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Wednesday, November 23, 2016


Scrip Code: 505537 ZEEL
CMP:  Rs. 449.50; Market Cap: Rs. 43,172.16 Cr; 52 Week High/Low: Rs. 589.90 / Rs. 350.10.
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. 43.88; Face Value: Rs. 1.00; EPS: Rs. 10.32; Dividend: 225.00 %; P/E: 43.55 times; Ind. P/E: 35.52; EV/EBITDA: 23.69 times. Total Debt: Rs. 1.90 Cr; Enterprise Value: Rs. 42,200.76 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. Zee Entertainment Enterprises Ltd has approximately 959 million viewers in 169 countries worldwide. The Film Production segment produces and distributes films. The company has a library housing approximately 2,10,678 hours of television content and about 3,500 hours of 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. ZEEL 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 Company. It is amongst the largest producers and aggregators of Hindi programming in the world, with extensive library housing over 2,10,678 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. The Indian Media and Entertainment (M&E) industry is a sunrise sector for the economy and is making high growth strides. Proving its resilience to the world, the Indian M&E industry is on the cusp of a strong phase of growth, backed by rising consumer demand and improving advertising revenues. The industry has been largely driven by increasing digitisation and higher internet usage over the last decade. Internet has almost become a mainstream media for entertainment for most of the people. The Indian media & entertainment sector is expected to grow at a Compound Annual Growth Rate (CAGR) of 13.9 % year-on-year to reach Rs 1,96,400 Cr (US$ 28.82 billion) by 2019. In 2015, the overall Media and Entertainment industry grew 11.7 % over 2014. The largest segment, India’s television industry, is expected to maintain its strong growth momentum led by subscription revenues, representing a year-on-year growth of about 13.2 % to reach Rs 60,000 Cr (US$ 8.8 billion) in 2017. Significantly, with the increased penetration of smartphones and expansion of 3G/4G network in India, the country is likely to see around 900 Cr mobile application (apps) downloads during 2017, which is five times more than 156 Cr in 2012. This uptick in app-downloads is also expected to increase the revenue from paid apps to an estimated over US$ 241.16 million as against US$ 144.7 million in 2014. Internet access has surpassed the print segment as the second-largest segment contributing to the overall pie of M&E industry revenues. Television and print are expected to remain the largest contributors to the advertising pie in 2018 as well. Internet advertising will emerge as the third-largest segment, with a share of about 16 % in the total M&E advertising pie. The film segment which contributed Rs 12,640 Cr (US$ 1.90 billion) in 2014 is projected to grow steadily at a CAGR of 10 % on the back of higher domestic and overseas box-office collections as well as cable and satellite rights. Digital advertising is expected to lead the CAGR with 30.2 %, followed by radio with 18.1 %. Animation and VFX, and television are expected to register a CAGR of 16.3 % and 15.5 % respectively, followed by growth rates of music at 14.0 %, films at 10 % and OOH with 9.8 % expected CAGR. Within TV, subscription revenues are expected to be three times more than advertising revenues, by 2018. Growth in the regional reach of print and radio shall provide opportunities to further improve the advertisement revenue. Recently the government of India announced Demonetization of its Rs. 500 and Rs. 1000 currency notes; this move is likely to impact multiplexes more rather than the content players and broadcast players like ZEE Entertainment Enterprises Ltd. The content interruption is unlikely as only small payments happen in cash. Print companies could see some impact while the broadcast companies will be least impacted. Ad revenue forms a major part for these companies and almost most of the payments are made in cheques so demonetization would not hurt ZEE. Zee Entertainment is likely to see a sharp increase in earnings going forward to the extent of 25 % plus over two or three years due to successful launches of new channels and is expected to do even better going ahead with increasing its market share in regional space. Also, Goods & Services Bill will be a great positive for the company. Recently, Sony Pictures Networks India (SPN) announced that it will acquire Ten Sports for Rs. 2,600 crore ($385 million) from Zee Entertainment Enterprises. The deal will raise SPN's sports profile and put it on equal footing with Rupert Murdoch's 21st Century Fox-owned Star India. The price reflects a control premium as well as a four-year, non-compete pledge. ZEE had paid $107 million (Rs. 500 crore) in instalments during 2006-11 to acquire Ten Sports from Dubai-based Abdul Rahman Bukhatir's Taj Group. Its accumulated losses from the sports business which were are pegged at Rs. 600 Rs. 640 crore. The transaction is expected to be completed in four-five months by FEB 2017. ZEE ran the sports business for close to 10 years and has got it near breakeven. However, they believe that their energies and resources should be deployed in other high-margin and profitable businesses. The valuation for TEN was very good as they got an IRR (internal rate of return) of over 15 %. Zee reported ad revenue growth of 13.7 % YoY in the quarter aided by strong growth in regional channels. This was higher than industry ad growth of 13-15% during the quarter. Zee has a leadership position in Marathi and Bengal and is in the top 3 positions in Telugu and Kannada space. During Q2FY17, Zee Tamil witnessed a marked improvement in viewership, and was the second ranked channel in August and September in the Tamil market. The company expects to continue its industry leading growth, going ahead. The company, however, sounded cautionary on moderation in FMCG and e-commerce spends, which may have some impact on industry growth in the coming quarters. As per the company, FMCG which forms 55-60 % of the TV ad spend, would thus impact ad growth by 1 % for every 2 % impact on spends. However, the company remained upbeat on telcos ad spends owing to 4G launches coupled with GST rollouts wherein potential savings in tax outgo by companies may be reinvested for ad spend. International ad growth is expected at low double to high single digits. Though the programming hours were on the lower side with 25 hours in the quarter, the management has guided at increasing ad inventory through increase in programming hours.  Higher penetration of DTH and the digitisation process augur well for faster growth in subscription revenue over the long term. And with the rapid growth in mobile usage and internet connections and looking at the content hours and quality of ZEE, the company can retain its leadership in media space and command higher premium in valuations and is well poised to benefit from this favourable environment.

