PVR LIMITED : LEADER IN ITS INDUSTRY !!!

Scrip Code: 532689/ PVR

CMP:  Rs. 664.45; Buy at current levels & Accumulate at every dips.

Medium to Long term Target – Rs. 730; STOP LOSS – Rs. 611.30; Market Cap: Rs. 2,731.30 Cr; 52 Week High/Low: Rs. 705.00 / Rs. 317.05

Total Shares: 4,11,06,220 shares; Promoters : 1,18,95,970 shares – 28.94 %; Total Public holding : 2,92,10,250 shares – 71.06 %; Book Value: Rs. 156.52; Face Value: Rs. 10.00; EPS: Rs. 14.05; Dividend: 10.00% ; P/E: 47.30 times; Ind P/E: 41.05; EV/EBITDA: 14.72.

Total Debt: 601.44 Cr; Enterprise Value: Rs. 3,299.70 Cr.

PVR LIMITED : PVR Limited was incorporated in 1995 and is based in Gurgaon, India. PVR LTD was incorporated in April 1995 pursuant to a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow Limited, one of the largest exhibition companies in the world. PVR Limited is an India-based company that operates movie houses in India. PVR Ltd came with an IPO on December 08, 2005 with an issue price of Rs. 225 per share and raise about Rs. 173.25 Cr with an objective to utilize the proceeds to finance the then new cinema projects in various cities across the country, to expand the film distribution business, technological up gradation and renovation of cinemas. The Company also generates revenue from in-cinema advertisements and products displays and in-cinema sale of food and beverages. It also produces and co-produces movies; and distributes movies, as well as operates 24 lane bowling centers. PVR, Currently controls 434 screens including 135 screens with Cinemax India Ltd at 92 locations across 37 cities in 13 states and 1 Union Territory. PVR's subsidiaries include CR Retail Malls India Ltd (CRR), Cine Hospitality Private Ltd, PVR Pictures Ltd (PVR Pictures) and PVR bluO Entertainment Ltd (PVR bluO). The Company has diverse cinema circuit in India consisting of 35 Cinemas with 154 screens spread over 20 different cities: Delhi, Faridabad, Gurgaon, Ludhiana, Ghaziabad, Mumbai, Bangalore, Hyderabad, Chennai, Lucknow, Indore, Aurangabad, Baroda, Allahabad, Ahmedabad, Udaipur, Chandigarh, Surat, Latur and Raipur. On January 8, 2013, PVR through its wholly owned subsidiary Cine Hospitality Private Ltd purchased a controlling stake of over 69 %  followed by the open offer for another 26 % in the Cinemax India Limited for Rs. 395 Cr or Rs. 203.65 per sgare from the Rashesh Kanakia and family. PVR Ltd is locally compared with Prime Focus ltd, Reliance Broadcast Network Ltd, Balaji Telefilms ltd, Media Matrix Worldwide Ltd, Shree Ashtavinayak Cine Vision Ltd, Tips Industries Ltd, Fame India Limited, Cinemax Properties Ltd, Era E Zone (India) Ltd, Pyramid Saimira Theatre Limited and Inox Leisure Ltd and globally compared with Walt Disney Co of US California, Time Warner Inc of USA, IG Port Incorporated of Japan, Twenty First Century Fox, Inc of New York, Lions Gate Entertainment Corp of California,  UTV Media PLC of UK, Dreamworks Animation Skg Inc of California, Orange Sky Golden Har. Ente. Holdings Ltd of Hong Kong, Kinepolis Group NV of Belgium, Cinemax X AG of Germany, Digital Cinema Destination Corp of United States and Reading International Inc of United states, Geo Dinos Company Ltd of Japan, Nakanihon Kogyo Company Ltd of Japan.

Investment Rationale:

Priya Village Roadshow (PVR) Cinemas is a leading cinema chains in India. The company began as a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow limited in 1995 with 60:40 ratios. PVR pioneered the multiplex revolution in the country by establishing the first multiplex cinema in 1997 at Saket, New Delhi. This opening of the first multiplex opened up a new era in the Indian cinema viewing experience, which also set a role model for others to follow suit. In 2002, the Village Road Show exited the JV and company changed its name to PVR Limited and in 2003, ICICI Ventures made an investment in PVR and from there on it was no looking back. PVR has set new benchmarks in the cinema exhibition business including establishment of the first largest 11 screen multiplex in the country, Gold Class Cinema, luxury cinema, IMAX theatres and ECX (Enhanced Cinema Experience). PVR, Currently controls 434 including 135 Screens with Cinemax India Ltd at 92 locations across 37 cities in 13 States and 1 Union Territory. It also plans to open another 500 screens by 2015. PVR commands a significant presence in New Delhi and NCR with 55 screens in 16 multiplexes. PVR also has its strong presence in major Indian cities. The Cinemax acquisition makes PVR a leader in the exhibition space and gives a strong bargaining power. PVR has an impressive market share of of around 28 % including Cinemax in the total 1600 multiplex screens in the country. After the Cinemax acquisition, the company has a combined revenue share of 20 % to 22 % in Bollywood and 30 % to 35 % in (Hollywood) of multiplex revenues. The company has about 434 screens as on date and plans to augment its market share by rolling out 60 to 70 screens each year. This leadership position gives PVR the leverage to negotiate better deals with movie producers. It is expected that the total tally at PVR to reach 481 screens with 109 properties in FY15E and 537 screens with 119 properties in FY16E. PVR also plans to approach the next government for a minimum window norm before movie releases are available on other platforms. Management is planning to “re-brand” all the Cinemax screens to PVR which will take 24 months. So far only 2 Cinemax screen is rebranded to PVR and company has seen 25 % increases in revenue. Thus management believes that re-branding is encouraging. As an innovation in marketing strategy, company has tied up with Unilever for marketing on “pay per eye ball” basis. Company is planning to focus on corporate & bulk bookings as a part of new marketing initiative. Currently corporate booking revenue is miniscule at around Rs. 12.5 Cr. However company sees a big potential in this segment. Two marketing employees are allocated at every screen who will market to corporate and colleges in the vicinity of 8 to 10kms. About 8 to 9 % of the all shows were “housefull” shows. The timing of the movies are allotted in such a way that 70 to 75 % occupancy is reached and balance 20 to 25 % are kept as a buffer to handle unexpected increase in demand. The Annual maintenance capex comes at 1-2 % of revenue. Every screen requires refurbishment after 6-8 years to keep the cinema maintained and fresh. This amounts to 20-30 % of original capex. Capex required is on an average of Rs. 2.5 Cr per screen. Of the total 434 screens, 2/3rd screens are older than 2 years. The Company's growth is slow in East and is still not able to find right malls and location for expansion in East. But management continues to look for good opportunity in East. PVR’s occupancy rate for FY14 was around 34 %. PVR is evolving itself into a lifestyle entertainment company and the acquisition of Cinemax proved to be a master stroke which helped PVR to become industry leader. PVR’s has good prospects with improvement in RoCE and RoE with free cash flow visibility and with the timely execution of the given aggressive roll-out plan it will maintain its leadership position.

Outlook and Valuation:

PVR, a pioneer in multiplex in India and is the largest cinema exhibition player in the country today. Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain with 97 properties, 434 screens and 101k seats. PVR is India’s largest and fastest growing multiplex chain with market share of about 23-25 % in Bollywood market and with 33-35 % of market share in Hollywood market. Being the only large player and the way it is expanding itself aggressively will definitely makes PVR an undisputed leader and will further extend its leadership to higher scales. The recent KPMG report anticipates the market size of Indian Music & Entertainment sector to touch Rs 1,45,700 Cr (US$ 25.51 billion) by 2016. There is increased penetration in Indian markets, which is expected to even intensify further, owing to a revolution brought in by digital technology. Wireless broadband, growing internet usage, cable digitisation and higher DTH adoption would further drive Indian M&E industry to new heights. The report also noted that smart phones, tablets, gaming devices have laid the foundation of a new wave in the industry. Also, the Investments inflows in the movie production space are set to multiply, several movie studios such as Virgin Produced India, Fox Star Studio plans to step up investments in Bollywood. Along with the higher investments and with higher quality content driven by heavy investments would lead to higher demand for movie related entertainment. PVR would be benefited from the increased occupancies and rising Average Ticket Price (ATPs). PVR has offerings across the consumer segments like in Luxury Cinema Viewing it has Directors Cut with ticket prices ranging from Rs. 1,044 to Rs. 1276; in Comfortable Reclining Seats it has Gold Class with ticket prices ranging from Rs. 696 to Rs. 928; in Catering to Upper Middle Class it has PVR Premiere with ticket prices ranging from Rs. 174 to Rs. 348; in Comfortable Regular Seatings it has PVR Mainstream with ticket prices ranging from Rs. 116 to Rs. 174; in Low cost Multi-screen cinemas it has PVR Talkies with ticket prices ranging from Rs. 58 to Rs. 116. It is expected that PVR’s Average Ticket Prices to register a growth of 7 % at Rs. 177 by the end of FY15E and a growth of 3 % to Rs. 182 by the end of FY16E. Moreover, as disposable incomes increase, Foods & Beverages (F&B) spends are also expected to rise to Rs. 60 in FY15E and to Rs. 62 by the end of FY16E, from Rs. 53 currently. PVR is strategizing to augment its advertising revenues by about 25 to 30 % YoY by providing advertisers various deals such as pay per eyeballs and other innovative deals. The company has earned about Rs. 141.9 crore in FY14. PVR has about 59.9 million footfalls segregated on various counts, which gives advertisers unmatched opportunity to reach the target audience. It is expected that PVR can see a growth rate of 15 % and 13 % to reach or Rs. 163 and Rs. 184 crore of advertisement revenues by FY15E and FY16E, respectively and thus Advertisement revenue would be PVR’s new noticeable revenue stream. Moreover, a gradual recovery in economic activity will increase disposable incomes to keep growth buoyant. Company is expected to benefit immensely with implantation of GST as the entertainment tax will be offsetted against GST. Average entertainment tax is believed to reduce from 23 % currently to 16 % post the implementation of GST. Also, company will be able to avail tax credit of tax paid on input cost if the act is implemented which will reduce its tax liability. PVR reported sales of Rs. 314 Cr in 4QFY14, compared to Rs. 335 Cr in 4QFY14, marking a YoY growth of 28 %. On result front, PVR poseted a revenue growth in 4QFY14 was primarily due to delivery of low budget films like Queen and 2 States. EBITDA margin for 4QFY14 stood at 10.5 % as against 6.7 % in 4QFY13, primarily due to higher operating leverage. Company reported PAT at Rs. 80 lakhs in 4QFY14, against Rs. 11.7 Cr in 4QFY13, de-growing by 93 %. This was primarily due to higher tax credit of Rs. 29.4 Cr in 4QFY13 as against Rs. 4 Cr in 4FY14. There was an exceptional gain of Rs. 8.5 Cr during the quarter on account of profit from sale of Anupam Multiplex property; common area maintenance, rent expense, property tax relating to earlier year and assets written off during the period. PVR at the end of FY14 has net debt of Rs. 580 Cr, with given strong operating performance and debt repayment over next 2 years, the balance sheet is expected to improve in meaningful way and it is assumed that there would be an debt reduction of Rs. 30 Cr and Rs. 50 Cr in FY15 and FY16 respectively. Going forward, the cash generation would support capex requirement as well as debt repayment. In past, the company has been aggressively expanding its screens presence, and this has resulted in capex in excess of Operating Cash Flow and that lead to an increase in debt. But now, the capex would be lower than the OCF generation and hence would lead to surplus cash to re-pay its debts and this improving balance sheet will command premium multiple. PVR Management has guided to add 60-70 screens in FY15. They target to add 300-450 screens in next 3-4 years. Management has no plans for equity dilution and signals that PVR is adequately funded for the future growth. A 50-bp drop in the average occupancy ratio erodes could affect the price of the stock by 5 %. At the current market price of Rs. 664.45, the stock P/E ratio is at 38.63 x FY15E and 23.81 x FY16E respectively. PVR can post EPS of Rs. 17.20 and Rs. 27.16 respectively. The content pipeline of the company is exciting and would propel the further growth of PVR. 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. PVR can touch Rs. 875 in near future. 

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	805.00	1,351.20	1,640.10	2,022.50
NET PROFIT (₹ Cr)	45.00	50.40	70.90	113.10
EPS (₹)	11.20	13.60	17.20	27.50
PE (x)	51.50	42.40	33.50	21.00
P/BV (x)	3.60	6.00	5.20	4.30
EV/EBITDA (x)	24.20	12.10	9.40	6.90
ROE (%)	6.90	10.80	16.50	22.30
ROCE (%)	4.60	11.10	15.50	22.30

I would buy PVR LTD for Medium to Long term for target of Rs. 730.00 and may touch Rs. 875.00. 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 ₹ 611.30 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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RETURN ON CAPITAL

WONDERLA HOLIDAYS LIMITED : MORE WONDER TO COME !!!

