ZEE ENTERTAINMENT Likely to Recapture Eyeballs
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COMPANY UPDATE ZEE ENTERTAINMENT Likely to recapture eyeballs India Equity Research| Media EDELWEISS 4D RATINGS Zee Entertainment Enterprises’ (ZEE) flagship channel Zee TV’s ratings are likely to rise from the doldrums with Sony’s mega show Kaun Banega Absolute Rating BUY Crorepati (KBC) going off air this week. Also, on the anvil are two more Rating Relative to Sector Outperformer shows (including Dance India Dance) in H2FY12 and increase in the Risk Rating Relative to Sector Medium Sector Relative to Market Overweight number of original programming hours from 28 to ~32 by FY12 end. The company has already soft launched four HD channels, a positive from the ARPU perspective. Overall, we remain positive on ZEE’s subscription MARKET DATA (R: ZEE.BO, B: Z IN) revenue from a long‐term perspective. Maintain ‘BUY’. CMP : INR 114 Target Price : INR 150 KBC ending a positive; ratings likely to rise from hereon 52‐week range (INR) : 153 / 106 Share in issue (mn) : 978.1 After garnering 228 GRPs and becoming a close No. 3 player in June 2011, viewership M cap (INR bn/USD mn) : 111 / 2,191 of ZEE’s flagship channel Zee TV has nosedived, languishing at a poor No.4 spot. This Avg. Daily Vol.BSE/NSE(‘000) : 2,166.0 has been primarily due to tremendous success of Sony’s KBC, which has consistently garnered GRPs of ~40‐45. However, with the current week (Week 47) being KBC’s last SHARE HOLDING PATTERN (%) on air, ZEE’s ratings are likely to have bottomed out in our view. Others 8.5% Two more shows on cards; sports losses to be sharply lower ZEE has already launched two new shows Star Ya Rockstar and Hitler Didi and will FIIs Promoters* 35.0% launch Afsar Bitiya and Dance India Dance (DID) in H2FY12. DID will be critical for Zee 43.3% TV as it had garnered excellent GRPs (~25‐30) in the past. In our view, ZEE will have to change its cost‐focused strategy and maintain a healthy balance of movies and fiction shows. Sports EBITDA loss in H2FY12 is likely to be ~INR220mn versus a loss of MFs, FIs & INR792mn in H1FY12, which will cushion margin pressure. Banks 13.2% * Promoters pledged shares : 10.3 Outlook and valuations: Improving; maintain ‘BUY’ (% of share in issue) We remain positive on ZEE from a long term perspective as we expect subscription PRICE PERFORMANCE (%) revenue to get a boost from the digitization mandate and the distribution JV with Star. EW Media Stock Nifty At CMP of INR114, the stock is trading at P/E of 17.8x and 14.9x on FY12E and FY13E, Index respectively. We maintain ‘BUY’ recommendation and ‘Sector Outperformer’ rating. 1 month 9.7 10.7 5.3 Financials (INR mn) 3 months (1.2) (0.9) (21.0) FY10 FY11 FY12E FY13E 12 months (14.3) (15.9) (35.7) Year to March Net revenue 21,998 30,136 31,628 35,929 Rev. growth (%) 1.0 37.0 5.0 13.6 EBITDA 6,135 8,266 8,144 9,773 Net profit 5,881 5,913 6,197 7,391 Shares outstanding (mn) 978 978 966 966 Diluted EPS (INR) 6.2 6.2 6.4 7.6 Abneesh Roy +91 22 6620 3141 EPS growth (%) 46.7 (0.5) 3.7 19.3 [email protected] Diluted PE (x) 18.3 18.4 17.8 14.9 EV/EBITDA (x) 16.8 12.1 11.6 9.3 ROACE (%) 15.5 26.7 30.8 32.0 November 16, 2011 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited Media Curtains down on KBC may trigger uptick in Zee TV GRPs After garnering healthy 228 GRPs and closing the gap with Colors to just two points towards the end of June 2011, Zee TV’s GRPs have nosedived. From being a consistent player amongst the top 3 in the GEC genre, the channel has been pushed to the fourth spot in terms of TV ratings. The launch of Sony’s KBC on August 15, 2011, added salt to Zee TV’s injury and its ratings failed to recover. Having consistently garnered an average TRP of 4 and being amongst the top 3 shows in the GEC genre, KBC has had a successul run this year. Fig. 1: KBC has enjoyed enormous success yet again Source: Edelweiss research However, with the ongoing week (Week 47) being the show’s last on air, ZEE can expect some recovery in Zee TV’s ratings from the following week. To give some hope of a revival, Zee TV’s ratings have improves slightly in the past two weeks, which includes a 32 point surge in the last week (Week 46). Chart 1: Zee TV’s GRPs have nosedived since launch of KBC 400 Year 2011 320 240 (GRPs) 160 80 0 34 35 36 