Outlook and Valuation:
Zee Entertainment Enterprises Ltd (ZEEL) is one of India’s leading television, media & entertainment companies. In a reflection of India's growing influence, domestic television channels are increasing their networks internationally. Zee Entertainment is a leading provider of entertainment content across genres in the Hindi, English & regional languages. With leading channels like Zee Marathi, Zee Bangla, Zee Telugu, Zee Kannada, Zee Tamizh and ETC Channel Punjabi within its fold, Zee Entertainment would now have an unparalleled reach across the country in the fast growing regional markets. Bollywood - The Indian Film industry is acclaimed as one of the largest film industries of the world. ZEE's Hindi movie channels, Zee Cinema, Zee Premier, Zee Action and Zee Classic maintain its objective in delivering the best of programming in the Hindi Movies Genre. Zee has restructured its business into five verticals, each of which is expected to become a significant piece of the overall pie over the medium to long term Horizons. The five verticals are Broadcasting, International business, Movies & Music, Digital, Live entertainment. Broadcasting segment is currently the major portion of the business; this vertical is likely to remain the key part with focus on regional segment and improving the ratings of flagship & other GEC through new launches and improved selection of shows. Its International business segment along with broadcasting (domestic) would form the lion’s share of the business in medium term. The company would continue to address the international market for Indian content in Hindi/Regional/dubbed language. ZEE’s Movies & Music segment continues to focus on movies production both in Hindi and regional space. Zee Music Company, its music label, has built significant market share, with 60 % incremental share in acquisition of music rights of new Hindi movies, during the quarter. Zee’s Digital segment is currently in nascent stage and the company has yet to discover the market opportunity. During Q2FY17, Ditto TV, its pay over-the-top (OTT) platform, reduced its subscription price to Rs. 20 a month vs. the platform clocking 200 million video views in Q2. Its Live entertainment segment is also in nascent stage segment. The company expects huge opportunities from domestic as well as international events. During Q2FY17, Zee’s LiveEvents business rolled out its first event, ‘Wicked Weekends’ across the country. Zee acknowledged that a fall in ratings in its flagship Zee TV was owing to wrong selection of shows. A new business head has joined four to five months ago. The company has lined up a pipeline of new shows, which would be launched in H2FY17 and thus boost ratings. The company launched three new channels in domestic market - Zee Anmol Cinema - a Hindi movie channel for FTA audience; Zee Yuva, a youth focused Marathi GEC to add on to its present offerings in Marathi market; and Zee Cinemalu, a movie channel in Telugu language. In October, it also refreshed the content of Zindagi, its other Hindi GEC. The company is also in the process of launching HD versions of its regional channels. ZEE has lined up its International channel launches, two new channels in the international market in Q2FY17 – Zee One – targeted at Spanish speaking Hispanic population in US and Zee Mundo – a Bollywood movie channel in Germany, which airs movies dubbed in German. Post the launch of the above mentioned channels, its international channels bouquet is at 40 with channels dedicated to native audience at 12. ZEE’s & TV witnessed 12 % QoQ improvement in viewership. The company indicated that while it is still away from the breakeven point – i.e., 9 % to 10 % viewership market share, it is on track to meet its target to achieve breakeven within the 3 years of launch. In the Tamil market, Zee Tamil witnessed a marked improvement and was the second ranked channel in August and September. In the Telugu market, where it is third, it indicated that Gemini TV leads owing to huge movie content and Zee Telugu is superior in the fictional segment. In the Kannada market, where the company is number two, the leader (Colours Kannada) has higher content hours and high cost non fiction shows like Bigg Boss, which lends them the leadership. The Free to air (FTA) channels advertisement market size is Rs. 1500 crore including Doordarshan. As per the company, 80 % of the market size is held by 8-10 channels. Zee’s key strategic objectives are to be a multimedia entertainment conglomerate, to attain global consumption leadership, and consistently enhance shareholder value. Zee’s first priority is to attain leadership position in key genres, wherein it enjoys leadership in genres of regional markets such as Telugu, Marathi, Kannada, Odisha (Sarthak) and Bengali and has maintained top two positions. It also emphasised its leadership in Hindi movies cluster where it increased its viewership share to 34 %. Zee wants to continue its expansion