Scrip Code: 538268 / WONDERLA

CMP:  Rs. 201.95; Accumulate at every dips.

Medium to Long Term Target: Rs. 226; STOP LOSS – Rs. 185.80; Market Cap: Rs. 1141.03 Cr; 52 Week High/Low: Rs. 226.40 / Rs. 125.00.

Total Shares: 5,65,00,670 shares; Promoters : 4,01,00,222 shares – 70.97 %; Total Public holding : 1,64,00,448 shares – 29.03 %; Book Value: Rs. 21.50; Face Value: Rs. 10.00; EPS: Rs. 5.90; Dividend: 15.00 %; P/E: 22.93 times; Ind. P/E: 10.89; EV/EBITDA: 8.60.

Total Debt: 18.60 Cr; Enterprise Value: Rs. 1133.20 Cr.

WONDERLA HOLIDAYS LIMITED: Incorporated in 2002, Wonderla Holidays Ltd is one of the largest operators of amusement parks in India. The company came out with an IPO on April 2014 offering 1,45,00,000 equity shares of Rs. 10 each for Rs. 125 per share raising Rs. 181.25 Cr. The object of offer for sale was to set up an amusement park in Hyderabad and for other general corporate purposes. Wonderla Holidays Limited (Wonderla) is an operator of amusement parks in India. The Company owns and operates two amusement parks in Bangalore and Kochi under the brand name Wonderla. The Company also owns and operates a resort beside its amusement park in Bangalore under the brand name Wonderla Resort. The Company’s amusement parks offer a range of water and land based attractions catering to all age groups. Wonderla Kochi is located just 15 kilometers from Kochi city, is home for approximately 55 amusement rides. The dry rides at Wonderla comprise of land rides, sky rides and hi-thrill rides. Currently, Wonderla Holidays is in the process of setting up their third amusement park in Hyderabad. They also own and operate a resort beside the amusement park in Bangalore under the brand name 'Wonderla Resort' which has been operational since March 2012. Wonderla amusement parks offer a wide range of water and land based attractions catering to all age groups. They have 22 water based attractions and 34 land based attractions at Wonderla Kochi, situated on 92.95 acres of land and 20 water based attractions and 33 land based attractions at Wonderla Bangalore, situated on 81.75 acres of land. Wonderla Resort is a 'Three Star' leisure resort located beside their amusement park in Bangalore comprising of 84 luxury rooms, with amenities including banquet halls, a board room, conference rooms, a multi-cuisine restaurant, a solar heated swimming pool, recreation area, kid’s activity centre and a well-equipped gym. Wonderla Holidays Limited is locally compared with Nicco Parks & Resorts Ltd, Galaxy Entertainment Corp Ltd, Cineline India Ltd, Delta Corp Ltd, H.S India Ltd, T. Spiritual World Ltd, Oriental Hotels Ltd, B.L. Kashyap and Sons Ltd, Viceroy Hotles Ltd, Mahindra Holidays & Resorts India Ltd, Sterling Holidays & Resorts Ltd, EsselWorld, Appu Ghar, Queens Land, Vismaya, Tikuji-Ni-Wadi, Funtasia Water Park, Snow World, Jalavihar, Aquatica, Adlabs Imagica, Ramoji Film City and globally compared with The Walt Disney Company of USA, Twenty First Century of USA, Dreamworks Animations Plc of USA, Cedar Point of United states, Europa Park of Germany, Port Aventura of Spain, Six Flags Great Adventure and Wild Safari of USA, Blackpool Pleasure beach of United Kingdom, Everland of South Korea, Canada’s Wonderland of Canada, Ocean Park of Hong Kong, Efteling of Netherlands, Dreamworld on the Gold Coast of Australia, Busch Gardens of USA, Wisconsin Dells of USA.

Investment Rationale:

