October 09, 2012

VISIT NOTE

ZEE Entertainment Enterprises

Sensex: 18,709 CMP: INR 197 Electronic Media

ZEE Entertainment Enterprises Ltd. (ZEE) is a leading broadcaster in India with bouquet of 30 channels across various genres. With few weeks left in digitization of cable networks in Metros, we met the management of the company to understand the overall benefits that would come to the company with digitization. Also, we wanted to get the managements views on ad-revenues growth scenario amid sluggish economic environment. Following are the key take-aways:
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 it would 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 adrevenues 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.
Shareholding % Promoters FIIs DIIs Others Jun-12 43.87 35.64 13.12 7.37 Key Data BSE Code NSE Code Bloomberg Code Reuters Code Shares Outstanding (mn) Face Value Mcap (INR bn) 52 Week H/L 2W Avg. Qty.NSE
Nov-11 Dec-11 Apr-12 Aug-12 Oct-11 Feb-12 Mar-12 May-12 Sep-12 Oct-12 Jun-12 Jan-12 Jul-12

TRAI ruling not to have significant impact TRAI in its recent regulation suggested restricting ad-inventory to maximum 12mins/hour. Though IBA (Indian broadcasters association) has challenged this order in court and the matter is sub-judice. Even in case of ruling coming against the company, the impact would not be significant as at present ad-inventory stands at ~13-14mins/hour. Other key highlights International subscription income (which accounts for major portion of international business revenues) has remained flattish in Q1FY13 (adjusted for currency) on the back of current global slowdown, with mixed performance across geographies in which company operates. ZEE, however, expects to get some ad-revenues from local advertisers with increased acceptance of its channels in the respective geographies that would aid revenue growth in medium to long term ZEE expects to incur capex of INR 1bn in FY13 which includes INR 600-700mn normal operating capex and remaining for improvement in its Noida facility Outlook and Valuation ZEE is one of the leading broadcasting companies with a bouquet of 30 channels across genres and languages. Continual investment in high quality content and increasing programming hours has catapulted company's flagship channel Zee TV to the number 2 Hindi GEC slot from number 4 last year. We feel that company is sitting on sweet spot and will be a major beneficiary of the digitisation wave with jump in subscription revenues (without incurring any additional cost) and fall in carriage fees. At CMP, ZEE is trading at 23x FY14E EPS (Source: Bloomberg).
Y/E (INR mn) 505537 ZEEL Z IN ZEE.BO 954 1 195.52 208.35/109.65 3534313 109.75 0.51 Net Sales Growth (%) EBIDTAM (%) Adj. PAT Growth (%) Adj. EPS (INR) P/E (x) EV/EBIDTA Net Debt/Equity RoACE (%) RoAE (%) FY09 21773.1 18.63% 25.17 4975.3 29.14% 5.85 15.63 9.97 0.11 18.22 16.15 FY10 21997.8 1.03% 27.89 6445.8 29.56% 6.73 22.14 18.01 -0.12 17.64 16.85 FY11 30088 36.78% 27.32 6284.2 -2.51% 6.07 22.21 13.82 -0.12 25.55 18.1 FY12 30405 1.05% 24.32 5959.6 -5.17% 5.92 26.04 16 -0.1 25.77 18.12

Relative Price Performance

180 160 140 120 100 80

Free Float (INR Bn) Beta

Zee Ent

Sensex

Sumit Duseja
sumit.duseja@spagroupindia.com Ph. No. 91 4289 5600 Ext.630

Electronic Media Ad-revenue growth trend

20000 46% 15000 10000 5000 0 FY07 FY08 FY09 FY10 FY11 FY12 Ad-revenue (INR mn) Ad-revenue growth (%)
Source: Company, SPA Research

