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Friday, June 13, 2014


Scrip Code: 505537 ZEEL
CMP:  Rs. 270.70; Buy between Rs. 268.00 - 270.00 levels.

Short Term Target: Rs. 283 - 295; Medium to Long Term Target: Rs. 324; STOP LOSS – Rs. 249.00; Market Cap: Rs. 25,999.34 Cr; 52 Week High/Low: Rs. 302.00 / Rs. 208.00.

Total Shares: 96,04,48,720 shares; Promoters : 41,36,70,212 shares –43.07 %; Total Public holding : 54,67,78,508 shares – 56.93 %; Book Value: Rs. 32.83; Face Value: Rs. 1.00; EPS: Rs. 7.55; Dividend: 200.00 %; P/E: 35.85 times; Ind. P/E: 33.86; EV/EBITDA: 18.39.
Total Debt: 1.70 Cr; Enterprise Value: Rs. 25,468.13 Cr.

ZEE ENTERTAINMENT ENTERPRISES LTD: Zee Entertainment Ltd was founded in the year 1982, based in Mumbai. Company was formerly known as Zee Telefilms Limited and changed its name to Zee Entertainment Enterprises Limited in January 2007. The Company came out with an IPO in 1993 offering 90,00,000 equity shares of Rs. 10 each for Rs. 20 per share raising Rs. 18.00 Cr. ZEEL announced split in its face value from Rs. 10 to Rs.1 on September 1999, later in September 2010 it announced bonus in ratio of 1:1 and on completion of 20 years of broadcasting business in May 2013, the Company announced the distribution of about Rs. 2,015 Crs by way of Bonus issue of 6 % Non-Convertible Redeemable Preference Shares of Face value of Re. 1 each. This bonus issue was in ratio of 21 non-convertible redeemable preference shares with tenure of eight years of Re. 1 each for every 1 Equity share of Re. 1 held in a company. The bonus issue was with one-fifth of the amount i.e. around Rs. 400 Cr redeemable from fourth year onwards in five equal instalments till eight year, this was issued on March 4, 2014. ZEEL, together with its subsidiaries, operates as a vertically integrated media and entertainment company in India. It operates in three segments: Broadcasting and Content, Education, and Film Production. The Broadcasting and Content segment develops, produces, and procures television programming and film content, and delivers through satellites, cable, and Internet. It broadcasts channels, such as Hindi general entertainment channels and regional language general entertainment channels, Bollywood channels, sports channels, English entertainment channels, alternate lifestyle channels. The company broadcasts Hindi entertainment channels - Zee TV, Zee Smile, and 9X; Hindi movies channels - Zee Cinema, Zee Premier, Zee Action, and Zee Classic; English entertainment, movies, and life style channels - Zee Studio, Zee Café, and Zee Trendz; and Sports channels - TEN Cricket, TEN Action, TEN Sports, and TEN Golf. It also broadcasts Regional language entertainment channels, including Zee Marathi, Zee Bangla, Zee Talkies, Zee Telegu, Zee Kannada, ETC Punjabi, and Zee Tamil; religious and alternate lifestyle channels comprising Zee Jagran and Zee Salaam; music channels, such as Zing and ETC Music; niche and special interest channels comprising Zee Khana Khazana; and HD channels, including Zee TV HD, Zee Cinema HD, Zee Studio HD, and TEN HD. Company earns revenues by the way of advertisement and subscription revenues and syndication. The Education segment engages in distribution of software learning products; and provides education and training in information technology. The Film Production segment produces and distributes films. The company has a library housing approximately 1,00,000 hours from 80,000 hours of television content; and rights to approximately 3,000 movie titles. Effective March 29, 2010, Zee News Ltd. demerged its Regional General Entertainment channel business undertaking and transferred its operation to Zee Entertainment Enterprises Limited. It has operations in India, the United States, Canada, Europe, Africa, the Middle East, Southeast Asia, Australia, and New Zealand. ZEE ENTERTAINMENT ENTERPRISES LTD can be locally be compared with Balaji Telefilms Ltd, New Delhi Television Ltd, Sri Adhikari Bros Tele Network, Sun TV Network Ltd, Network 18 Media & Investment Ltd and TV18 Broadcasts Limited, Raj Television Networks Ltd, and Globally with UTV Media PLC of UK, CBS Corporation of USA, British Sky Broadcasting Group of UK, Viacom Inc of USA, Comcast Corp of USA, Direct TV USA, Discovery Communications of USA, Dish Network of USA, Dreamworks Animations SKG of USA, Time Warner Cable Inc of USA, TV Tokyo Holdings Corporation of Japan, Chubu-Nippon Broadcasting Co., Ltd of Japan, Wowow Incorporated of Japan, Twenty First Century Fox of USA, Walt Disney company of USA, News Corp of USA, NBC Universal of USA.

