Rating Rationale Zee Entertainment Enterprises Limited 4 June 2109 Brickwork Ratings has placed the ratings of BWR AAA on “Credit Watch with Negative ​ Implications” from “Credit Watch with Developing Implications” of Zee ​ ​ Entertainment Enterprises Limited’s (ZEEL) 6% Cumulative Redeemable ​ Non-convertible (CRNPS) Preference Shares and Issuer rating. Particulars Previous Outstanding Current Previous Instruments Amount Amount Rating Rating (Rs. Cr) (Rs. Cr) ​ BWR AAA (Credit BWR AAA (Credit Watch 6% Cumulative Watch With Negative With Developing Redeemable Implications) Implications) Non-convertible 1615 (Pronounced BWR (Pronounced BWR Triple A Preference Shares 1210.16 Triple A Credit Watch Credit Watch With (CRNPS) With Negative Developing Implications) Implications) BWR AAA (Credit BWR AAA (Credit Watch Watch With Negative With Developing Implications) Implications) Issuer Rating NA (Pronounced BWR (Pronounced BWR Triple A NA Triple A Credit Watch Credit Watch With With Negative Developing Implications) Implications) *Please refer to BWR website www.brickworkratings.com/ for definition of the ratings ​ ​ BWR has essentially relied upon audited financials of ZEEL up to FY19, information available in the public domain and the information and clarifications provided by the management. Rating Rationale The revision factors delay in stake sale plans by the Promoters which was announced on 14th ​ November 2018 to a Strategic partner, which according to the Promoters was to pursue disruptive technological development and transform the business in to tech-media. Subsequently in January 2019 the promoter announced that proceeds from stake sale will be utilized for repayment of debt against pledge of promoter held shares at group level. On April 17 2019, the promoter had informed that they were hopeful of entering into Non-Binding Term Sheet by end of April/early May 2019 for monetization of stake in ZEEL. The promoters expects stake sales th by 31 July​ 2019 and repayment of debt against pledge of shares is expected by 30 September ​ 1 4 June 2019 2019. The revision also factors uncertainties in stake sale, volatility in share price, deteriorating & weakening Credit profile and weakening financial flexibility of the group including its infrastructure segment. The ratings continues to factor in established track records of promoters in Indian television broadcasting industry & presence in media and entertainment industry for more than two decades. The rating factors in presence of brand Zee in the Indian Media Space and large array of channels, investment in programming through launch of new channels as well as increase in original programming hours on existing channels, and expansion in international markets and alternate platforms such as Digital TV. The ratings also factor in strong financial profile as reflected from the increase in scale of operations and profit and low debt coupled with adequate cash and cash equivalents. Analytical Approach: BWR has analyzed ZEEL’s credit profile by considering the consolidated ​ financial statements of the group owing to financial and operational linkages between the parent and its subsidiaries. The list of subsidiaries are given at the end of the rationale. Key Rating Drivers Established Promoter Group with long track record in the media and entertainment industry: The promoters are known to be the pioneers of the private Indian television broadcasting industry and are in the media and entertainment industry since more than 2 decades. Strong presence of Brand Zee in the Indian Media Space via its presence in diverse segment and positioning of the flagship channel ‘Zee TV’ amongst the top Hindi General Entertainment Channels (GECs) with rights to more than 4,200 movie titles of Hindi film library. Through its strong presence worldwide, ZEEL entertains over 1.3 billion viewers across more than 170 countries. Financial Risk Profile: The Company has maintained comfortable financial risk profile as ​ reflected from increased scale of operations, healthy profitability and net worth and low debt. ZEEL’s advertising revenues grew by 19.8% YoY to Rs. 5037 Cr while subscription revenues grew by 13.9% YoY to Rs. 2310.54 Cr. The growth in revenue was supported by strengthening of domestic broadcast business’ market share and monetization of ZEE5’s fast growing user base. In March’19, ZEE5 had 61.5 mn monthly active users (MAU). Coverage and Liquidity Profile: ZEEL has a comfortable capital structure and coverage ratio ​ as reflected from Debt/TNW and ISCR and DSCR. The Company has adequate liquidity as st reflected from Cash and cash equivalent amounting to Rs. 1222 Cr as on 31 ​ March 2019. ​ Implementation of TRAI tariff order: The regulatory changes in the broadcasting segment ​ with the customer gets to choose what to watch and at what price is likely to impact viewership and the subscription revenue in short to medium term. 2 4 June 2019 Rating Sensitive Event: Stake sale in ZEEL by the promoters and promoted group within the ​ specified period and expected valuation is crucial. Any delays or no deal & deterioration in profitability of the Company will be credit negative. BWR will continue to monitor the development specifically with respect to outcome of strategic stake sale by the promoters in a time bound manner. Zee Entertainment Enterprises Limited (ZEEL) ZEEL is one of India's leading television, media and entertainment companies, and a key operating company of the Group. The Company claims to be largest producers and aggregators of entertainment content in the world, with an extensive library housing over 250,000 hours of television content. ZEE has rights to more than 4,200 and through its strong presence worldwide; ZEEL entertains over 1.3 billion viewers across more than 170 countries. It has pan India presence through regional and Hindi channels with diversified portfolio of 32 domestic channels and 39 international channels Some of Zee's well-known brands include Zee TV, Zee Cinema, Zee Classic, Zee Studio, ETC Music etc. The company also has a strong offering in the regional language domain with channels such as Zee Marathi, Zee Bangla, Zee Telugu, Zee Kannada, Zee Talkies. Mr. Subhash Chandra is Non-Executive Chairman and Mr. Punit Goenka is Managing Director of the company. Details of CRNPS Instrument: In FY14, the Company had issued 20,169,423,120, 6% ​ Cumulative Redeemable Non-Convertible Preference Shares of Rs. 1 /- each (consolidated to face value of Rs.10 /- each in 2017) by way of bonus in the ratio of 21 Bonus Preference Shares of Rs. 1 /- each fully paid up for every one Equity share of Rs. 1 /- each fully paid up and are listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) in India. As per the terms, the Company will redeem at par value, 20% of the total Bonus Preference Shares allotted, every year from the fourth anniversary of the date of allotment. The Company shall have an option to buy back the Bonus Preference Shares fully or in parts at an earlier date(s) as may be decided by the Board. In March 2019, the company has redeemed the 2nd tranche of ​ redemption amount of Rs. 2 per share total amounting to ~Rs. 403 Cr, consequent to which the face value of these preference shares stand revised to Rs 6/- each. Thus reducing the O/s balance to Rs. 1210.16 Cr. Financial Performance FY19: ZEEL has three sources of revenue - advertising, subscription ​ and other sales and services. Other sales and services include revenues from movie production business, content syndication, music label and commission on sales amongst others. The advertising revenues grew by 19.8% YoY to Rs. 5037 Cr. The subscription revenues grew by 13.9% YoY to Rs. 2310.54 Cr. The revenue was supported by the strengthening of domestic broadcast business’ market share and monetization of ZEE5’s fast growing user base. In March’19, ZEE5 had 61.5 mn monthly active users (MAU). The full year growth in subscription in revenue was however restricted on account of TRAI tariff order in the fourth quarter. In March 2019, the company has redeemed the 2nd tranche of redemption amount of Rs. 2 per share ​ 3 4 June 2019 total amounting to ~Rs. 403 Cr, consequent to which the face value of these Preference Shares stand revised to Rs 6/- each. Thus reducing the O/s balance to Rs. 1210.16 Cr. Key Financials: Consolidated Result Type 31-Mar-18 31-Mar-19 Particulars ( Rs in Crs) Audited Audited Total Operating Income 6685.70 7933.90 OPBDIT 2087.4 2563.94 PAT 1477.8 1567.24 Tangible Net Worth 6841.90 8226.87 Total Debt : TNW (times) 0.22 0.13 Current Ratio (times) 4.05 3.5 ISCR (times) 14.42 19.7 DSCR (times) 3.42 3.78 List of Subsidiary Consolidated (As Per Annual Report) Subsidiaries Zee Turner Limited Essel Vision Productions Limited ZEE Digital Convergence Limited Zee Unimedia Limited Margo Networks Private Limited Fly by Wire International Private Limited India Webportal Private Limited Idea Shopweb and Media Private Limited Zee Multimedia Worldwide (Mauritius) Limited Zee TV USA Inc. OOO Zee CIS Holding LLC OOO Zee CIS LLC Asia Multimedia Distribution Inc. Zee TV South Africa (Proprietary) Limited Asia TV USA Limited ATL Media Ltd Expand Fast Holdings (Singapore) Pte Limited Taj TV Limited Asia Today Limited Asia Today Singapore Pte Limited 4 4 June 2019 Zee Technologies (Guangzhou) Limited Zee Entertainment Middle East FZ-LLC ATL Media FZ-LLC Zee Studio International Limited Z5X Global FZ - LLC Asia TV Gmbh Pantheon Production Limited Eevee Multimedia Inc. Asia TV Limited (UK) Zee Studio