew by 12.1% (16.2% growth QoQ) to Rs. 1,838.1 crs in Q3FY18 as against Rs. 1,639.1 crs in Q3FY17. Advertising revenue for the quarter was Rs. 1202.0 crores recording a growth of 25.8%. Adjusted for sports, domestic advertising grew by 30.4% to Rs. 1137.3 crores. On a comparable basis (excluding sports, RBNL and IWPL), domestic advertising revenue grew by 25.7%. International advertising revenue for the quarter was Rs. 64.7 crore. Subscription revenue for the quarter was Rs. 501.7 crores. Adjusted for the sale of sports business, domestic subscription revenue grew by 7.5% to Rs. 403.6 crores. International subscription revenue stood at Rs. 98.1 crores. The EBITDA for the quarter stood at Rs. 594.4 crores and the EBITDA margin stood at 32.3%. Profit After Tax (PAT) for Q3FY18 was at Rs. 322.2 crores compared to Rs 254.9 crores in Q2FY18.

During the quarter, two HD channels, Zee Telugu HD and Zee Cinemalu HD, were launched taking the count of HD channels to 13. Zee Studios released two Hindi and one Marathi movie during the quarter. Hindi movie, Secret Superstar, performed well at the box office while the other two received rave reviews.

In Q3FY18, ZEEL maintained its No. 1 position in non-sports entertainment, with a viewership share of 18.3%. The network improved its performance in several regional language markets while continuing to be the leader in pay Hindi GEC segment.

Leading the entertainment genre

In continuation with the focus on premiumization, HD versions of Zee Telugu and Zee Cinemalu were launched following launch of &Privé HD and Zee Tamil. Zee TV was the leader in the pay Hindi GEC segment and &TV maintained its market share. In the Hindi FTA category, Zee Anmol retained its leadership position and Big Magic continued to perform strongly. With a strong portfolio of four channels, the cinema cluster retained its leadership position in the Hindi movie genre.

Regional entertainment portfolio continued to exhibit strong performance

Zee Marathi maintained its No.1 position in the Marathi market. Zee Bangla continued to be the second most watched channel in West Bengal. In the Telugu market, Zee Telugu improved its market share significantly in the Urban market to become the No. 1 channel in the Urban market. Zee Kannada maintained its position as second ranked channel in Karnataka. Zee Tamil improved its market share as the third ranked channel in the Tamil market. Zee Sarthak continues to maintain its strong leadership position in the Odiya market. Big Ganga, the Bhojpuri channel, maintained its strong viewership. Zee Café, with its strong line-up of shows, continues to be an audience favourite for English entertainment and Zee Studio premiered some of the best movies from around the world. &Privé HD, a premium destination for English movies, gained the leadership position in the first quarter of its launch.

Leading the entertainment genre

We maintain a HOLD on the stock We expect a similar performance to continue with a steady rise in revenues but with margins stable at current levels. Currently, the stock trades at 33.2X FY19 PE. We recommend a HOLD on the stock.

Revenue shows good growth

2,000 Rs in crores 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

Revenue

Revenues grew by 12.1% (16.2% growth QoQ) to Rs. 1,838.1 crs in Q3FY18 as against Rs. 1,639.1 crs in Q3FY17. Advertising revenue for the quarter was Rs. 1,202.0 crores recording a growth of 25.8%. Adjusted for sports, domestic advertising grew by 30.4% to Rs. 1137.3 crores. On a comparable basis (excluding sports, RBNL and IWPL), domestic advertising revenue grew by 25.7%. International advertising revenue for the quarter was Rs. 64.7 crore. Subscription revenue for the quarter was Rs. 501.7 crores. Adjusted for the sale of sports business, domestic subscription revenue grew by 7.5% to Rs. 403.6 crores. International subscription revenue stood at Rs. 98.1 crores. Extraordinary growth

EBITDA & EBITDA Margin PAT & PAT Margin

700 (Rs. In Crs) 40% 1600 (Rs. In Crs) 120% 600 35% 1400 100% 500 30% 1200 80% 25% 1000 400 20% 800 60% 300 600 15% 40% 200 10% 400 20% 100 5% 200 0 0% 0 0%

PAT PAT Margin EBITDA EBITDA margin The EBITDA grew by 15.2% YoY (24.8% QoQ) PAT increased 26.4% YoY from Rs. 254.9 crores to Rs. 594.4 crore in Q3FY18 as compared to in Q3FY17 to Rs. 322.2 crores in Q3FY18 (QoQ Rs. 515.8 crore in Q3FY17. The EBITDA de-grew 45%). The PAT margin improved by margin rose by 280 basis points YoY to 32% 127 bps YoY to 17.5% YoY in Q3FY17 on the due to a fall in programming costs by 4.3% back of a strong decline in the finance cost. YoY. ROE shows recovery, ROCE still falling

35 (%)

0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

ROE (%) ROCE (%)

ROE surged in the current year, from a ROE of 15.9% in FY17 to 20% in FY18 YTD. However, ROCE fell from 24.9% in FY17 to 22.8% in FY18 YTD. Financial QoQ

Particulars Sep-16 Growth Dec-16 Growth Mar-17 Growth Jun-17 Growth Sep-17 Growth Dec-17 Growth Gross Sales 1695.4 1639.1 1528.0 1540.3 1582.1 1838.1

Less: Excise Duty 0.0 0.0 0.0 0.0 0.0 0.0

Net Sales 1695.4 7.9% 1639.1 -3.3% 1528.0 -6.8% 1540.3 0.8% 1582.1 2.7% 1838.1 16.2%

