Zee Entertainment Enterprises Ltd (ZEE)

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1 Zee Entertainment Enterprises Ltd (ZEE) HOLD CMP: Rs Date: December 04, 2009 Key Ratios: Particulars FY09 FY10E FY11E OPM (%) NPM (%) ROE (%) ROCE (%) P/BV(x) P/E(x) EV/EBDITA(x) Debt Equity Ratio Key Data: Sector Media & Entertainment Face Value Rs wk. High/Low (Rs.) /88.10 Volume (2 wk. Avg.) BSE Code V.S.R. Sastry Vice President Equity Research Desk Target Price: Rs Market Cap.: Rs mn. SYNOPSIS Zee Entertainment is one of the largest vertically integrated media and entertainment companies with its operations spread across more than 10 countries worldwide including India, US, UK, Australia, Middle East and many African and South Asian countries. The company engages in developing, producing, and procuring television programming and film content, which comprises various general entertainment, sports, movies, music, and English channels. DTH service provider announced Rs 100 hike on its set top boxes (STBs) with immediate effect. Net sales and PAT of the company are expected to grow at a CAGR of 10% and 8% over 2008 to 2011E respectively Share Holding Pattern: Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer drsastry@firstcallindia.com 1

2 Table of Content Investment Highlights... 3 Peer Group comparison...5 Keyconcern. 5 Financials.6 Charts....8 Outlook and conclusions...9 Industry Overview

3 Investment Highlights Q2 FY10 Results Update Zee Entertainment Enterprises has posted a decline of 38% in the consolidated net profit after tax for the quarter ended Sep. 30, During the quarter, the company reported profit of Rs 1,109.5 million for the quarter as compared to Rs 1, million for the quarter ended Sep. 30, In the same year, consolidated total income was Rs 5, million, a decline of 5% over the prior year period. The Basic EPS of the company is stood at Rs.2.56 for the quarter ended Quarterly Results - Consolidated (Rs in mn) As At Sept-09 Sept-08 %change Net sales (5) Net profit (38) Basic EPS (38) Advertisement revenues on recovery path With recovery in the macro economic environment, advertisement spends continue to remain buoyant. Zee TV s advertisement rates are now at par with those of Star Plus. Company expects ZEEL s Q3FY10 advertisement revenue to be similar to that in Q2FY10 (in spite of the fact that Dussehra was in Q2 in FY10 as opposed to Q3 in FY09). Synergy benefits from acquisition of Zee News regional channels Post the acquisition of regional GEC (R-GEC) channels from Zee News, ZEEL should benefit from the better bundling of channels in terms of distribution and ad revenues, international subscription revenues from the R-GEC, and the high growth potential of the regional channels. The acquisition is EPS accretive for ZEEL by 5%. 3

4 Zee ent in pact with walt Disney arm Zee Entertainment Enterprises (Zee) has signed a multi-year content deal with Walt Disney Company international distribution arm, Disney-ABC International Television Asia Pacific. Disney ABC is responsible for The Walt Disney Company s branded and non-branded filmed entertainment distribution and distributes more than 30,000 hours of content to over 1,300 broadcasters and new media platforms across 240 territories worldwide. This multi-year volume contract for live action series will prove vital in broadening the platform for showcasing top titles from ABC s portfolio. Amalgamation of Zee Board Zee Entertainment Enterprises has announced that its board has granted its in-principle approval for acquisition of the regional general entertainment channel business of Zee News. It includes comprising of 6 television channels namely Zee Marathi, Zee Talkies, Zee Bangla, Zee Telugu, Zee Kannada and Zee Cinemalu, under a scheme of arrangement. The aforesaid decision is subject to appropriate statutory and regulatory approvals. DishTv increases Set Top Box prices DishTv, the Zee group-promoted direct-to-home (DTH) service provider announced Rs 100 hike on its set top boxes (STBs) with immediate effect. Its hike was necessitated following an increase in customs duty on the import of STBs from 0-5%. A DishTv bare Set Top Box would now cost Rs 1,590 as compared to the earlier price of Rs 1,490. 4

