CMP: Rs. 392.00; Market Cap:
Rs. 37,649.58 Cr; 52 Week High/Low: Rs. 421.70 / Rs. 280.80.
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. 26.74; Face Value: Rs. 1.00;
EPS: Rs. 8.53; Dividend: 225.00 %; P/E: 45.95 times; Ind. P/E: 43.16;
EV/EBITDA: 25.25.
Total Debt: Rs. 2.20 Cr; Enterprise Value: Rs. 38,197.98 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. 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. The company recently launched HD Offering
include Zee TV HD, Zee Cinema HD, Zee Studio HD and Ten HD. Zee Entertainment
Enterprises Limited is one of the largest Indian programming content
distributors with an estimated reach of more than 959 million viewers in over
169 countries including USA, Canada, Europe, Africa, the Middle East, South
East Asia, Australia and New Zealand. The Indian Media and Entertainment
Industry witnessed a moderate growth in 2014. The industry grew from Rs. 91,800
Cr in 2013 to Rs. 1,02,600 Cr in 2014, registering a growth rate of 12 %.
Television sector grew from Rs. 41,700 Cr in 2013 to Rs. 47,500 Cr in 2014,
registering a growth of 14 % as per the FICCI-KPMG Indian Media and
Entertainment Industry Report 2015. The Total advertising spend across media
was Rs. 41,400 Cr in 2014 contributing to 40 % of Media & Entertainment
industry revenues. In light of the continued economic growth, advertising
revenues saw a growth of 14 % in 2014. On account of improving monetization due
to digitization, in 2014, subscription revenues grew at annualized growth rate
16 %. Last year 2014-2015 was another landmark year for the television industry
in many ways. FY15 saw the formation of the viewership measurement system by
Broadcast Audience Research Council (BARC). BARC is expected to deliver
superior viewership data on account of more relevant classification parameters
(NCCS instead of SEC), tracking of substantially higher viewership universe of
about 15 Cr Households including rural households, as well as higher quality of
data monitoring through audio watermarking of channel feeds. The Indian Media
& Entertainment industry is making strides in the economy, backed by rising
advertising revenues and consumer payments. 61 % of all households in India are
now equipped with a television making us the second largest TV viewership
market after China. With digitization, subscription revenues in urban and rural
areas are growing, resulting in a healthy impact on the industry. The
entertainment industry is dominated by the television segment with 45 % of the
market share, which is expected to reach 50 % by 2018. The Government of India
has supported this sector's growth by taking various initiatives such as
digitising the cable distribution sector to attract greater institutional
funding, increasing foreign direct investment (FDI) limit from 74 % to 100 % in
cable and DTH satellite platforms, and granting industry status to the film
industry for easy access to institutional finance. The Indian Media & Entertainment
industry is on an impressive growth path. According to the CII-PwC study, the
revenue from advertising is expected to grow at a CAGR of 13 % and will exceed US$
9.64 billion in 2018 from Rs US$ 5.62 billion in 2013. Internet access has
surpassed the print segment as the second-largest segment contributing to the
overall pie of M&E sector 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 estimated at US$
2.02 billion in 2015 is projected to grow steadily at a CAGR of 12 % 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 27.7
%, followed by radio with 18.1 %. Gaming and television are expected to
register a CAGR of 16.2 % each, followed by growth rates of animation and VFX
(15.9 %), music (13.2 %), films (11.9 %) and OOH with 9.% 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. In a bid to
augment its regional presence, Zee acquired a 100 % equity stake in Sarthak
Entertainment Pvt Ltd, an entity which owns and operates Sarthak, a leading
Odia language general entertainment channel with a 25 % viewership share. The
deal is said to have been all-cash valued at Rs. 115 crore. Zee had recently
launched two new channels viz. Zee Zindagi last year and &TV in current
year, which would escalate the programming and administrative expenses for the
company. Though the ad inventory is expected to see a linear increase, the
demand from advertisers and increase in ad yields from new channels would only
happen gradually and could be margin accretive in the longer term. Zee is
expected to post an EBITDA margin of about 23.2 % and 25.4 % in FY16E and
FY17E, respectively. Zee
Entertainment currently operates advertising inventory of about 30 hours that
has peaked. The coming growth would only be price led. The company has
benefited from improved rating and higher than industry advertisement growth of
about 18.9 % over FY12-15 to Rs. 2,660 crore. Though the corporate earnings
have remained weak, but it is believed that there would be a gradual revival in
the ad growth scenario, which would benefit Zee. The recently launched GEC, &TV,
is utilising 22 hours inventory while the Company intends to increase
utilisation in the range of the flagship channel which is about 30 hour. With
the complete impact of &TV and Zee Zindagi in the coming years, it could be
expected that ZEE’s ad revenue to grow at 18.0 % CAGR in FY15-17E to Rs. 3703.8
crore.
By CY15 end, India alone is expected to have 21.3 Cr mobile internet users.