Other operating income 0.0 0.0 0.0 0.0 0.0 0.0 As a % of sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Net Sales 1695.4 1639.1 1528.0 1540.3 1582.1 1838.1 Total Expenditure 1289.1 1194.7 1012.2 1109.1 1105.7 1285.6 As a % of sales 76.0% 72.9% 66.2% 72.0% 69.9% 69.9% PBIDT (Excl OI) 406.3 19.5% 444.4 9.4% 515.7 16.0% 431.2 -16.4% 476.4 10.5% 552.5 16.0% As a % of sales 24.0% 27.1% 33.8% 28.0% 30.1% 30.1% Other Income 43.2 52.5 54.9 101.1 203.1 48.0 As a % of sales 2.5% 3.2% 3.6% 6.6% 12.8% 2.6% Operating Profit 449.6 8.8% 496.9 10.5% 570.7 14.8% 532.2 -6.7% 679.5 27.7% 600.5 -11.6% As a % of sales 26.5% 30.3% 37.3% 34.6% 43.0% 32.7% Interest 8.6 9.0 112.2 14.7 0.3 2.4 As a % of sales 0.5% 0.6% 7.3% 1.0% 0.0% 0.1% Exceptional Items 0.0 0.0 1223.4 0.0 134.6 0.0 As a % of sales 0.0% 0.0% 80.1% 0.0% 8.5% 0.0% PBDT 441.0 8.7% 487.9 10.6% 1681.9 244.7% 517.5 -69.2% 813.8 57.3% 598.2 -26.5% As a % of sales 26.0% 29.8% 110.1% 33.6% 51.4% 32.5% Depreciation 33.6 24.9 31.6 31.1 41.1 50.5 As a % of sales 2.0% 1.5% 2.1% 2.0% 2.6% 2.7% PBT 407.4 463.0 1650.3 486.4 772.7 547.7 As a % of sales 24.0% 28.2% 108.0% 31.6% 48.8% 29.8% Tax 163.4 208.1 146.4 234.4 183.2 226.0 As a % of sales 9.6% 12.7% 9.6% 15.2% 11.6% 12.3% Profit After Tax 244.0 11.8% 254.9 4.5% 1503.9 490.0% 252.0 -83.2% 589.6 134.0% 321.8 -45.4% As a % of sales 14.4% 15.6% 98.4% 16.4% 37.3% 17.5% Financial YoY

DESCRIPTION Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 No Of Months 12.0 12.0 12.0 12.0 12.0 12.0 12.0 Gross Sales 3008.8 3040.6 3699.6 4421.7 4883.7 5812.5 6434.1 Less: Excise Duty 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Sales 3008.8 3040.6 3699.6 4421.7 4883.7 5812.5 6434.1 Other operating income 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Sales & Other Operating Income 3008.8 3040.6 3699.6 4421.7 4883.7 5812.5 6434.1 Operating & Manufacturing Expenses 1436.9 1431.1 2396.2 2580.0 2807.9 3341.2 3455.7 Electricity, Power & Fuel Cost 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Employee Cost 273.8 292.5 349.1 389.5 449.8 498.6 604.3 General Administration Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Selling & Distribution Expenses 476.2 577.4 0.0 247.9 372.2 459.2 447.3 Miscellaneous Expenses 0.0 0.0 0.0 0.0 0.0 67.3 220.5 Total Expenditure 2187.0 2301.0 2745.3 3217.4 3630.0 4366.2 4727.7 As a % of sales 72.7% 75.7% 74.2% 72.8% 74.3% 75.1% 73.5% Operating profit (Excl OI) 821.9 739.6 954.3 1204.3 1253.7 1446.3 1706.4 Operating margin 27.3% 24.3% 25.8% 27.2% 25.7% 24.9% 26.5% Other Income 88.3 138.4 146.1 180.7 227.8 195.1 224.0 Operating Profit 910.2 877.9 1100.4 1385.0 1481.5 1641.5 1930.4 Interest 8.8 5.0 8.6 15.8 10.3 159.8 137.2 Exceptional Items 19.7 0.0 0.0 0.0 0.0 -33.1 1223.4 PBDT 921.1 873.0 1091.8 1369.2 1471.2 1448.7 3016.6 Depreciation 28.9 32.3 39.9 50.1 67.3 77.7 115.2 PBT 892.2 840.7 1051.9 1319.0 1403.9 1371.0 2901.4 Tax 267.1 250.0 333.8 429.1 428.4 549.1 680.5 Provisions and Contingencies 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Profit After Tax 625.1 590.7 718.2 890.0 975.5 821.8 2220.9 PAT margin 20.8% 19.4% 19.4% 20.1% 20.0% 14.1% 34.5% Net Profit (after Extrodinary Items) 625.1 590.7 718.2 890.0 975.5 821.8 2220.9 Minority Interest 11.8 -1.7 2.4 1.9 5.7 -0.5 1.2 Shares of Associates 0.0 0.2 -1.0 0.2 -3.7 1.9 -0.5 Consolidated Net Profit 637.0 589.2 719.6 892.1 977.5 823.2 2221.7 P/E, P/B & EV/EBITDA Trends for the upcoming Years

800 P/E 700 P/B 700 600 600 500 500 400 400 300 300 200 200 100 100 0 0

CMP 5.8x 15.0x 24.3x 33.6x 42.9x CMP 0.4x 2.3x 4.3x 6.2x 8.1x

80,000 EV/EBITDA 70,000 60,000 50,000 40,000 30,000 20,000 10,000

03 04 05 06 07 08 10 11 12 13 14 17 02 09 15 16

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EV 7.6x 13.8x 20.0x 26.3x 32.5x

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