Stock Update Strengthens Presence in Music Genres Though 9X Media Acquisition
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Stock Update Strengthens presence in music genres though 9X Media acquisition Key points Zee Entertainment Enterprises Event: acquires 9X Media; terminates JV Reco: Buy | CMP: Rs526 with Turner: Zee Entertainment Enterprises (ZEEL) announced that it has entered into an agreement to acquire 9X Media Private Limited Company details (9XM) and INX Music Private Limited [INX, (a Price target: Rs610 70.85% subsidiary of 9XM)] from Rivendell PE LLC (earlier known as New Silk Route) and other Market cap: Rs50,472 cr shareholders for a total cash consideration of Rs 52-week high/low: Rs575/428 160 crore. As per deal structure, the company will buy 100% of 9XM for Rs 155.2 crore and the NSE volume: (No of shares) 19.3 lakh remaining 29.15% stake of INX for Rs 4.8 crore. BSE code: 505537 This acquisition is expected to be concluded within two months. In a separate transaction, NSE code: ZEEL ZEEL will acquire the balance 26% stake of Sharekhan code: ZEEL Zee Turner Limited [ZTL, (a 74% subsidiary of ZEEL)] from joint venture (JV) partners Turner Free float: (No of shares) 54.7 cr International India Private Limited (Turner) for Rs 2.6 lakh. ZTL acquisition is expected to be Shareholding pattern closed within 30 days. Corporate Expanding regional footprint as well Hindi Bodies Institutions music portfolio: ZEEL will acquire a bouquet 4% 5% of five music channels from 9XM – 9XM (Latest Bollywood), 9X Jalwa (Evergreen Hindi), 9X Bajao (Hindi Classics),9X Jhakkas (Marathi) and Foreign 9XO (English) and one Punjabi music channel Promoters 45% 43% “9X Tashan” from INX. The acquisition will take the total count of channels to ~39 from ~33 Public and currently. FY2017 consolidated revenue for the Others 3% proposed acquired entities (9XM and INX) stood at Rs 158.6 crore (2.5% of ZEEL’s FY17 revenue), registering a CAGR growth of 3.5% over FY2015- Price chart FY2017. This implies that ZEEL has acquired 9XM with a valuation of around 1x of 9XM’s FY17 sales, 580 which seems to be attractive. The management 560 believes that these music channels would 540 achieve significant cost synergies and help 520 500 ZEEL to strengthen its presence in both Hindi 480 and regional music genres. Additionally, 9XM’s 460 Bollywood news portal, SpotBoyE will be also 440 part of the transaction. 420 400 Expect advertisement revenues growth to 17 17 16 17 - - - - normalize by 2HFY2018E: GST transition Oct Oct Jun Feb has adversely impacted the advertisement revenues of broadcasters in the months of Price performance June and July. The strong revival of ad spends in September is unlikely to compensate fully (%) 1m 3m 6m 12m for the sharp decline in ad revenues for the Absolute 0.3 4.1 -5.3 -5.5 month of July 2017. However, we expect the Relative to Sensex -0.2 2.3 -11.7 -17.6 advertisement revenue to normalise beginning from 2HFY2018E. During Q2FY18, ZEEL’s international revenue is expected to remain October 09, 2017 2 Sharekhan Stock Update soft attributed to certain regulatory issues in Hindi music portfolio over a period of time. In the certain markets, while the domestic subscription past, ZEEL has a proven track record of turning revenue is likely to grow in mid-to-high single around small acquisitions to leading profitable digits. As the company concluded the sale of channels. We believe this transaction would be sports business upon receipt of remittance of marginally EPS accretive as ZEEL in FY2019E; consideration of $36.3 million during Q2FY2018, we have kept our estimates unchanged. From the other income is expected to increase by a long-term perspective, we continue to remain 120% YoY in Q2FY18. positive on ZEEL, as it is based on a structural India consumption theme, and expect its growth Maintain Buy with a PT of Rs610: We expect trajectory to improve further in the coming years. the recent acquisition of 9XM and its subsidiary We maintain our ‘Buy’ rating with an unchanged (INX) to help ZEEL expand its regional presence price target (PT) of Rs610. in regional music genres and strengthen its Valuation Rs cr Particulars FY2016 FY2017 FY2018E FY2019E Revenues 5,812.5 6,434.2 6,675.0 7,812.9 EBITDA margin (%) 26.0 29.9 30.8 34.0 Adjusted net profit 923.5 1,218.7 1,368.2 1,798.2 EPS (Rs) 8.9 12.7 14.3 18.7 P/E (x) 59.0 41.4 36.9 28.1 EV/EBITDA (x) 33.8 25.6 23.3 17.6 RoE (%) 19.2 18.3 17.9 20.0 RoCE (%) 23.0 24.4 22.0 25.4 *EPS after preference dividend and excluding MTM gains/loss on preference shares *FY2017 net profit adjusted the proceeds from the sale of the Sports business Q2FY2018 ZEEL earnings preview Rs cr Quarter ended Sep-17 Sep-16 Jun-17 YoY (%) QoQ (%) Comments Revenues 1,618.8 1,695.4 1,540.2 -4.5 5.1 • Domestic ad revenue is expected to grow in mid- EBITDA 493.7 489.2 484.4 0.9 1.9 single digits owing to soft ad revenues in July because of GST roll out. Reported net profit 351.3 238.4 251.4 47.4 39.7 • International revenue likely to decline owing to Adjusted net profit 351.3 321.3 304.6 9.3 15.3 regulatory issues in certain international markets Adjusted EPS (Rs) 3.7 3.3 3.2 9.3 15.3 • Domestic subscription revenue is expected to Margin (%) BPS BPS grow in mid-to-high single digit EBITDA (%) 30.5 28.9 31.4 164 (95) • Other income would grow 120% YoY on account NPM (%) 21.7 18.9 19.8 275 192 of the final receipts ($36.3 million) from the sale of sports business which was concluded during Q2FY2018 *Financials are not strictly comparable on YoY basis on account of sale of sports business 9XM Media Financials Rs Cr 9XM INX Consolidated Financial Year Revenue EBITDA Revenue EBITDA Revenue EBITDA EBITDA Margin (%) FY17 135.02 -17.74 23.37 6.12 158.6 -5.1 -3.2 FY16 155.43 1.73 20.5 5.55 176.2 11.7 6.6 FY15 131.65 -16.04 16.3 1.63 148.0 -10.4 -7.0 Source: Company, Sharekhan research Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. 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