Zee Ent to benefit most from digitization: SPA Research

7/31/2019 Zee Ent to benefit most from digitization: SPA Research

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ZEE Ent ert ainment Ent erpr ises

Sensex: 18,709 CMP: I NR 197

Electron ic Media

Digitization Impact

On Revenues: Management expects subscription revenues to get

a boost from digitization but the benefit of overall increase in

number of subscriber base would not exactly flow to the company.

Since company stopped disclosing subscriber base post formation

of Mediapro which deals with MSO's and DTH players on behalf

of the company, it is difficult to estimate the exact increase in

subscription revenues.

On Carriage Fees: Management expects fall in carriage fees but itwould not be of significant proportion as company would be

required to pay it for desired placement of their channel in a

particular genre.

On EBIDTA Margin: Management plans to utilize increase in

revenues for launching new media initiatives and investing in

new contents to stay more competitive. ZEE expects to breakeven

its sports business with the increase in subscription income by

FY14-FY15. Company would like to maintain its EBIDTA margin in

the range of 25-30%.

Expect ad-revenues growth to be higher than industry

Owing to sluggish economic environment, ad-revenues growth

has come under pressure. However, management expects its ad-revenues to grow faster than expected industry growth of 8-9% in

FY13 on the back of increased GRPs (with higher investment in

content) and lower base of previous year (ad-revenues de-grew by

7% in FY12). Company has further planned to increase its

programming hours from 24hrs in Q1FY13 to 33hrs by Q4FY13 to

garner higher GRPs that would drive ad-revenue growth.

Sumit [email protected]

Ph. No. 91 4289 5600 Ext.630

October 09, 2012 VI SI T NOTE

TRAI ruling not to have significant impact

TRAI in its recent regulation suggested restricting ad-inventorymaximum 12mins/hour. Though IBA (Indian broadcasteassociation) has challenged this order in court and the mattersub-judice. Even in case of ruling coming against the companthe impact would not be significant as at present ad-inventostands at ~13-14mins/hour.

Other key highlights

International subscription income (which accounts for ma

portion of international business revenues) has remainflattish in Q1FY13 (adjusted for currency) on the back of curreglobal slowdown, with mixed performance across geographin which company operates. ZEE, however, expects to get somad-revenues from local advertisers with increased acceptanof its channels in the respective geographies that would arevenue growth in medium to long term

ZEE expects to incur capex of INR 1bn in FY13 which includ

INR 600-700mn normal operating capex and remaining fimprovement in its Noida facility

Outlook and Valuation

ZEE is one of the leading broadcasting companies with a bouquof 30 channels across genres and languages. Continual investme

in high quality content and increasing programming hours hcatapulted company's flagship channel Zee TV to the numberHindi GEC slot from number 4 last year. We feel that companysitting on sweet spot and will be a major beneficiary of tdigitisation wave with jump in subscription revenues (withoincurring any additional cost) and fall in carriage fees. At CMZEE is trading at 23x FY14E EPS (Source: Bloomberg).

Shareholding % Jun-12

Promoters 43.87

FIIs 35.64

DIIs 13.12

Others 7.37

Relative Price Performance

Key Data

BSE Code 505537

NSE Code ZEEL

Bloomberg Code Z IN

Reuters Code ZEE.BO

Shares Outstanding (mn) 954

Face Value 1

Mcap (INR bn) 195.52

52 Week H/L 208.35/109.65

2W Avg. Qty.NSE 3534313

Free Float (INR Bn) 109.75

Beta 0.51

Y/E (INR mn) FY09 FY10 FY11 FY1

Net Sales 21773.1 21997.8 30088 3040

Growth (%) 18.63% 1.03% 36.78% 1.05

EBIDTAM (%) 25.17 27.89 27.32 24.3

Adj. PAT 4975.3 6445.8 6284.2 5959

Growth (%) 29.14% 29.56% -2.51% -5.17

Adj. EPS (INR) 5.85 6.73 6.07 5.9

P/E (x) 15.63 22.14 22.21 26.0

EV/EBIDTA 9.97 18.01 13.82 1

Net Debt/Equity 0.11 -0.12 -0.12 -0

RoACE (%) 18.22 17.64 25.55 25.7

RoAE (%) 16.15 16.85 18.1 18.1

ZEE Entertainment Enterprises Ltd. (ZEE) is a leading broadcaster in India with bouquet of 30 channels acrovarious genres. With few weeks left in digitization of cable networks in Metros, we met the management o

the company to understand the overall benefits that would come to the company with digitization. Also, wwanted to get the managements views on ad-revenues growth scenario amid sluggish economic environmenFollowing are the key take-aways:

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Zee Ent Sensex


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Ad-revenue growth trend

46%

51% 49% 49% 52%

32%

14%

1%-7%

57%

59%

0

5000

10000

15000

20000

FY07 FY08 FY09 FY10 FY11 FY12

-20%

-10%

0%

10%

20%

30%

40%

50%60%

70%

Ad-revenue (INR mn) as a % of total revenue

Ad-revenue growth (%)

Source: Company, SPA Research

Subscription revenue growth trend

44%41% 42%

45%37%

44%

12%

22%

9%14%

18%

0

2000

4000

6000

8000

10000

12000

14000

FY07 FY08 FY09 FY10 FY11 FY12

0%

10%

20%

30%

40%

50%

Subs-revenue (INR mn) as a % of total revenue

Subs-revenue growth (%)


Electron ic Media

About Company

ZEE is a part of the Essel group promoted by Subhash Chandr

ZEE is a leading broadcaster in India with bouquet of 30 channacross various genres. Company's flagship channel Zee TV

number 2 in Hindi GEC slot. Company has presence across

continents, both in South Asian and non South Asian countries


Q1FY13 Result - Consolidated

Particulars (INR mn) Q1 FY13 Q1 FY12 YoY (%) Q4 FY12 QoQ (%)

Advertising Revenue 4,472 3,787 18.07% 4,150 7.76%

Subscription Revenue 3,641 3,051 19.35% 4,022 -9.46%

Other Sales & Services 317 143 120.87% 519 -39.03%

Total Income 8,430 6,982 20.74% 8,691 -3.00%

Operational Cost 3,757 3,423 9.76% 4,242 -11.44%

as a % of sales 44.57% 49.03% -446bps 48.81% -425bps

Employees' Cost 888 747 18.82% 759 16.99%


Other Expenses 1,453 1,253 15.97% 2,090 -30.48%


EBIDTA 2,333 1,559 49.62% 1,600 45.78%

EBIDTA Margins (%) 27.67% 22.33% +534bps 18.41% +926bps

Depreciation 99 89 11.39% 81 21.53%

EBIT (excld. Other income) 2,234 1,470 51.92% 1,519 47.08%

Other Income 301 237 27.02% 510 -40.91%

EBIT 2,535 1,708 48.46% 2,029 24.96%

Interest 18 12 53.85% (219) -108.23%

EBT 2,517 1,696 48.43% 2,247 12.00%

Tax Expense (Total) 947 394 140.23% 618 53.31%

PAT 1,570 1,302 20.62% 1,630 -3.66%

PAT Margins (%) 18.62% 18.64% -2bps 18.75% -13bps

Minority Interest (12) (35) -67.33% 28 -141.07%

Net PAT 1,582 1,337 18.30% 1,602 -1.26%

Diluted EPS (Reported) 1.65 1.29 27.91% 1.55 6.45%


Revenue break-up FY12 (%)

