23 January 2012
3QFY12 Results Update | Sector: Media
Zee Entertainment Enterprises
BSE SENSEX
S&P CNX
16,739
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,049
Z IN
961.4
146/107
-6/-2/15
113.4
2.3
CMP: INR118
TP: INR112
Neutral
Zee Entertainment's 3QFY12 PAT grew 22% YoY to INR1.39b, lower than our estimate of INR1.55b, largely due
to higher finance cost and tax rate. Revenue was flat YoY and grew 5.1% QoQ to INR7.5b, 2% above our
estimate. Ad revenue declined 10% YoY to INR3.96b due to high base of sports related revenue in 3QFY11,
weak macro environment and market share loss.
Subscription revenue grew 12% QoQ to INR3.3b, supported by 14% QoQ growth in domestic subscription
(DTH growth and positive contribution due to Media Pro) and 8% growth in international subscription.
EBITDA grew 40% YoY and 4% QoQ to INR2.16b v/s our est. of INR2.19b. EBITDA margin declined 30bp QoQ to
28.6%.
Sports business operating loss was INR100m, in line with our estimate. Core (non-sports) business EBITDA
margin declined 500bp YoY and 250bp QoQ to 34% v/s our estimate of 35.1%.
Finance costs increased significantly to INR182m largely due to forex loss. These losses largely pertain to
USD-denominated content costs and other expenses, and a significant portion is unrealized (MTM). Our
earnings estimates are largely unchanged, as downgrade in ad revenue is offset by higher assumptions on
subscription income.
We model 8% decline in ad revenue in FY12 and 10% YoY growth in FY13. Our FY13 ad growth estimate could
have downside risk as it is based on assumed improvement in ad environment and improvement in ratings
for Zee. We remain concerned on the margin outlook, given weak revenue growth and cost pressures led by
high competitive intensity.
Our FY13 assumptions imply core EBITDA margin of 32.7% and sports EBITDA loss of INR0.5b. The stock trades
at 19.5x FY12E and 17.4x FY13E EPS. Maintain
Neutral
with a price target of INR112 (15x FY14E EPS).
Shobhit Khare
(Shobhit.Khare@MotilalOswal.com); Tel: +91 22 3982 5428

Zee Entertainment Enterprises
Key result highlights
Ad revenue declined 10% YoY and remained flat QoQ at INR3.96b (estimate of
INR4.2b).
Reported subscription revenue grew 12% QoQ to INR3.3b. Domestic subscription
revenue grew 14% QoQ (YoY figures are not comparable due to a change in
accounting).
Operating expenses declined 10% YoY but grew 5.5% QoQ to INR5.4b (estimate of
INR5.2b). Non-sports opex increased 9% YoY and 10% QoQ.
EBITDA grew 40% YoY and 4% QoQ to INR2.16b (estimate of INR2.19b); EBITDA
margin declined 30bp QoQ to 28.6%.
Sports business revenue declined 7% YoY to INR901m; sports EBITDA loss of
INR100m was in-line with estimates and company guidance of restricting the
EBITDA loss at INR1b.
Ad revenue decline of 10% YoY on macro slowdown, market share loss,
lower sports contribution
Advertising revenue declined 10% YoY but remained flat QoQ at INR3.96b led by
slowdown in the macro environment, decline in relative market share for some
key genres and lower sports revenue.
Lower ratings have impacted the ad revenue. Zee has been facing significant
competition in its key genres and has lost relative market share in Hindi, Hindi
Movies and Marathi GEC.
Zee's flagship channel witnessed 18% QoQ decline in average GRP during 3QFY12.
We expect Zee to invest more in content by increasing its original programming
hours (OPH) during the current quarter.
Zee TV average GRP down 18% QoQ in 3QFY12
256
231
201
208
265
250
253
237
220
200
198 193
158
No festive cheer as ad revenue remained flat QoQ (INR b)
4.8
4.1
3.5
182
2.6
2.0 2.2
2.5 2.8
2.9 2.7
2.3
2.0
2.5
2.7
3.8
4.4
3.8
3.9 4.0
Source: Company/MOSL
23 January 2012
2