5 Peer Group Comparison Name of the company CMP(Rs. ) Market Cap.(Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend(%) Zee Entertainment Sun Tv Net works Ltd Tv Today UTV software Key Concerns Slowdown in India's economic growth Increased competition: The Hindi General Entertainment space will become very competitive with the entry of the TV 18 group, UTV, NDTV, INX Media Slow rollout of CAS: The government may delay the rollout of CAS. Declining viewership and revenue share of GEC channels 5

6 Financials Results 12 Months Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) FY08 FY09 FY10E FY11E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Deprecation Profit Before Tax Tax Profit After Tax Equity capital Reserves Face value(rs.) EPS

7 Quarterly Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) 31-Mar Jun Sep Dec-09E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Deprecation Profit Before Tax Tax Profit After Tax Equity capital Face value(rs.) EPS

8 Charts: 8

1 Year Comparative Graph Zee Entertainment BSE SENSEX Outlook and Conclusion At the current market price of Rs.260.00, the stock is trading at 25.55 x FY10E and 22.15 x FY11E respectively.

9 1 Year Comparative Graph Zee Entertainment BSE SENSEX Outlook and Conclusion At the current market price of Rs , the stock is trading at x FY10E and x FY11E respectively. Price to Book Value of the stock is expected to be at 4.05 x and 3.43 x respectively for FY10E and FY11E. Earning per share (EPS) of the company for the earnings for FY10E and FY11E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 8% over 2008 to 2011E respectively. On the basis of EV/EBITDA, the stock trades at 14.9 x for FY10E and x for FY11E. We recommend Hold in this particular scrip with a target price of Rs

10 Industry Overview Media and Entertainment is one of the most booming sectors of the Indian economy. The sector is rapidly evolving and has a tremendous untapped potential stored in it. The Indian Media and Entertainment industry stood at Rs 43,700 cr. in the year 2008 and is expected to grow at an annual rate of 19% till the year Entertainment is providing here an overview on the Media and Entertainment sector in India, its scope as well as job opportunities in the sector for the aspirants. India is not only the largest film producing country in the world but the quality of Indian cinema has also begun to match with Hollywood Standards a fact, which is quite evident from the growing overseas market for Indian content. The Indian movie software exports has grown ten fold in the last ten years to touch US $ 100 million and is expected to cross US $ 250 million by the end of this year. Thus, there is growing diaspora for Indian entertainment industry which is yet untapped. Software producers and content providers for small screen are also facing explosion of demand. In this case also, it is the demand for exports that is fuelling the demand, apart from the fact that there are currently, more than 68 satellite channels operating which require contents. It is estimated that on an average original/fresh content aired on satellite channels is just 4-5 hours as against the International standard of 7-8 hours. Television Software exports are expected to rise from the current level of Rs 350 Cores. Scope of the Industry Media and Entertainment industry is one of the most flourishing sectors in India. The liberalization of the media sector has opened up the gates of opportunities and growth. India is witnessing a revolution in this sector with the emergence of new technologies and many companies are taking initiatives to set up digital theatres, multi-plexes, etc. 10

11 Piracy and violation of intellectual property rights have posed a major threat to the Media and Entertainment companies worldwide and lack of quality content has also become a major area of concern for the Media and Entertainment companies in India. Given the high rate of economic growth and technological developments, Indian Media and Entertainment industry is poised to register a tremendous growth in the coming years. India is emerging as a global destination for the Media and Entertainment players because of the following reasons: The number of channels is increasing each day. India is emerging as one of the world's largest markets for digital and mobile music. Entry of private sector companies and increasing FDI and FII. The concept of crossover movies and crossover audience is also gaining momentum. The Indian Media and Entertainment industry is also making its presence felt in the global market with its movies and music. India's large pool of creative skills and growing domestic market for animation and special effects industry. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 11

12 Firstcall India Equity Research: B. Harikrishna Banking B. Prathap IT A. Rajesh Babu FMCG C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods E. Swethalatha Oil & Gas D. Ashakirankumar Auto Rachna Twari Diversified Kavita Singh Diversified Nimesh Gada Diversified Priya Shetty Diversified Tarang Pawar Diversified Neelam Dubey Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com 12

Apollo Tyres Limited BUY. V.S.R. Sastry Vice President Equity Research Desk

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