Wonderla Holidays, promoted by the Chittilappilly family owns and operates amusement parks in Kochi and Bangalore along with a resort adjacent to its Bangalore Park under the brand name 'Wonderla Resort' which has been operational since March 2012. The company is in the process of setting up their third amusement park in Hyderabad. Both the amusement parks offer wide range of water and land based attractions and attracted combined footfalls of 23 lakh in FY 13 while total footfalls have witnessed 7.4 % CAGR over FY11-13. Bangalore amusement park and resort accounted for 60 % of 9mFY14 revenues while EBIDTA Margin stood at 47 %. Company has acquired 50 acres of land for its proposed Hyderabad Park and has invested about Rs. 38 Cr so far out of the total cost of Rs. 260 Cr. Company has developed an in-house facility in Kochi to construct the rides used in its amusement park and it has constructed 42 rides so far. This has helped to reduce Capex incurred on the rides. The cost of a ride manufactures in-house is one third of the cost of procuring the ride externally. This has helped the company to build in-house maintenance capabilities thereby reducing the cost of maintenance and downtime for a ride. India’s amusement industry is at nascent stage as compared to its global peers, this is evident from several indicators such as the relative small size of Rs. 260 Cr with about 150 amusement parks and high share of ticket sales in overall revenue pie as opposed more or less even split amongst entry fees, accommodation and F&B. This industry witnesses an annual footfall of around 58 lakhs to 60 lakhs; the industry is far undersized in terms of footfalls as compared to some of the large global amusement parks. In terms of seasonality, with four months of monsoon and less extreme weather conditions in several Tier 1 Cities, India offers very conducive environment for amusement parks. Company main customers are kids, and these are the major drivers of amusement parks, school vacations around Diwali, Christmas and summer attract major crowds to amusement parks. Accordingly, Q1 and Q3 are usually the best months for amusement parks. Amusement parks require large upfront capex though once park operations stabilize, growth can be driven by twin factors of rising footfalls and better revenue mix especially in an Indian context where F&B, merchandising and rentals have vast scope for improvement. Amusement parks are broadly categorised into Large Parks, Medium Parks & Small Parks. Capex required for Large parks are more than Rs. 70 Cr with land size of more than 40 Acres and can have annual visitors of around 5 lakhs. Large parks are usually located in Metros cities and in outskirts like Essel World of Mumbai, Nicco Park of Kolkata, Kishikinta of Chennai, Wonderla of Kochi & Bangalore, there are 16 to 18 such Large Parks in India. Medium Parks: Capex required for Medium parks are between Rs. 30 Cr to Rs. 70 Cr with required land size of between 10 to 40 Acres and can have annual visitors of around 3 to 5 lakhs. Medium parks are usually located in Outskirts of metros, Tier 1 Cities like GRS Fantasy Park of Mysore, Ocean Park of Hyderabad, there are about 40 to 50 such parks in India. Small Parks: Capex required for Small parks are about Rs. 30 Cr with required land size of around 10 Acres and can have annual visitors of around 3 lakhs. Small parks are usually located in Tier II cities, small towns, outskirts of metros and Tier 1 Cities like Fun N Food Kingdom of Dehradun, there are about 85 to 95 such parks in India. Wonderla’s existing business enjoys robust returns on its business and more importantly, a sustainable EBIDTA margin which is in excess of 40 %. Return ratios like RoE and RoCE have historically remained healthy. With a large upfront capex on Hyderabad project could impact return ratios in the near term; however, eventually it is expected that these ratio to trend higher once the park starts contributing in a meaningful manner. Wonderla enjoys RoCE of more than 30 % supported by free cash generation from amusement parks as they attain maturity due to high EBIT margins, lower incremental capex and improved revenue mix. Company came with an IPO and those funds are intended to utilise to finance its amusement park in Hyderabad at a total cost of Rs. 26o Cr. This is expected to be operational in FY17.

Outlook and Valuation:

Wonderla Holidays Limited is a part of the Kochi based V-Guard group. Wonderla Hoildays is a very unique in business model with inherently strong profitability at an attractive valution. Wonderla has high operating margins; high ROCE, niche & ambitious expansion plans make it an attractive stock to pick. The company's Kochi theme park is spread across 93 acres of land of which only 29 acres is used, this park has 55 rides which consists of 22 water and 33 land rides with 270 employees. It also has 7 restaurants (food is charged extra) and its entry fee is aound Rs. 400 to Rs. 600. Kochi park has a footfalls of 11-12 lakh and have seen a growth of 4 % CAGR. The company's Bangalore park is spread across 82 acres of land of which only 39 acres is currently used, this park has 55 rides which consists of 20 water and 35 land rides with 306 employees. It also has 7 restaurants (food is charged extra) and its entry fee is aound Rs. 600 to Rs. 800. Bangalore park has a footfalls of 11-12 lakh. Wonderla Holidays Ltd garnered Rs. 181.25 Cr through its IPO during the month of April 2014. The company will use the net IPO proceeds to fund its third amusement park in Hyderabad. This third amusement park is being set upped in Ranga Reddy District near Hyderabad which is now a part of Telangana for which 49.57 Acers of land have been acquired for Rs. 25 Cr. The total cost of the park is pegged at Rs. 256, of which Rs. 173 Cr will be funded via IPO proceeds and Rs. 45 Cr via debt funding from State Bank of Travencore and balance Rs. 33 Cr from internal accruals. Till date Company has already spend Rs. 37.70 Cr on this Hyderabad Park mainly towards land purchase and placing order for the new rides. The estimated total cost of the upcoming park in Hyderabad would be similar to the existing gross fixed assets of the company, which implies return ratios like RoCE would be suppressed as the park is likely to commence operation by FY17. Wonderla Bangalore Park which spreads around 93 Acers is operative since 2000 and owns and operates 3 star 84 rooms resort since March 2012 which accounted for Rs. 6 Cr or 4 % of Wonderla’s Annual Revenue. With footfalls of 23.4 lakhs in FY13 at these two parks the company clocked in total income of Rs. 139 Cr of which income from Services was Rs. 125 Cr while sale of products accounted for Rs. 13 cr. While the comapny has seen the footfalls growth of 9 to 10 % in last two years, its revenue rose 22 % in FY13 on back of 19 % growth in services income which was mainly from ticket sales and 54 % jump in sales of products such as food & beverages and mementoes etc. For FY13 it earned EBITDA of Rs. 64 Cr and Net Profit of Rs. 33.5 Cr resulting in EBITDA margin of 46 % and Net Margin of 24 %. Wonderla’s earning per Share for FY13 stood at Rs. 7.97 on the equity of Rs. 42 Cr. During 9 months ended 31 Dec 2013, its total income rose to Rs. 122 Cr with EBITDA of Rs. 58 Cr & Net Profit of Rs. 31 Cr giving an expansion in net margin from 24.1 % to 25.5 %. Company’s 9 month FY13 EPS stood at Rs. 7.38 as against Rs. 7.97 for FY13. The book value of Wonderla as on 31 Dec 2013 stood at Rs. 36.3 with debt of Rs. 18 Cr with a liquid investment of Rs. 15 Cr making it debt free company. Since, footfalls and revenue is seasonal in nature Wonderla’s Q1 and Q3 are better performing than Q2 and Q4. Wonderla is likely to witness a maintained footfalls a 7‐8 % CAGR, while its ticket prices have also seen a similar growth of 8‐9 % CAGR which are likely to be sustained in the future. It is expected that its EBIDTA margins to remain stable though return ratios like RoE and RoCE are expected to be dampened due to the large upfront capex for Hyderabad amusement park. Based on post IPO diluted equity, it is expected that its FY15 EPS to be t Rs. 8.00 & its FY16 EPS to be at Rs. 9.5. Comparing Wonderla with its peers on a PE basis, it appears that enough valuation headroom is left, given that larger US‐listed peers like Six Flags, Cedar Fair trade between 14x‐27x on CY14 basis. Amusement parks attain maturity; they can throw up significant cash flows since they require only maintenance capex: for instance, in FY10 and FY11, when there was no large ongoing project, capex/sales was just 5 to 7 % which helped generate large free cash flows. Given attractive valuations, robust growth prospects and inherently strong profitability, One can buy into this Stock with a target price of Rs. 226 for FY15. At the CMP of Rs. 201.95, the stock is trading at a P/E of 25.24x FY15E and 21.25x FY16E. The company can post EPS of Rs. 8.00 for FY15E and Rs. 9.50 for FY16E. One can buy WONDERLA HOLIDAYS LIMITED with a target price of Rs. 226.00 for Medium to Long term investment.

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	137.90	159.50	184.10	212.50
NET PROFIT (₹ Cr)	33.50	38.00	45.10	53.50
EPS (₹)	5.90	6.70	8.00	9.50
PE (x)	21.10	18.60	15.70	13.20
P/BV (x)	4.30	3.50	1.90	1.70
EV/EBITDA (x)	8.60	7.70	7.50	7.10
ROE (%)	30.90	26.80	17.40	13.80
ROCE (%)	40.40	35.90	23.90	19.70

I would buy WONDERLA HOLIDAYS LTD for Medium to Long term for target of Rs. 226.00. 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 ₹ 185.80 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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RETURN ON CAPITAL

ZEE ENTERTAINMENT ENTERPRISES LTD : STOCK WILL MET EXPECTATIONS !!!

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.

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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