Zee Entertainment Enterprises
Hindi GEC relative channel share: Zee relative share at ~15%
S tar Pl us
S ony
Col ors
S AB
Z ee TV
Im ag i ne
Hindi movies (ex-IPL) relative channel share: Zee &
Max compete for third spot
Zee Ci n ema
60
45
MAX
Star Gol d
40
30
25.2
20
10
0
17.3
14.9
10.1
5.2
30
15
0
29.6
22.8
Marathi GEC relative channel share: Zee down to No3 at 26%
Bengali GEC relative channel share: Zee relative share
continues to improve
Source: Company/MOSL
Subscription revenue grew 12% QoQ on improved performance in domestic
segment
3QFY12 subscription revenue grew 12% QoQ to INR3.3b largely due to improved
performance from domestic business.
Domestic subscription revenue grew 14% QoQ (YoY figures are not comparable
due to a change in accounting, benefitting from distribution JV Media Pro entering
new agreements which had remained unsigned. Full benefit of the JV will accrue
from FY13.
International subscription revenue grew 3% YoY and 8% QoQ to INR1.04b, supported
by INR depreciation.
Domestic subscription revenue grew 14% QoQ (INR m)
Internati o nal
Do mes ti c
23 January 2012
Source: Company/MOSL
3

Zee Entertainment Enterprises
Core EBITDA margins declined 500bp YoY and 250bp QoQ; significant jump
in finance cost and tax rate
Consolidated EBITDA margin declined 30bp QoQ to 28.6% v/s estimate of 29.5%.
Core EBITDA margin (excluding sports business) declined 500bp YoY and 250bp
QoQ to 35%.
Sports revenue stood at INR901m (down 7% YoY) while operating costs in the
sports business amounted to INR1b (down 50% QoQ) resulting in EBITDA loss of
INR100m v/s INR790m in 1HFY12.
Finance costs increased significantly to INR182m (v/s INR56m in 2QFY12) largely
due to forex loss. These losses largely pertain to USD denominated content costs
and other expenses and significant portion is unrealized (MTM).
Although effective tax rate was at 38.6% in 3QFY12, the full year tax rate is expected
to be ~30%.
Significant decline in operating loss for sports business (INR m)
75
185 138
-12
-48
-272
-276
-354
-542
20
-100
-226
Trend in EBITDA and margins ex-sports (INR b)
Reveneue (ex s ports )
34
29
24 24
37 36
39
EBITDA ma rgi n (ex s ports ) (%
37
41
39
37
37
35
34
-152
31
-566
4.8 4.4 4.3 4.4 3.9 4.3 4.7 5.9 5.9 5.9 6.6 6.6 6.1 6.3 6.6
-1,030
Source: Company/MOSL
Earnings estimates largely unchanged; maintain Neutral with target price
of INR112
Our earnings estimates are largely unchanged as downgrade in ad revenue is
offset by higher assumptions on subscription income.
We model 8% decline (v/s 5% earlier) in ad revenue in FY12 (low single digit
decline for non-sports business) and 10% YoY growth in FY13. Our FY13 ad growth
estimate could have downside risk as it is based on assumed improvement in ad
environment and improvement in ratings for Zee.
Non-sports EBITDA margin for Zee has declined by ~700bp from peak of 41% in
2QFY11. We remain concerned on the margin outlook given weak revenue growth
and cost pressures led by high competitive intensity. Our FY13 assumptions imply
core EBITDA margin of 32.7% (further 130bp decline v/s 3QFY12) and sports EBITDA
loss of INR0.5b.
We expect EPS CAGR of 8% over FY11-14E. At CMP of INR118, the stock trades at a
P/E of 19.5x FY12 and 17.4x FY13.
We are rolling forward our valuation basis to FY14. Maintain
Neutral
with a price
target of INR112 based on 15x FY14 EPS.
23 January 2012
4