51% 32%

49%

49%

57%

59%

52%

14% 1% -7%

70% 60% 50% 40% 30% 20% 10% 0% -10% -20%

About Company ZEE is a part of the Essel group promoted by Subhash Chandra. ZEE is a leading broadcaster in India with bouquet of 30 channels across various genres. Company's flagship channel Zee TV is number 2 in Hindi GEC slot. Company has presence across 5 continents, both in South Asian and non South Asian countries.
Revenue break-up FY12 (%)

4% 14% 52% 30% Advertising Subscription Domestic Subscription International Others

as a % of total revenue

Subscription revenue growth trend

14000 12000 10000 8000 6000 4000 2000 0 FY07 FY08 FY09 FY10 FY11 FY12 Subs-revenue (INR mn) Subs-revenue growth (%)
Source: Company, SPA Research

44%

41%

42%

45% 37%

44%

50% 40%
Source: Company, SPA Research

22% 12% 14% 9%

30% 18% 20% 10% 0% as a % of total revenue

Q1FY13 Result - Consolidated

Particulars (INR mn) Advertising Revenue Subscription Revenue Other Sales & Services Total Income Operational Cost as a % of sales Employees' Cost as a % of sales Other Expenses as a % of sales EBIDTA EBIDTA Margins (%) Depreciation EBIT (excld. Other income) Other Income EBIT Interest EBT Tax Expense (Total) PAT PAT Margins (%) Minority Interest Net PAT Diluted EPS (Reported)
Source: Company, SPA Research

Q1 FY13 4,472 3,641 317 8,430 3,757 44.57% 888 10.53% 1,453 17.23% 2,333 27.67% 99 2,234 301 2,535 18 2,517 947 1,570 18.62% (12) 1,582 1.65

Q1 FY12 3,787 3,051 143 6,982 3,423 49.03% 747 19.73% 1,253 17.94% 1,559 22.33% 89 1,470 237 1,708 12 1,696 394 1,302 18.64% (35) 1,337 1.29

YoY (%) 18.07% 19.35% 120.87% 20.74% 9.76% -446bps 18.82% -920bps 15.97% -71bps 49.62% +534bps 11.39% 51.92% 27.02% 48.46% 53.85% 48.43% 140.23% 20.62% -2bps -67.33% 18.30% 27.91%

Q4 FY12 4,150 4,022 519 8,691 4,242 48.81% 759 18.29% 2,090 24.04% 1,600 18.41% 81 1,519 510 2,029 (219) 2,247 618 1,630 18.75% 28 1,602 1.55

QoQ (%) 7.76% -9.46% -39.03% -3.00% -11.44% -425bps 16.99% -776bps -30.48% -681bps 45.78% +926bps 21.53% 47.08% -40.91% 24.96% -108.23% 12.00% 53.31% -3.66% -13bps -141.07% -1.26% 6.45%

Electronic Media

Financials Consolidated
Income StatementY Balance Sheet

Y/E (INR mn)

Net Sales % Growth Cost of Goods Sold Employee Cost Other Optg. Exps. Total Optg. Exps. EBIDTA (excl OI) % Growth EBITDA Margin % Dep./Amortization EBIT EBIT Margin % Interest Expense Other Income Exceptionals EBT Tax Expenses PAT Minority Interest Adjustment to PAT APAT % Growth APAT Margin % Key Ratios

FY09
21,773 18.63% 52 2,031 14,209 16,293 5,480 1.54% 25.17% 310 5,170 23.75% 1,339 1,598 5,429 208 5,221 100 148 4,975 29.14% 22.85%

FY10
21,998 1.03% 55 1,930 13,879 15,863 6,135 11.94% 27.89% 285 5,849 26.59% 331 1,220 6,738 572 6,166 -212 -101 6,446 29.56% 29.30%

FY11
30,088 36.78% -711 2,737 19,842 21,868 8,220 33.99% 27.32% 289 7,931 26.36% 88 1,079 8,922 2,671 6,251 -118 85 6,284 -2.51% 20.89%

FY12
30,405 1.05% -1,945 2,925 22,030 23,010 7,395 -10.04% 24.32% 323 7,072 23.26% 50 1,384 8,406 2,500 5,906 19 -69 5,960 -5.17% 19.60%