Investment Rationale:
Zee Entertainment Enterprises Limited is one of India’s leading television, media and entertainment companies. It is amongst the largest producers and aggregators of Hindi programming in the world, with extensive library housing over 120,000 hours of television content. ZEE has rights to more than 3,500 movie titles from foremost studios and of iconic film stars; Zee houses the world's largest Hindi film library. Through its strong presence worldwide, Zee entertains over 67 Cr+ viewers across 169 countries. The Zee stable owns an integrated range of businesses. All of these in singularity adhere to the content to consumer value chain model of media and entertainment business. Zee is a pioneer in every aspect of content aggregation and distribution through traditional media like satellite and cable and new media like the internet, in India. Zee Entertainment Enterprise is the first listed media company in India and first to launch a Hindi General Entertainment Channel as Zee TV, Hindi Cinema Channel as Zee Cinema, a 24 hour Hindi News Channel as Zee News, 24-hour Food Channel as Zee Khana Khazana, Urdu infotainment channel as Zee Salaam. Zee Entertainment Enterprises Ltd recently launched a new channel, Zee Bioskop, in Indonesia in January 2014. Zee will launched its fourth GEC Zee Zindagi on June 23, 2014, initially based on content acquired from Pakistan. Zee Zindagi is the first Hindi GEC to be launched pan-India and not just in the Hindi speaking belt but it also targets the Urdu-speaking population across India and abroad. Though Zee Zindagi has been priced aggressively at Rs. 25.80 per month, ZEE is targeting at least 95 % reach for this channel. It is expected that the ZEE’s domestic subscription growth will remain largely unaffected despite the MediaPro split, as benefits of induction of ZEE’s sports channels in the overall bouquet trickles in. After initially starting with four hours of programming which will be sourced from Pakistan, content production will be done in India and Pakistan as well. As per media reports, ZEE has acquired 4,000 hours of content from Pakistan. Content will also be sourced from Egypt, Turkey and Latin America. The company has stated around Rs. 80 Cr to Rs. 100 Cr as the marketing spend on this new channel. ZEE’s entry into Indonesia has done well, and it now plans to venture into Thailand and Vietnam. It is also looking at consolidating its Middle East operations. Going ahead, Africa will be in focus in its international business. In addition, Zee is also likely to come up with additional channels. Zee’s strategy is to invest in quality content for its existing channels and also content requirement for its new launches would increase its programming costs, going ahead. This strategy would help Zee to gain further market share and also drive its subscription revenues when new channels gain popularity. However, the heavy investments may hurt margins in the near term but would be last shortly. Indian economy continues to grow at a sluggish pace of 4.7 % in FY14. By keeping on pressure on overall advertising spends which have barely touched the double digit mark. To some extent election related spends have helped. With a stable government, growth is expected to pick up. The company expects that despite a slow economy, television media industry will continue on its double-digit growth path. The company continues to make investments in creating excellent quality content for its viewers and explores growth opportunities in domestic markets, international markets and in digital space. Over FY2013-16E, It is expected that the company to post a CAGR of 17 % in its top-line and 18 % in its bottom-line. During the quarter, domestic subscription revenues stood at Rs. 334.40 Cr, while international subscription revenues were Rs. 129.20 Cr. The company has recommended a Dividend of Rs. 2.00/- per share on face value of Rs. 1.00/- each, for the FY 2013-14. Advertising revenues for the quarter were Rs. 582.40 Cr, recording a growth of 21.5 % over Q4 FY13. Subscription revenue was Rs. 463.50 Cr for the quarter ended March 31, 2014. During the quarter, Zee TV averaged 305 TVMs recording a relative share of 19.30 % and is now the No.2 channel in the genre. The channel delivered weekly average of 15 shows among top 100 shows. The sports channel business revenue in the fourth quarter of FY2014 were Rs. 195.90 Cr, while cost incurred in this quarter were Rs. 160.80 Cr. Recently, RBI has allowed FII’s to hold 100 % of the paid up capital in ZEE Entertainment Enterprise Ltd, currently promoters hold 43.07 % in company whereas FII’s hold 49.73 % in the company.

