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.
| KEY FINANCIALS | FY13 | FY14 | FY15E | FY16E |
|---|
| SALES (₹ Crs) | 3,700.00 | 4,421.70 | 4,935.50 | 5,44.30 |
| NET PROFIT (₹ Cr) | 720.00 | 892.10 | 978.40 | 1,170.90 |
| EPS (₹) | 7.50 | 9.30 | 10.20 | 12.20 |
| PE (x) | 39.00 | 31.50 | 28.80 | 24.00 |
| P/BV (x) | 7.20 | 6.20 | 5.40 | 4.70 |
| EV/EBITDA (x) | 29.00 | 20.60 | 18.10 | 15.00 |
| ROE (%) | 18.40 | 21.10 | 20.10 | 20.80 |
| ROCE (%) | 23.30 | 21.30 | 20.00 | 20.80 |
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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