Zee Entertainment
BSE SENSEX
26,052
S&P CNX
8,033
23 November 2016
Company Update | Sector: Media
CMP: INR458
TP: INR610 (+33%)
Buy
Zee Group to acquire RBNL’s TV and radio assets
TV assets with flagship ZEE Entertainment and radio assets with sister concern
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
Z IN
960.5
494.8 / 7.3
589 / 350
-5/4/12
935
56.9
Financials & Valuations (INR b)
Y/E MARCH
2016 2017E 2018E
Net Sales
58.3
68.0
76.7
EBITDA
15.0
19.5
25.5
NP
10.2
14.1
18.5
EPS (INR)
10.6
14.7
19.3
EPS Gr. (%)
3.9
39.2
31.1
EPS ex-&TV, INR 11.8
15.5
19.1
RoE (%)
27.0
30.6
32.3
RoCE (%)
17.7
21.6
24.8
Div. Payout (%) 21.3
15.3
12.9
Valuations
P/E (x)
43.3
31.1
23.7
P/E ex-&TV (x)
38.7
29.6
24.0
EV/EBITDA (x)
29.6
21.3
15.9
Div. Yield (%)
0.5
0.5
0.5
Shareholding pattern (%)
As on
Sep-16 Jun-16 Sep-15
Promoter
43.1
43.1
43.1
DII
3.6
3.8
3.5
FII
48.0
48.1
48.4
Others
5.3
5.0
5.0
FII Includes depository receipts
Stock Performance (1-year)
Zee Entertainmen
Sensex - Rebased
600
500
400
300
Zee Entertainment’s Board of Directors today approved the acquisition of Reliance
Group’s TV assets (five TV channel licenses, including two entertainment channels –
Big Magic and Big Ganga). In a separate deal, RBNL’s radio assets (45 operational and
14 non-operational radio licenses) were bought by sister concern Zee Media.
Zee shall pay the purchase consideration (INR2.98b) by issuing 6% preference shares
redeemable within three years and by assuming debt of the demerging entities. The
transaction is expected to close in 2HCY17.
We believe Zee’s 48% current foreign portfolio holdings would have played a part in
routing the radio business purchase through sister concern Zee Media Corporation
Ltd (ZMCL) as the FDI limit for radio is capped at 49%.
Big Magic + Big Ganga with revenues of ~INR1.2b fit well with Zee’s genre and
regional expansion strategy:
Big Magic – which has a strong reach of 85m out
of total ~170m cable and satellite (C&S) households in India – adds comedy
genre to Zee’s bouquet. It consistently garnered ~170-200k television
viewership in thousands (TVTs) in October, which is around half of the genre
leader Sony SAB. Big Ganga is a dominant player in the Bhojpuri segment, with
average of ~34k TVTs in October. Zee’s strong semi-urban/rural distribution
should aid further growth in these channels. FY16 revenues for Big Magic + Big
Ganga stood at ~INR1.2b. The two channels have recorded revenue CAGR
FY14-16 of ~20% (1HFY17 revenues: INR1.42b).
Deal comes with embedded tax benefits:
The INR2.98b purchase
consideration will be paid to RBNL via issuance of 6% preference shares
redeemable within three years and by assuming RBNL’s INR2.95b debt,
implying ~2.5x EV/sales. However, Zee could use ~INR2.7b accrued tax losses
and CENVAT benefits of Big Magic + Big Ganga over a 2-3 year period
(accumulated losses for Big Magic+ Big Ganga stood at ~INR6.5b).
Sister concern ZMCL to take RBNL’s radio assets:
ZMCL – Zee Group’s news
and current affairs division – will take RBNL’s radio assets (45 operational and
14 non-operational radio licenses) for INR15.92b. The deal values RBNL’s radio
assets at 13.7x FY16 and 12.9x FY17 (annualized), at a 20% discount to market
leader ENIL (EV/EBITDA of 17x FY16). ZMCL and RBNL will have a call and put
option, respectively, for the balance 51% after a three-year lock-in period
(expected to end in March 2020).
