Financial Analysis of

Sun TV Networks
&
Zee Entertainment Enterprise
Ltd.

Financial Statement Analysis

Course Instructor:
Prof. Seshadev Sahoo

Submitted by:
Rohith (PGP32081)
Kaushik (PGP32061)
RajaNaren (PGP32102)
Rajashekar (PGP32138)
Daniel (PGP32224)

Indian Institute of Management, Lucknow

Sun Network Ltd

A leading South India-based media company, Sun Network Ltd is into the following businesses:

Television broadcasting

The group operates 33 television channels in four Indian languages (Tamil, Malayalam, Telugu, and
Kannada), predominantly to viewers in India. They can be viewed in 27 countries, including Sri Lanka,
Singapore, Malaysia, the United Kingdom, Europe, Canada, the United States, Australia, South Africa,
and New Zealand. The company has a paid subscriber base of over ~0.6 million overseas. Its
channels span multiple genres such as general entertainment, news, movies, music, children, and
comedy. Sun TV is the company's flagship channel, which enjoys dominant viewership in Tamil Nadu.
Surya TV, Gemini TV, and Udaya TV are its other major satellite channels.

Radio broadcasting

Sun's two subsidiaries, Kal Radio Limited and South Asia FM Limited, operated 49 radio stations in
India as of June 2016. The company airs FM radio content across India, under the brand names of
Suryan FM (seven stations) in Tamil Nadu and Red FM (42 stations) in other cities.

Print

The Sun Network publishes two daily newspapers, Dinakaran and Tamil Murasu, and four magazines
- Kungumam, Mutharam, Vannathirai, and Kumguma Chimizh.

Cable and DTH

Its cable TV distribution company, Sumangali Cable Vision, has a strong presence in Tamil Nadu. The
company is also present in the direct-to-home (DTH) space with its Sun Direct offerings. It made the
first to foray into the high definition (HD) DTH market with Sun Direct HD. In September 2016, the
company inked a content deal with Bomanbridge Media; a Singapore based content distribution and
production agency to broadcast its musical animated TV series 'Care Bears'.

Performance

For fiscal year 2016 Revenue increased by 7% on-year because of an increase in advertising and
subscription revenue. Operating margin contracted by 83 basis points as Sun TV engaged in a
channel revamp programme, leading to an increase in content cost. Net margin, however, expanded
by 230 basis points because of a 10% fall in depreciation cost.

In first quarter of this fiscal year, net sales rose 10% on-year, led by a growth in subscription revenue
from its cable and DTH businesses. Operating margins contracted by more than 160 basis points on
an on-year basis, owing to a significant rise in employee expense (11%) and other income (40%).

Segment Analysis

Segment reporting is the reporting of the operating segments of a company in the disclosures
accompanying its financial statements. Segment reporting is required for publicly held entities, and
is not required for privately held ones. Segment reporting is intended to give information to
investors and creditors regarding the financial results and position of the most important operating
units of a company, which they can use as the basis for decisions related to the company.
Under Generally Accepted Accounting Principles (GAAP), an operating segment engages in business
activities from which it may earn revenue and incur expenses, has discrete financial information
available, and whose results are regularly reviewed by the entity's chief operating decision maker for
performance assessment and resource allocation decisions. Follow these rules to determine which
segments need to be reported:
Aggregate the results of two or more segments if they have similar products, services,
processes, customers, distribution methods, and regulatory environments.
Report a segment if it has at least 10% of the revenues, 10% of the profit or loss, or 10% of
the combined assets of the entity.
If the total revenue of the segments you have selected under the preceding criteria
comprise less than 75% of the entity's total revenue, then add more segments until you
reach that threshold.
You can add more segments beyond the minimum just noted, but consider a reduction if the
total exceeds ten segments.

Following is the segment report of Sun TV Network

Revenue
Revenue From Operations 2558.25 2403.98 2243.62
India 2400 2259.8 2094.77
Others 158.25 144.18 148.85

Gross Revenue 2558.25 2403.98 2243.62

India 2400 2259.8 2094.77
Others 158.25 144.18 148.85

Net Segment Revenue 2558.25 2403.98 2243.62

Segment Results
Segment Assets 1183.07 3704.28 3522.69
India 1183.07 3649.74 3466.72
Others 54.54 55.97

Segment liability
Net Assets 1183.07 3704.28 3522.69
Capital Employed
Capital Expenditures 477.53 421.59
India 477.53 421.59

Segments are classified based on geography with India being the major segment and all others
contributing considerably low amount. India accounts for more than 10% of revenues, profits and
assets and qualifies to be reported as a separate segment. In addition, India accounts for 75% of
total revenue allowing Sun TV Network to classify all other operations under others.

DuPont analysis

DuPont analysis breaks down the components of the return on equity formula to reveal the different
ways in which a business can alter its return on equity. This analysis is used by organizations that
want to enhance the returns that they provide to investors.
 Return on equity (ROE) is essentially net income divided by shareholders equity. ROE performance
can be enhanced by focusing on improvements to the three underlying measurements that roll up
into ROE. These sub-level measurements, which form the core of DuPont analysis, are:

Profit margin. Calculated as net income divided by sales. This can be improved by trimming
expenses, increasing prices, or altering the mix of products or services sold.