Y/E (INR mn)

Share CapShare Capital Reserves and Surplus Total Networth Minority Interest Secured Unsecured Total Debt Deferred Tax Liability Sources of Funds Net Block CWIP Investments Current Assets Current Liabilities Net Current Assets Misc. Expenditure Deferred Tax Assets Application of Funds Cash Flow

FY09
434 33,561 33,995 948 5,261 495 5,757 175 40,875 17,423 669 1,271 27,026 5,803 21,223 0 288 40,875

FY10
489 37,811 38,300 -23 591 604 1,195 191 39,663 18,479 1,109 3,203 24,390 7,840 16,549 324 39,663

FY11
978 30,004 30,982 -119 9 190 199 147 31,209 9,452 8 6,964 22,116 7,670 14,446 339 31,209

FY12
1,005 33,349 34,354 -32 12 228 240 164 34,726 10,372 201 7,999 24,244 8,591 15,653 501 34,726

Y/E
Per Share Data (INR) Reported EPS Adj. EPS Growth (%) CEPS DPS BVPS Return Ratios (%) RoACE RoANW RoIC Liquidity Ratios Net Debt/Equity Interest Coverage Ratio Current Ratio Quick Ratio Efficiency Ratios Asset Turnover Ratio Inventory Days Debtor Days Creditor Days Valuation Ratios P/E (x) P/BV (x) P/CEPS (x) Dividend Yield (%) EV/Net Sales (x) EV/EBIDTA (x)
Source: Capitaline, SPA Research

FY09
12 6 26.32% 6.35 1 39.17 18.22 16.15 18.02 0.11 5.05 2.99 3.87 0.59 77 108 54 8.83 1.36 8.34 1.88 2.29 7.06

FY10
14.2 7.1 18.33% 7.4 2.24 44.06 17.64 16.85 16.33 -0.12 21.33 3.2 2.51 0.55 78 124 70 18.91 3.05 18.07 1.67 5.09 15.22

FY11
6.3 6.3 -11.27% 6.6 2 31.68 25.55 18.1 17.86 -0.12 102.39 2.97 2.18 0.87 65 106 57 19.36 3.91 18.5 1.62 3.89 12.6

FY12
6.1 6.1 -3.17% 6.4 1.5 35.77 25.77 18.12 18.07 -0.1 169.12 2.85 1.97 0.96 88 104 71 20.61 3.54 19.54 1.18 3.9 13.49

Y/E (INR mn)

EBT Less: Other Income/Exceptionals Add:Depreciation Add: Interest paid Direct taxes paid Change in Working Capital Cash Flow from operations (a) Change in Fixed Assets Change in CWIP Change in Investments Cash Flow from Investing (b) Change in Equity Debt Raised/(Repaid) Dividend paid Interest paid Cash Flow from Financing (c ) Net Change in Cash (a+b+c) Opening Cash Closing Cash

FY09
5,429 -1,598 310 1,339 -1,525 -5,719 1,432 -2,707 -50 1,244 -1,512 1,891 -868 -1,339 -316 -396 1,652 1,926

FY10
6,738 -1,220 285 331 -1,119 8,612 16,068 -1,048 -439 -1,932 -3,419 -4,562 -1,947 -331 -6,840 5,808 1,926 5,865

FY11
8,922 -1,079 289 88 -2,926 95 7,547 10,215 1,101 -3,761 7,554 58 -1,186 -1,956 -88 -3,172 11,929 5,865 3,856

FY12
8,406 -1,384 323 50 -2,585 -1,780 5,798 -1,440 -193 -1,035 -2,668 64 3 -1,438 -50 -1,421 1,709 3,856 3,283

Electronic Media

Sharad Avasthi

Dy Head - Equity Research

sharad.avasthi@spagroupindia.com

Tel.: +91-33-4011 4800

Ext.832

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