Global mobile connections are projected to increase to almost 9,500 Cr in CY19
from around 6,900 Cr in CY14 on account of rapid growth in mobile phones,
tablets and other devices. ZEE is in sync with this process of change and is
geared to offer its entertainment content through ‘NOW media’ i.e., through
digital tools and OTT platforms, among others. It is also adopting cutting‐edge, advance formats like
‘high definition’ and ‘4K’. Ditto TV has 2 Cr plus users and nearly 50,000
hours of content, and is consistently growing. Essel Vision, the production
arm, is a step in the content‐innovation
direction. It creates proprietary and differentiated content across genres and
formats including TV shows and feature films. ZEE Music Company is another one
of the initiatives that seeks to close the loop in terms of genre offerings
from ZEE. ZEE Music Company’s repertoire of projects comprises 36 Hindi movies,
15 Marathi movies, 2 Punjabi movies and 30 popular single numbers. Looking at
the GDP recovery, improvement in market share of ZEE in regional and movies
genres and new launches will aid ad revenue growth. 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. During
last couple of years, Digitisation activity has still remained in slow
in light of the shift in the Phase III and IV digitisation deadline. In such a
scenario, the revenue stream for GEC’s could get a fillip, going ahead, as and
when the company shifts to RIO based deals and new channels are able to garner
increasing market share. The company awaits the Supreme Court decision on the
27.5 % hike in the non-DAS areas before shifting towards the RIO related
pricing. The company is striving hard to win additional India specific sports
properties, which will augment subscription revenues. Zee’s mobile app Ditto TV
is also gaining traction. Currently, it has 1.5 Cr subscribers of which a
million are paid with an average realisation of Rs. 50 per month. It is
expected to gain traction as the mobile internet continues to grow. ZEE reported
a quarter of positive EBITDA from the sports business in the quarter, which was
at about Rs. 1.5 crore. This is expected to reduce the yearly losses from the
sports business. The sports business is lumpy in nature and varies as per the
sports related properties in its kitty. The company has guided at sports losses
of about Rs. 100 crore in the coming year. The number could vary depending on
any additional sports property on its platform. However, going ahead, with
digitisation benefits accruing, the monetisation may be easier while sports
losses are expected to reduce. To strengthen its bouquet, Zee had already launched
two new channels, Zindagi and &TV, for domestic viewers. With a view to
further strengthening its global presence, it launched GEC, Zee Hiburan, in
Indonesia, and Zee Nung, in Thailand, which is a 24/7 Bollywood movie channel.
Zee World, English GEC with Indian content was launched in Africa. Zee TV launched
Parwaaz, drama series that was entirely produced in UAE, which broke all
viewership records in UAE among South Asians. On Financial side Zee’s cash flow
from operations (CFO) increased 78 % yoy in FY15, despite muted EBITDA growth
of 4 % yoy. This is primarily attributable to lower working capital, driven by
stable inventory and continued improvement in receivable days. Its Revenue grew 23.4 % YoY was
primarily aided by incremental ad revenues from newly launched channels and
sports revenues that resulted in ad revenue growth of 25.4 % YoY to Rs. 779.9
crore. ZEE’s Subscription revenues came in at Rs. 462.5 crore. The other
operating income came in at Rs. 97.4 crore, its EBITDA came in at Rs. 311.2
crore. The EBITDA was also aided by positive contribution of | 1.5 crore vs.
loss expectations from the sports business. EBITDA margins came in at 23.2 %
and its PAT came in at Rs. 243.8 crore due to higher operating leverage Zee
Entertainment, one of the leading media conglomerates with a bouquet of 33
domestic channels, has a presence across genres ranging from general entertainment
(GEC) to music, sports and regional. Zee TV, its flagship GEC, has a viewership
share of 18.2 %, and has consistently remained among the top three GECs in the
last two years. The company has benefited from improved rating and higher than industry
advertisement growth of 18.9 % over FY12-15 to Rs. 2,660 crore. The company
reported ad revenue growth of 25.4 % YoY aided by the incremental revenue flows
from &TV and Zee Zindagi and improved performance of the overall portfolio. Improving ad outlook due to stable government, best
play on digitisation, product innovations and net cash of Rs. 1,800 Cr are key
positives in favour of ZEE. It is believed that irrespective of higher subscriber
additions by DTH or cable operators, broadcasters like ZEE will be one of the
safest and most attractive plays on the digitisation theme. Amongst listed
players, the company is the best placed to benefit due to its huge brand and
bouquet of 34 domestic excluding 9x channel closing next month and including Sarthak TV and 36 international channels. Also, it is
underpinned by sturdy free cash flow, a secular growth story and stable
dividend policy, ZEE is best placed to buy in media sector. At the current market price of Rs. 392.00, the stock is trading at 34.65 x FY16E and about 31.48 x FY17E. Company can post Earnings per share (EPS) of Rs. 11.31 for FY16E and of Rs. 12.45 for FY17E. 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.
| KEY FINANCIALS | FY14 | FY15 | FY16E | FY17E |
|---|
| SALES (₹ Crs) | 4,421.70 | 4,883.65 | 5,538.05 | 6,147.24 |
| NET PROFIT (₹ Cr) | 892.08 | 977.50 | 1,086.23 | 1,195.60 |
| EPS (₹) | 9.29 | 10.18 | 11.31 | 12.45 |
| PE (x) | 40.45 | 36.92 | 33.22 | 30.18 |
| P/BV (x) | 13.26 | 10.22 | 8.29 | 6.87 |
| EV/EBITDA (x) | 25.26 | 22.43 | 20.46 | 18.42 |
| ROE (%) | 32.71 | 27.63 | 24.80 | 22.68 |
| ROCE (%) | 52.72 | 43.85 | 38.51 | 35.00 |
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*As the author of this blog I disclose that I do hold ZEE ENTERTAINMENT Ltd in my any of the portfolios.
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