30%

14%

4%

52%

Advertising

Subscription Domestic

Subscription International

Others


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Financials Consolidated

Income StatementY


Net Sales 21,773 21,998 30,088 30,405

% Growth 18.63% 1.03% 36.78% 1.05%

Cost of Goods Sold 52 55 -711 -1,945

Employee Cost 2,031 1,930 2,737 2,925

Other Optg. Exps. 14,209 13,879 19,842 22,030

Total Optg. Exps. 16,293 15,863 21,868 23,010

EBIDTA (excl OI) 5,480 6,135 8,220 7,395

% Growth 1.54% 11.94% 33.99% -10.04%

EBITDA Margin % 25.17% 27.89% 27.32% 24.32%

Dep./Amortization 310 285 289 323

EBIT 5,170 5,849 7,931 7,072

EBIT Margin % 23.75% 26.59% 26.36% 23.26%

Interest Expense 1,339 331 88 50

Other Income 1,598 1,220 1,079 1,384

Exceptionals

EBT 5,429 6,738 8,922 8,406

Tax Expenses 208 572 2,671 2,500

PAT 5,221 6,166 6,251 5,906

Minority Interest 100 -212 -118 19

Adjustment to PAT 148 -101 85 -69

APAT 4,975 6,446 6,284 5,960

% Growth 29.14% 29.56% -2.51% -5.17%

APAT Margin % 22 .85% 29.3 0% 20.89% 19.6 0%

Balance Sheet


Share CapShare Capital 434 489 978 1,00

Reserves and Surplus 33,561 37,811 30,004 33,34

Total Networth 33,995 38,300 30,982 34,35

Minority Interest 948 -23 -119 -3

Secured 5,261 591 9

Unsecured 495 604 190 22

Total Debt 5,757 1,195 199 24

Deferred Tax Liability 175 191 147 16

Sources of Funds 40,875 39,663 31,209 34,72

Net Block 17,423 18,479 9,452 10,37

CWIP 669 1,109 8 20

Investments 1,271 3,203 6,964 7,99

Current Assets 27,026 24,390 22,116 24,24

Current Liabilities 5,803 7,840 7,670 8,59

Net Current Assets 21,223 16,549 14,446 15,65

Misc. Expenditure 0 - -

Deferred Tax Assets 288 324 339 50

Application of Funds 40,875 39,663 31,209 34,72

Key Ratios

Y/E FY09 FY10 FY11 FY12

Per Share Data (INR)

Reported EPS 12 14.2 6.3 6.1

Adj. EPS 6 7.1 6.3 6.1

Growth (%) 26.32% 18.33% -11.27% -3.17%

CEPS 6.35 7.4 6.6 6.4

DPS 1 2.24 2 1.5

BVPS 39.17 44.06 31.68 35.77

Return Ratios (%)

RoACE 18.22 17.64 25.55 25.77

RoANW 16.15 16.85 18.1 18.12

RoIC 18.02 16.33 17.86 18.07

Liquidity Ratios

Net Debt/Equity 0.11 -0.12 -0.12 -0.1

Interest Coverage Ratio 5.05 21.33 102.39 169.12

Current Ratio 2.99 3.2 2.97 2.85

Quick Ratio 3.87 2.51 2.18 1.97

Efficiency Ratios

Asset Turnover Ratio 0.59 0.55 0.87 0.96

Inventory Days 77 78 65 88

Debtor Days 108 124 106 104

Creditor Days 54 70 57 71

Valuation Ratios

P/E (x) 8.83 18.91 19.36 20.61

P/BV (x) 1.36 3.05 3.91 3.54

P/CEPS (x) 8.34 18.07 18.5 19.54

Dividend Yield (%) 1.88 1.67 1.62 1.18

EV/Net Sales (x) 2.29 5.09 3.89 3.9

EV/EBIDTA (x) 7.06 15.22 12.6 13.49

Cash Flow


EBT 5,429 6,738 8,922 8,40

Less: Other Income/Exceptionals -1,598 -1,220 -1,079 -1,38

Add:Depreciation 310 285 289 32

Add: Interest paid 1,339 331 88 5

Direct taxes paid -1,525 -1,119 -2,926 -2,58

Change in Working Capital -5,719 8,612 95 -1,78

Cash Flow from operations (a) 1,432 16,068 7,547 5,79

Change in Fixed Assets -2,707 -1,048 10,215 -1,44

Change in CWIP -50 -439 1,101 -19

Change in Investments 1,244 -1,932 -3,761 -1,03

Cash Flow from Investing (b) -1,512 -3,419 7,554 -2,66

Change in Equity - - 58

Debt Raised/(Repaid) 1,891 -4,562 -1,186

Dividend paid -868 -1,947 -1,956 -1,43

Interest paid -1,339 -331 -88 -5

Cash Flow from Financing (c ) -316 -6,840 -3,172 -1,42

Net Change in Cash (a+b+c) -396 5,808 11,929 1,70

Opening Cash 1,652 1,926 5,865 3,85

Closing Cash 1,926 5,865 3,856 3,28

Electron ic Media

Source: Capitaline, SPA Research


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Electron ic Media

Zee Ent to benefit most from digitization: SPA Research

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