TV channels purchase – a freebie considering embedded tax benefits;
maintain estimates:
We maintain our estimates as Zee’s purchase of RBNL’s TV
channels was hardly the bone of contention. Due to embedded tax benefits, it
is largely a freebie by RBNL to the Zee Group. We maintain
Buy
with a target
price of INR610, based on 32x FY18E EPS (ex-&TV) plus INR18/share toward
&TV DCF value less INR18/share toward pref. share liability.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Jay Gandhi
(Jay.Gandhi@MotilalOswal.com); +91 22 6129 1546
Aliasgar Shakir
(Aliasgar.Shakir@MotilalOswal.com); +91 22 30102415

Zee Entertainment
Exhibit 1: Purchase consideration INR2.98b @ ~2.5x FY16 sales (INR m)
INR m
RBBL
Azalia
Big Magic
Total
Preference Shares
9
13
17
39
Debt
485
50
2410
2945
Total
494
63
2427
2984
Source: MOSL
Exhibit 2: Big Magic + Big Ganga revenue trend
490
370
250
430
340
FY14
FY15
FY16
1HFY16
1HFY17
Source: MOSL
Exhibit 3: Big Magic v/s peers: Television viewership in Thousands (in ‘000s)
Big Magic
416
364
194
406 389
Life OK
367
412
Sony SAB
371
196
410
377 365
170
205
170
Week 41
Week 42
Week 43
Week 44
Week 45
Source: MOSL
Exhibit 4: Big Ganga v/s peers: Television viewership in Thousands (in ‘000s)
Big Ganga
34
24
14
22
19
12
19
Bhojpuri Cinema
Dabangg
34
37
Dangal TV
34
22
15
12
11
12
Week 41
Week 42
Week 43
Week 44
Week 45
Source: MOSL
23 November 2016
2

Zee Entertainment
Exhibit 5: Transaction structure
Source: Company, MOSL
Exhibit 6: Brand-wise Revenue profile
FY15
FY16
1HFY16
1HFY17
Exhibit 7: Brand-wise EBITDA profile
FY15
FY16
1HFY16
1HFY17
92.7 Big FM
ZMCL
Consolidated
Source: MOSL
92.7 Big FM
ZMCL
Consolidated
Source: MOSL
Exhibit 8: Indian Radio Landscape
Source: MOSL
23 November 2016
3

Zee Entertainment
Exhibit 9: Consideration split of ZMCL’s purchase of RBNL’s radio assets
Particulars
BTA between RBNL & VEPL
BTA between RBNL & AMSPL
SPA for VEPL - for 49%
SPA for AMSPL- for 49%
Call option for 51% shares of AMSPL
Total
INR m
14200
1500
70
30
40
15840
Source: MOSL
Exhibit 1: Zee Entertainment: A Snapshot (INR)
INR b
FY08
FY09
FY10
Advertisement Revenue
9.3
10.6
10.7
YoY (%)
14
1
-Advertisement Revenue (ex-&TV)
9.3
10.6
10.7
YoY (%)
1
-Adver. Rev. (ex-&TV and Sports)
9.6
YoY (%)
Subscription Revenue
7.4
9.0
9.8
YoY (%)
22
9
- Domestic
3.5
4.5
5.7
YoY (%)
29
25
- International
3.9
4.5
4.2
YoY (%)
15
-8
Other Sales & Services
1.6
2.1
1.5
YoY (%)
33
-32
Total Revenue
18.4
21.8
22.0
YoY (%)
19
1
Operating expenses
12.9
16.3
15.9
YoY (%)
26
-3
EBITDA
5.4
5.5
6.1
YoY (%)
1
11
EBITDA margin (%)
29.5
25.2
27.7
Revenue mix (%)
Ad and broadcast revenue
51
49
49
Subscription revenue
41
42
45
-Domestic
19
21
26
- International
21
21
19
Other sales and services
9
10
7
Sports/Non-sports break-up
Revenue
18.4
21.8
22.0
-Sports
3.9
3.2
-Non-sports (incl &TV)
17.9
18.8
-&TV
-Non-sports (excl &TV)
EBITDA
5.4
5.5
6.1
-Sports
0.4
-0.6
-Non-sports (incl &TV)
5.1
6.7
-&TV
-Non-sports (excl &TV)
5.1
6.7
EBITDA margin (%)
29.5
25.2
27.7
-Sports
10.0
-18.3
