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.
| KEY FINANCIALS | FY16 | FY17E | FY18E | FY19E |
|---|---|---|---|---|
| SALES (₹ Crs) | 5,851.50 | 6,832.80 | 7,880.80 | 9,042.70 |
| NET PROFIT (₹ Cr) | 1,060.20 | 1,277.20 | 1,652.20 | 1,926.80 |
| EPS (₹) | 10.70 | 13.30 | 17.20 | 20.10 |
| PE (x) | 48.10 | 38.60 | 29.90 | 25.60 |
| P/BV (x) | 7.90 | 6.70 | 5.70 | 5.00 |
| EV/EBITDA (x) | 32.30 | 26.10 | 21.30 | 18.00 |
| ROE (%) | 18.00 | 18.80 | 20.70 | 20.80 |
| ROCE (%) | 15.90 | 17.90 | 17.80 | 17.90 |
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 8 % on every purchase. (Why Strict stop loss of 8 % ?) - 
Click Here
Click Here
*As the author of this blog I disclose that I hold ZEE ENTERTAINMENT LTD in my investment portfolio.
**Dear Reader Friends, if you enjoyed this article then please do share it with your friends & colleagues through Facebook and Twitter, also do drop in your valubale thoughts in comment box...
So, grab a fresh hot cup of coffee, turn on your net & browse on to www.bhavikkshah.blogspot.in & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !!
So, grab a fresh hot cup of coffee, turn on your net & browse on to www.bhavikkshah.blogspot.in & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !!
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Disclaimer:
Disclaimer:
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
As a Disclosures I Confirm that :
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.
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE
VIEW THE POWER POINT PRESENTATION ON