in new markets and verticals like its expansion in movie production, theatres, live events and music. In FY16, Zee created a new entertainment vertical – Zee Theatre to make unique theatre content across platforms. The company has also expanded in the international market and invested in new distribution deals across the Caribbean, African and APAC markets. The company identified its focus on digital segment by creating multiple digital offering like OZee and Ditto TV and creating content which is customised for such platform. Zee also wants to attain sustainable profitable growth through efficient capital allocation and prudent cost model. Interestingly, the sale of sports business finally in Q2FY17, mirrored the management’s intention to shift focus from loss making segment to profitable segment, and they sold off loss making sports properties which improves its Operating cash flow which will remain robust at Rs. 730 crore despite acquisition of Sarthak Entertainment in FY16. Company’s FCF, however, was impacted by higher investments in building production studios and Sarthak Entertainment acquisition, while sale of air plane generated inflow of Rs. 36.7 crore. Going ahead, with most of capex cycle over in terms of any major channel launches the FCF generation should improve going ahead. Acquisition of Reliance Broadcasting Network will provide Zee an altogether new geography like Bihar, through the #1 channel over there Big Ganga and entry into the Radio channel Big FM. However, as it is subject to regulatory approvals and uncertainty over finalization of the deal time line but post the inclusion, a good bump up in the ad revenues and overall financials can be seen. On Financial side, Zee posted strong performance in Q2 as the numbers were lifted by subscription revenues which grew at 22 % yoy on the back of 24.6 % yoy growth in the domestic arm on the back of catch up revenues of the previous quarter and early closures of content deals as compared to previous year. Advertising revenues witnessed some moderation at 16 % as FMCG and e-commerce verticals lowered their ad spending a bit. The company in the Hindi GEC had a market share of 24 % with & TV combined, whereas it remained strong in the Marathi space with 55 % market share. The highlight of the quarter was the Tamil channel of Zee which climbed up to second spot while in the Telugu and Kannada markets Zee remained at 3rd and 2nd spots respectively. In Oriya market, Sarthak TV continued its dominance. Other sales and services which included syndication of sports business, Zee Music Company, Ditto TV etc grew by 16.4 % yoy. On the margin front, EBITDA margins have been continuously inching higher quarter by quarter. In Q2, they came in at 28.9 % higher 2.90 % yoy as sports losses reduced and subscription revenues moved up. Programming costs as a % of sales moved up to 45.3 % up by 1.50 % yoy and 3.50 % qoq on higher cost involved with movie production and India cricket series. Other expenses as a % of sales moved down to 16.8 % 3.00 % qoq and 4.80 % yoy on account of cost control and low carriage fees. Despite higher depreciation and lower other income, PAT adjusted for exceptional losses came in at Rs. 327 Cr which was 17.3 % higher yoy. Higher market share gains are on the cards as Zee Anmol, regional channels, newly launched channels and the movies basket are expected to continue their excellence. Even internationally, the revenues are growing at a hefty pace on new content. This will enable the ad revenues to grow at a rate of 18 % to 20 % in the coming years higher than the industry average. Subscription revenues will continue to get trigger from finalization of content deals, digitization albeit with a delay and the long term positives to be seen from the new tariff regulations. Hiving off of the sports business will offer a good riddance from a business which was dragging down the profitability. This will lift up the margins from FY18E. The company hopes that Digital will be a key part of its Growth in the future and hence the company geared for expansion on that front as well.   At the current market price of Rs. 449.50, the stock is trading at a PE of 33.79 x FY17E and 26.13 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 13.30 in FY17E and Rs. 17.20 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

SALES ( Crs) 5,851.506,832.807,880.809,042.70
NET PROFIT (₹ Cr)1,060.201,277.201,652.201,926.80
EPS () 10.7013.3017.2020.10
PE (x)48.1038.6029.9025.60
P/BV (x)7.906.705.705.00
EV/EBITDA (x)32.3026.1021.3018.00
ROE (%) 18.00 18.8020.7020.80
ROCE (%)15.9017.9017.8017.90

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*As the author of this blog I disclose that I  hold ZEE ENTERTAINMENT LTD in my investment portfolio.

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I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.





  1. Very well researched article. Have a great weekend. :)






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