Outlook and Valuation: 
ZEE Entertainment Enterprises Ltd is one of India's leading Television, media & Entertainent company. In reflaction of India's growing influence, domestic television channels are increasing their networks internationally. Channels such as Colors, Star Plus, SET and ZEE TV are available in approximately 5,07,077 viewers and in 169 countries respectively. Management has indicated that in the next few quarters, subscription revenue growth is likely to be modest. As this can be on account of a fact that the company believes that it has largely utilized the benefits from Phase -1 and Phase 2 of digitization (until customer level billing improves), and the company has broken its JV with Star (Medipro) and would be now approaching cable operators and other distribution platforms alone – this is likely to have some impact on collections, at least in the near-term. Advertising revenue growth of Zee Entertainment has significantly outperformed industry growth largely because of two reasons, first because of benefits for the movie and music channels which posted improved distribution and greater emphasis of media buyers on these segments, and secondly, on improvement in market shares of Zee channels especially Zee Marathi. These are likely to get almost completely absorbed in the base from 2QFY15 onwards, limiting Zee Entertainment’s outperformance relative to the industry. The company has already announced the launch of a new Hindi GEC “Zee Zindagi” (launch scheduled on June 23rd). The management has also indicated in the course of the conference call that further investments by Zee could be expected. ZEE, following the end of Medipro JV, shall be forced to aggressively launch new channels, and this is likely to impact its profitability but for the shorter term. With the heavy investments in new launches may hurt margins in the near term and it could affect EBITDA margins and it could post margins of 27 % and 27.1 % in FY15E and FY16E, respectively. Though overall EBITDA margins improved 90 bps to 26.3 % in Q4FY14, the ex-sports EBITDA margin contracted 430 bps to 28.7 %. This contraction is primarily on account of the major investments undertaken by the company due to several new launches such as Zee Zindagi, Zee Anmol, etc. The management guided at heavy investments in content even in the coming quarters. This is essential for long term growth and sustainability of the business. However, it will dent margins in the short term. Moreover, with a change in business model in favour of higher investments in content, EBITDA margins will take a hit. It is expected that the PAT margins to reach 18.1 % and 19.0 % in FY15E and FY16E, respectively. However, the PAT margin could improve after the merger of Diligent Media Corporation (DMCL) is complete, which entitles Zee to a tax benefit of Rs. 300 crore, of which Rs. 100 crore may be availed in FY15E. ZEE’s sports business is lumpy in nature while the absence of India related sports content in its sports portfolio will keep its domestic subscription revenue subdued. The management guided sports losses to the tune of Rs.100 crore in the coming future. Going ahead, the ad growth improvement will only be gradual and move in tandem with the economy. At the CMP of Rs. 270.70, the stock is trading at its all-time high P/E of 26.53 x FY15E and 22.18 x FY16E. The company can post EPS of Rs. 10.20 for FY15E and Rs. 12.20 for FY16E. One can buy ZEE ENTERTAINMENT ENTERPRISE LIMITED with a target price of Rs. 324.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 283 - Rs. 295.00.

SALES ( Crs)3,700.004,421.704,935.505,44.30
NET PROFIT (₹ Cr)720.00892.10978.401,170.90
EPS ()7.509.3010.2012.20
PE (x)39.0031.5028.8024.00
P/BV (x)
EV/EBITDA (x)29.0020.6018.1015.00
ROE (%)18.4021.1020.1020.80
ROCE (%)23.3021.3020.0020.80

I would buy ZEE ENTERTAINMENT LTD for Medium to Long term for target of Rs. 324.00 and for the shorter term the target would be Rs. 283 to Rs. 295.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 249.00 on every purchase(Why Strict stop loss of 8 % ?) - Click Here




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