Asset turnover. Calculated as sales divided by assets. This can be improved by reducing
receivable balances, inventory levels, and/or the investment in fixed assets, as well as by
lengthening payables payment terms.

Financial leverage. Calculated as assets divided by shareholders equity. This can be

improved by buying back shares, paying dividends, or using more debt to fund operations.

Sun TV Network Ltd. DuPont Analysis

Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar-
DESCRIPTION
17 16 15 14 13 12 11 10 09 08 07 06
Profit Margin 37.87 36.03 32.67 33.51 36.62 36.97 37.78 34.48 32.72 35.85 36.42 39.58
Asset Turnover 0.65 0.66 0.66 0.65 0.63 0.64 0.75 0.64 0.53 0.53 0.66 0.52
Financial Leverage 1.08 1.10 1.13 1.16 1.16 1.21 1.30 1.27 1.23 1.26 1.41 2.02
ROE (%) 26.71 26.13 24.29 25.34 26.58 28.66 36.76 27.93 21.59 23.88 33.58 41.49

As observed, the companys performance has declined in March 2012 and gradually increased over
years. However, still it has not reached the position it was in March 2011.

Profitability Analysis

Mar 16 Mar-15 Mar-14 Mar-13

RNOA 73.416% 57.980% 56.840% 56.131%
ROOA 73.097% 54.767% 51.319% 49.265%
OLLEV*OLSPREAD 0.00319 0.03214 0.05521 0.06866
OLSPREAD 0.7310 0.5477 0.5132 0.4926
OLLEV 0.436% 5.868% 10.758% 13.937%
Return On Capital Employed(%) 38.12% 33.73% 32.59% 34.64%

Modified DuPont analysis gives insights in to the operating and financial performance of the firm. As
observed, the growth and performance of the company was stagnant in the last three years and
march 2016 saw a comparable increase in RNOA, ROCE and ROOA. The operating leverage has
decreased from 5.86% to 0.43%.

ROE = RNOA {FLEV x (RNOA NBC)}

Zee Entertainment Enterprises Ltd

The Zee Network has completed more than 20 years of operations in India.

Zee Entertainment Enterprises Ltd (ZEEL) comprises the general entertainment of the erstwhile Zee
Telefilms Ltd, which had demerged its operations (in 2006-07) into three more entities viz. Zee
Media Corporation - earlier Zee News (news and regional channels), Wire & Wireless India (cable
distribution business) and Dish TV (DTH operations). ZEEL offers channels catering to different
genres, including general entertainment (GEC), sports, Hindi, movies, music and English language,
with Zee TV being the flagship channel. Channels broadcast by the ZEE network in India are as under:

Channels under the Ten brand became part of the company after it acquired a majority stake in the
Dubai-based Taj Television, owner of Ten Sports and associated channels. However, in September
2016, the company sold its sports channel to Sony Pictures Network for Rs 26 bn. The decision to sell
the sports business was rising cost of content.

At present, the company is present across over 171 countries. The company has 34 channels in the
domestic market and 39 channels, abroad In February 2012, the company forayed into the OTT
(Over the top) segment with Ditto TV, which presents live TV, video-on-demand, music, news etc. to
viewers on mobile phones, tablets, laptops and desktops. In August 2013, the company launched "&
Pictures", its second primary movie channel after Zee Cinema. In March 2014, ZEEL entered the
music industry by launching the music label company, Zee Music Co and in June 2014, it launched a
 new Hindi GEC named Zindagi. It also launched HD offerings for the following channels - Zee TV, Zee
Cinema, Zee Studio and Ten.

In September 2015, the company launched its first international 24 hours food and lifestyle channel
Living Foodz offering content related to travel, food, wellness, reality and lifestyle.

In October 2015, launched a completely customized general entertainment channel for French
audience in Africa showcasing French dubbed Indian movies, series, food and reality shows.

Performance
For Fiscal Year 2016
Revenues increased by 20% because of strong increase in advertisement and subscription
income. Growth in advertisement income was faster than subscription income
Operating margins expanded by a mere 42 bps on account of increase in marketing and
content cost due to launch of &TV
Net margins, however, contracted by 215 bps as other income dropped by 17%

Net sales grew by 21% y-o-y in Q1 2016-17, led by a substantial 19% increase in ad revenues and
14% subscription revenue. Operating margins expanded by more than 700 bps during the period
owing to a marginal increase in in other expenses. Net margin improved marginally by 25 bps due to
increase in depreciation cost (18%).