-Non-sports (incl &TV)
28.5
35.4
-Non-sports (excl &TV)
28.5
35.4
* Includes merger of Regional General Entertainment Channels
FY11 *
17.1
60
17.1
60
15.5
62
11.3
15
7.2
27
4.1
-2
1.1
-28
29.4
34
21.8
38
7.6
24
25.7
58
38
24
14
4
29.4
4.4
25.0
FY12
15.8
-7
15.8
-7
14.5
-7
13.2
17
9.2
28
4.0
-2
1.3
25
30.4
3
23.0
5
7.4
-2
24.3
52
44
30
13
4
30.4
3.9
26.5
FY13
19.6
24
19.6
24
17.9
24
16.2
23
11.6
26
4.6
14
1.1
-15
37.0
22
27.5
19
9.5
29
25.8
53
44
31
12
3
37.0
5.0
32.0
FY14
23.8
21
23.8
21
21.5
20
18.0
11
13.2
13
4.8
6
2.4
113
44.2
20
32.2
17
12.0
26
27.2
54
41
30
11
5
44.2
6.6
37.6
FY15
26.6
12
26.4
11
24.2
13
17.9
0
13.9
6
4.0
-17
4.3
80
48.8
10
36.3
13
12.5
4
25.7
54
37
29
8
9
48.8
6.3
42.5
0.2
42.4
12.5
-0.3
12.8
-0.9
13.7
25.7
-4.2
30.1
32.3
FY16
34.0
28
31.4
19
29.2
21
20.6
15
16.3
17
4.3
7
3.6
-15
58.3
19
43.3
19
15.0
20
25.7
58
35
28
7
6
FY17E
40.1
18
36.2
15
34.2
17
23.6
15
18.9
16
4.7
11
4.3
17
68.0
17
48.6
12
19.5
30
28.6
59
35
28
7
6
FY18E
44.9
12
39.4
9
39.4
15
27.1
15
21.9
16
5.2
10
4.7
10
76.7
13
51.2
5
25.5
31
33.3
58
35
29
7
6
7.6
-2.1
9.6
9.6
25.7
-47.1
38.6
38.6
7.4
-1.5
8.9
8.9
24.3
-37.6
33.5
33.5
9.5
-0.9
10.4
10.4
25.8
-17.5
32.5
32.5
12.0
-1.0
13.0
13.0
27.2
-14.8
34.6
34.6
58.3
68.0
76.7
6.3
5.6
0.0
51.9
62.4
76.7
2.6
4.4
6.7
49.4
58.0
70.0
15.0
19.5
25.5
-0.3
-0.1
0.0
15.3
19.6
25.5
-1.8
-1.1
0.3
17.2
20.7
25.2
25.7
28.6
33.3
-5.5
-2.2
29.5
31.4
33.3
34.8
35.6
36.0
Source: Company, MOSL
23 November 2016
4

Zee Entertainment
Financials and Valuations
Income Statement
Y/E March
Advertisement Revenues
Subscription Revenues
Other Sales & Services
Net Sales
Change (%)
Total Income
Total Expenses
EBITDA
Change (%)
% of Net Sales
Depreciation
EBIT
Other Income
Interest & Finance Charges
Extraordinary Expense
PBT
Tax
Effective Rate (%)
PAT
Minority Interest
Adj. PAT
Change (%)
2012
15,841
13,245
1,320
30,406
3.4
30,406
23,010
7,396
-2.3
24.3
323
7,073
1,384
50
0
8,407
2,500
29.7
5,907
-15
5,892
-20.5
2013
19,639
16,234
1,123
36,997
21.7
36,997
27,452
9,545
29.0
25.8
399
9,146
1,461
86
0
10,521
3,337
31.7
7,184
14
7,198
22.2
2014
23,800
18,022
2,395
44,217
19.5
44,217
32,175
12,042
26.2
27.2
501
11,541
1,807
158
0
13,191
4,291
32.5
8,900
21
8,921
23.9
2015
26,603
17,944
4,299
48,846
10.5
48,846
36,299
12,547
4.2
25.7
673
11,874
2,278
103
0
14,049
4,284
30.5
9,765
20
9,785
9.7
2016
34,037
20,578
3,640
58,255
19.3
58,255
43,261
14,994
19.5
25.7
840
14,153
2,016
123
-331
15,716
5,528
35.2
10,187
-22
10,166
3.9
(INR Million)
2017E
40,104
23,646
4,273
68,023
16.8
68,023
48,551
19,472
29.9
28.6
1,038
18,434
2,159
323
0
20,269
6,051
29.9
14,218
-72
14,147
39.2
2018E
44,871
27,150
4,700
76,721
12.8
76,721
51,182
25,538
31.2
33.3
1,287
24,252
3,835
303
0
27,784
9,169
33.0
18,615
-72
18,544
31.1
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Preference capital
Minority Interest
Loans
Other non-current liabilities
Capital Employed
Net Fixed Assets
Goodwill
Capital WIP
Investments
Deferred tax assets (net)
Other non-current assets
Curr. Assets, Loans&Adv.
