14 December 2017
TP: INR690 (+22%)
Update | Sector: Media
Poised for secular earnings growth
Expect 16% EPS CAGR over FY17-20; maintain Buy
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
Financials Snapshot (INR b)
FY17 FY18E FY19E
EPS Gr (%)
Shareholding pattern (%)
Sep-17 Jun-17 Sep-16
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
Recovery in the ad market coupled with Zee TV’s improved BARC rating in
Hindi GEC and focus on regional channel bouquet should help the company to
garner higher than industry ad revenue growth.
We expect subscription revenue to grow in mid-teens in FY19/20 – on the
back of gains from digitization and monetization of DAS III/IV markets. TRAI
order should consolidate the market towards top broadcasters.
We expect overall investments of INR7b towards movie/music rights
acquisition and movie production in FY18. RoCE should recover from FY19,
driving healthy FCF.
We believe a secular 16% EPS CAGR over FY17-20 should support the
premium valuations. We maintain Buy, with a revised target price of INR690
(35x December 2019E EPS of INR19.8).
Expect higher-than-industry ad revenue growth
With the impact of demonetization and GST implementation waning, the overall ad
market should see healthy growth from 3QFY18. ZEE’s flagship channel,
BARC ratings across Hindi GEC have remained healthy and it has consistently
featured among the top-2 in the last few months. This should support higher-than -
industry ad revenue growth for ZEE. We estimate 15% CAGR in ZEE’s ex-Sports ad
revenue over FY17-20, ahead of KPMG’s estimate of 14% CAGR for the industry.
Subscription revenue growth to remain in healthy mid-teens
ZEE’s subscription revenue has strong growth potential on the back of (a)
digitization, (b) new tariff order, (c) ARPU increase, and (d) improving TV
penetration. Recent results of cable operators indicate healthy ARPU growth, led
by digitization across DAS markets, particularly DAS III and IV. This should translate
into healthy growth for broadcasters like ZEE. If implemented, the recent TRAI
order should further consolidate the market towards top broadcasters, as key
channels, constituting 40-50% of the portfolio, contribute 80-85% of the bouquet
pricing, creating a pull for the rest of the channels in the portfolio. Also, the TRAI
order should increase subscription revenue from cable operators. Further India’s
low ARPU and 71% TV penetration leave healthy growth potential. We expect ZEE’s
ex-Sports subscription revenue to grow at a CAGR of 13% over FY17-20.
New ventures to begin adding to overall growth in 2-3 years
ZEE’s upcoming digital platform launch,
which is expected to offer original as
well as catch-up content, should fill the key gap in its content offerings, attracting
the ‘millennials’ who are moving away from TV viewing. Further, investments in
movie/music rights acquisition and movie production would improve content
Aliasgar Shakir – Research Analyst
(Aliasgar.Shakir@MotilalOswal.com); +91 22 6129 1565
Hafeez Patel – Research Analyst
(Hafeez.Patel@MotilalOswal.com); +91 22 6129 1568
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.