Segment Analysis

Mar-11 Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 Mar-02
Revenue
Revenue From Ops 3013.56 2199.78 2177.31 1835.37 1515.88 1654.37 1325.22 1278.89 1204.64 1076.24
Access 272.55 143.91 142.87 144.74 113.09
B&C 3012.87 2153.42 2119.10 1809.87 1424.55 1187.96 1117.54 1030.69 991.48 892.25
Education 31.79 25.13 25.24 20.55 15.41 10.65 13.07 16.30 27.36
Film Production/
0.69 14.58 33.08 1.15 20.60 75.27 51.75 19.81
Distribution
Others 0.26 70.78 177.30 32.53 16.99 0.37 23.74

Gross Revenue 3013.56 2199.78 2177.31 1835.37 1515.88 1654.37 1325.22 1278.89 1204.64 1076.24
Access 292.67 162.82 175.47 170.81 130.30
B&C 3012.87 2153.42 2119.10 1809.87 1425.05 1189.09 1117.96 1056.16 1007.41 902.14
Education 31.79 25.13 25.24 20.55 16.24 11.22 13.07 16.30 27.36
Elimination -0.50 -22.09 -19.90 -64.90 -42.01 -36.04
Film Production/
0.69 14.58 33.08 1.15 20.60 75.46 51.75 28.74
Distribution
Others 0.26 70.78 177.30 32.53 23.63 0.37 23.74

Segment Assets 3876.50 4185.99 3543.36 2878.24 2591.80 3084.36 3465.99 3210.74 5242.62 5234.86
Access 250.21 558.69 406.79 599.72 804.57
B&C 2857.22 4011.59 3561.26 4175.85 3753.57 3279.38 3212.62 2766.26 8213.22 8278.96
Education 128.55 72.66 17.28 16.61 13.30 7.90 8.46 10.17 34.51
Elimination -7.64 -90.57 -1314.8 -1178.3 -472.69 -356.46 -180.15 -3868.9 -3903.9
 Film p&d 24.95 53.49 5.15 11.37 115.46 196.97 19.92
Others 9.01 31.87 93.92 91.48 0.85

Segment liability 781.74 903.49 350.62 -795.0 400.21 924.72 994.58 774.83 1022.92 1249.81
Access 296.87 558.32 370.32 284.90 296.21
B&C 552.60 746.95 428.31 1.22 1058.48 1023.95 778.85 544.93 833.20 1060.68
Education 65.42 12.88 8.79 14.97 13.36 8.68 10.95 11.71 56.76
Elimination -7.64 -90.57 -805.0 -673.24 -409.47 -356.2 -180.1 -122.55 -184.01
Film Production/
0.12 98.76 1.29 27.74 15.03 20.17
Distribution
Others 3.66 0.99 0.63

As observed, until 2011, ZEEL reported segments on basis of activity. However, by 2011, all the
activities except B&C and Film Production have been either shutdown or lost significance and
became ineligible to be reported as a separate segment. From 2011, apt reporting segments for ZEEL
are based on geography as shown below.

Description Mar-17 Mar-16 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11

Revenue
Revenue From Operations 6434.20 5851.50 4883.70 4421.70 3699.60 3040.50 3013.56
India 4843.70 4397.80 3522.80 2864.40 2384.20 1898.10 1937.06
Rest of World 1590.50 1453.70 1360.90 1557.30 1315.40 1142.40 1076.50

Gross Revenue 6434.20 5851.50 4883.70 4421.70 3699.60 3040.50 3013.56

India 4843.70 4397.80 3522.80 2864.40 2384.20 1898.10 1937.06
Rest of World 1590.50 1453.70 1360.90 1557.30 1315.40 1142.40 1076.50

Segment Assets 9484.70 7429.50 6525.70 5809.80 4915.90 4165.20 3876.50

India 6062.40 5009.40 4447.90 3635.30 2971.10 2548.80 2141.32
Rest of World 3422.30 2420.10 2077.80 2174.50 1944.80 1616.40 1735.18

Based on geography, two segments India and rest of world are reported. As shown above, the
segments satisfy all the conditions required to be reported.

DuPont analysis

Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar-
DESCRIPTION
17 16 15 14 13 12 11 10 09 08 07
Profit Margin 34.51 14.17 19.97 20.13 19.41 19.42 20.78 28.03 23.98 22.67 16.05
Asset Turnover 0.72 0.78 0.75 0.80 0.79 0.75 0.70 0.47 0.51 0.49 0.46
Financial Leverage 1.56 1.78 2.07 1.67 1.27 1.25 1.24 1.30 1.37 1.37 1.39
ROE (%) 38.75 19.77 31.21 26.84 19.56 18.09 18.06 17.07 16.68 15.19 10.26
Profitability analysis

2017 2016 2015 2014

RNOA 0.493159 0.527882 0.711138 0.89737
ROOA 0.214311 0.182082 0.185971 0.221094
OLLEV*OLSPREAD 0.278848 0.3458 0.525167 0.676276
OLSPREAD 0.134107 0.101879 0.105767 0.14089
OLLEV 2.079288 3.394239 4.965295 4.800037
ROCE 0.3127 0.2571 0.2836 0.3227
PAT 1034 658.2 831.8 772.3
Avg CSE 3306.684 2560.093 2933.004 2393.244
NFA 1051.784 1394.593 1760.104 1732.744
FLEV(Negative) 0.318078 0.544743 0.600103 0.724015