37 38 39 40 41 42 43 44 45 46 Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Star Plus Colors Zee TV Sony Source: Company, Edelweiss research 2 Edelweiss Securities Limited Zee Entertainment Enterprise Before the launch of KBC, Sony was a no. 4 player in the GEC space. However, with a slew of hit serials apart from KBC like CID, Crime Patrol and Bade Acche Lagte Hai, Sony has jumped to the no.2 slot, overtaking Colors and Zee TV. Post KBC, Sony is launching two new fiction shows – Parvarish and Dekha Ek Khwab to replace KBC’s time slot. Even though these two serials are unlikely to replicate the immense success of KBC, we need to keep a close tab on their performance. Fig. 2: Parvarish Fig. 3: Dekha Ek Khwab Source:Edelweiss research Chart 2: The race between Colors, Sony and Zee has spiced up in H2CY11 350 Year 2011 280 210 (GRPs) 140 Sony's huge leap in 70 rankings has been largely aided by KBC 0 Wk 1Wk 6Wk 11 Wk 16 Wk 21 Wk 26 Wk 31 Wk 36 Wk 41 Wk 46 Colors Zee TV Sony Source: Company, Edelweiss research Focus on extending original programming hours ZEE has already launched two new shows Star Ya Rockstar and Hitler Didi on Zee TV. The company has still not frozen the launch dates of its upcoming show Afsar Bitiya. Dance India Dance will be launched either near Q3FY12 end or the beginning of Q4FY12. Currently, Zee TV showcases 28 hours of original programming and is trying to increase it to ~32‐33 hours/week by FY12 end. However, ZEE will invest in high cost reality shows only after careful evaluation. Management admitted in the Q2FY12 conference call that the company will continue to invest agressively in movies. Recently, media articles suggested that the 3 Edelweiss Securities Limited Media company had bought the movie rights of the Hrithik Roshan starrer under production Agneepath for a whopping ~INR410mn. Fig. 4: Star Ya Rockstar Fig. 5: Hitler Didi Source:Edelweiss research Fig. 6: Dance India Dance Fig. 7: Afsar Bitiya Source:Edelweiss research HD channels to be officially launched soon Currently, ZEE is producing its entire content in HD. It has already announced the launch of four of its mainstream channels in HD viz., Zee TV, Zee Cinema, Ten Sports and Zee Studio. Currently, ZEE is in talks with cable operators and DTH companies for launch of the HD channels. In the past few months, STAR and Colors have launched channels in HD. Sony has also announced that it will be launching its HD channel soon. With rates of HD compatible television sets dipping considerably, we expect HD penetration to surge further. DTH companies like Dish TV are planning to raise funds to gear up for the compulsory digitization mandate and the increasing HD penetration. Thus, there lies a good opportunity to inrease subscription revenues through higher HD channels. Sports business losses likely to be sharply lower in H2FY12 Although H1FY12 loss from sports stands at INR792mn (loss of INR226mn in Q2FY12 and INR566mn in Q1FY12), ZEE remains confident of meeting its FY12 guidance (loss of 4 Edelweiss Securities Limited Zee Entertainment Enterprise INR1,000mn) . We consider this to be a daunting task and expect a loss of ~INR1.1bn for FY12, especially in the context of a slowdown in ad spends. Chart 3: Ex‐sports EBITDA (approx) 3,000 36.5 2,400 34.0 1,800 31.5 mn) (%) (INR 1,200 29.0 600 26.5 0 24.0 FY12 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q2FY12 Q1 Source: Company, Edelweiss research Table 1: ZEE – Sports performance Sports Q1FY10 Q2FY10 Q3FY10 Q4FY10 FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 FY11 Q1FY12 Q2FY12 Sales 870 1,060 604 617 1,474 832 1,190 1,665 1,424 5,111 873 881 Cost 1,142 1,108 880 597 2,022 1,186 1,732 1,995 1,576 6,489 1,439 1,107 EBITDA (272) (48) (276) 20 (548) (354) (542) (330) (152) (2,078) (566) (226) EBITDA (%) (31.3) (4.5) (45.7) 3.2 (37.2) (42.5) (45.5) (19.8) (10.7) (41.0) (64.8) (26.0) Source: Company, Edelweiss research Chart 4: ZEE – Sports performance 1,800 1,200 600 mn) 0 (INR (600) (1,200) FY12 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q2FY12 Q1 Sports Revenues Sports EBITDA Source: Company, Edelweiss research 5 Edelweiss Securities Limited Media Rejig in Zee’s management After joining ZEE in March 2005, Joy Chakraborty, Executive Director, Revenue and Niche channels, ZEE resigned from the company in October 2011.