Zee Entertainment Enterprises
Summary of estimate change (INR b)
FY12E
Ad revenue
Old
New
Change (%)
Subcription revenue
Old
New
Change (%)
Total revenue
Old
New
Change (%)
EBITDA
Old
New
Change (%)
EBITDA margin (%)
Old
New
Change (bp)
PAT
Old
New
Change (%)
EPS (INR)
Old
New
Change (%)
16.3
15.8
-3.2
12.0
12.4
3.8
29.2
29.3
0.5
8.1
7.8
-3.8
27.8
26.6
-119
6.1
5.9
-3.0
6.2
6.1
-2.2
FY13E
18.0
17.4
-3.1
13.2
13.7
3.7
32.1
32.2
0.4
8.8
8.8
0.2
27.4
27.3
-5
6.7
6.5
-2.2
6.8
6.8
-0.5
Source: MOSL
Zee: one-year forward P/E band
40
31
22
13
Bottom of 9.9x
4
Pe ak of 35.6x
Avg of 22.4x
17.6
Source: MOSL
23 January 2012
5

Zee Entertainment Enterprises
Zee Entertainment Enterprises: an investment profile
Company description
ZEEL is the leading player in television broadcasting and
syndication of content overseas with well established
brands such as Zee TV, Zee Cinema, Zee Music, Zee
Sports and Zee Studio. Post the recent merger with Zee
News, the company has added regional channels like
Zee Telugu, Zee Kannada, Zee Marathi and Zee Bangla in
its portfolio. Zee has the world's largest Hindi film library
of over 3,000 movie titles. Zee has well-established
reach of over 500m viewers across 167 countries.
Recent developments
Zee has bought back 17.3m equity shares under the
"open market" mechanism for a total outlay of
INR2.07b.
With the government clearing an ordinance for the
digitization of cable network, major broadcasters
like Zee are likely to benefit.
Valuation and view
Key investment arguments
With its offering of 24 channels, Zee addresses ~64%
of the viewer ship market in India and has a pan-
India market share of ~11%.
Zee's flagship channel Zee TV has slipped to the
fourth slot in the Hindi GEC segment.
We expect ad revenue to decline by ~8% in FY12 and
grow ~10% in FY13
We expect margin to be under pressure due to muted
ad growth and the planned investments in
programming.
Key investment risks
Declining EBITDA margin in core (non-sports)
business.
Increasing ratings gap v/s the market leader in Hindi
GEC; this could prove to be negative for ad revenue
momentum as well as cost control.
Our earnings estimates are largely unchanged as
downgrade in ad revenue if offset by higher
assumptions on subscription income.
We model 8% decline (v/s 5% earlier) in ad revenue
in FY12 (low single digit decline for non-sports
business) and 10% YoY growth in FY13. Our FY13 ad
growth estimate could have downside risk as it is
based on assumed improvement in ad environment
and improvement in ratings for Zee.
Our FY13 assumptions imply core EBITDA margin of
32.7% (further 130bp decline v/s 3QFY12) and sports
EBITDA loss of INR0.5b.
We expect EPS CAGR of 8% over FY11-14E. At CMP of
INR117, the stock trades at a P/E of 19.5x FY12 and
17.4x FY13.
We are rolling forward our valuation basis to FY14.
Maintain
Neutral
with a price target of INR112 based
on 15x FY14 EPS.
Comparative valuations
P/E (x)
EV/EBITDA (x)
EV/Sales (x)
P/BV (x)
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
ZEEL
19.5
17.4
14.0
12.2
3.7
3.3
3.6
3.3
Sun TV
14.7
12.0
6.9
5.6
5.5
4.5
4.1
3.6
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
6.1
6.8
Target
Price (INR)
112
Consensus
Forecast
6.2
7.2
Upside
(%)
-5.1
Variation
(%)
-1.1
-5.3
Reco.
Neutral
FY12
FY13
Current
Price (INR)
118
Target price and recommendation
Stock performance (1 year)
Zee Entertai nment
160
Se ns ex - Re ba se d
Shareholding pattern (%)
Dec-11
Promoter
Domestic Inst
Foreign
Others
23 January 2012
43.5
12.8
35.9
7.8
Sep-11
43.3
13.2
35.3
8.2
Dec-10
42.8
12.9
35.4
8.9
140
120
100
80
Jan-11
Apr-11
Jul -11
Oct-11
Ja n-12
6

Zee Entertainment Enterprises
Financials and valuations
23 January 2012
7

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Zee Entertainment Enterprises
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