Program Films
Sundry Debtors
Cash & Bank Balances
Loans & Advances
Other Current assets
Current Liab. & Prov.
Sundry Creditors
Other Current Liabilities
Provisions
Net Current Assets
Appl.of Funds
2012
959
33,349
34,308
0
14
21
0
34,343
2,305
6,894
201
675
337
314
32,428
7,339
8,660
11,100
4,975
354
8,820
3,872
3,015
1,933
23,608
34,343
2013
954
38,161
39,115
0
33
28
174
39,350
2,779
7,127
69
651
288
329
39,500
8,745
9,890
13,100
7,430
335
11,404
5,172
3,445
2,787
28,096
39,350
2014
960
26,247
27,207
20,170
61
29
324
47,791
3,108
7,625
997
2,941
298
361
44,987
11,736
10,281
15,300
6,788
882
12,538
5,050
3,842
3,646
32,449
47,791
2015
960
34,449
35,410
20,170
4
22
288
55,894
3,490
7,887
878
1,464
531
378
55,431
11,878
10,692
20,480
11,053
1,328
14,256
4,204
4,980
5,072
41,153
55,894
2016
960
41,195
42,155
20,170
85
9
304
62,723
4,706
9,150
1,104
3,048
555.8
594.4
59,783
13,160
13,245
17,123
14,722
1,532
16,229
5,194
6,355
4,679
43,554
62,723
(INR Million)
2017E
960
49,314
50,274
20,170
85
19
304
70,852
5,811
9,150
1,104
3,048
555.8
594.4
90,003
14,019
13,977
45,289
15,049
1,670
16,213
5,228
6,306
4,679
73,790
70,852
2018E
960
63,501
64,461
16,136
85
19
304
81,005
6,885
9,150
1,104
3,048
555.8
594.4
99,610
14,395
15,765
50,594
16,973
1,883
16,742
5,468
6,595
4,679
82,868
81,005
23 November 2016
5

Zee Entertainment
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
EPS (excl '&TV' loss)
Book Value per Share
DPS
Payout (Incl. Div. Tax) %
Valuation
P/E
P/E (excl '&TV' loss)
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2012
6.1
6.4
6.1
35.4
1.5
24.4
2013
7.5
7.9
7.5
40.9
2.0
26.5
2014
9.3
9.8
9.3
28.5
2.0
21.5
2015
10.2
10.9
10.8
36.9
2.3
22.1
2016
10.6
11.8
11.8
44.0
2.3
21.3
2017E
14.7
15.8
15.5
52.4
2.3
15.3
2018E
19.3
20.6
19.1
67.2
2.5
12.9
74.6
71.4
40.4
9.8
9.3
0.5
60.7
57.7
30.9
8.0
8.1
0.6
45.0
42.4
35.1
9.0
12.4
0.5
43.3
38.7
29.6
7.6
10.4
0.5
31.1
29.6
21.3
6.1
8.7
0.5
23.7
24.0
15.9
5.3
6.8
0.5
18.0
18.2
24.7
104
162
78
0.9
19.6
19.7
26.1
98
169
69
1.0
26.9
20.7
28.8
85
181
66
1.0
31.2
19.0
26.8
80
201
53
0.9
27.0
17.7
24.6
83
176
45
1.0
30.6
21.6
41.1
75
176
45
1.0
32.3
24.8
68.2
75
176
45
1.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Cash Flow Statement
Y/E March
EBITDA
Other Inc/excep. items
Interest paid
Direct Taxes Paid
(Inc)/Dec in Wkg. Capital
Preference dividend paid
CF from Oper. Activity
(Inc)/Dec in FA + CWIP
(Pur)/Sale of Invest.
CF from Invest. Activity
Issue of Shares
Inc/(Dec) in Debt
Dividends Paid
Others
CF from Finan. Activity
Inc/(Dec) in Cash
Add: Beginning Balance
Closing Balance
2012
7,396
1,384
-50.0
-2,645
-4,622
1,463
-1,617
-52
-1,669
606
4
-1,683
-120
-1,193
-1,399
12,500
11,100
2013
9,545
1,461
-85.5
-3,288
-3,838
3,794
-974
24
-950
1,348
7
-2,232
33
-844
2,000
11,100
13,100
2014
12,042
1,807
-157.8
-4,301
-462
8,929
-2,256
-2,290
-4,546
-20,159
20,171
-2,244
49
-2,183
2,200
13,100
15,300
2015
12,547
2,278
-102.6
-4,517
-5,132
5,072
-1,198
1,477
279
2,472
-7
-2,601
-37
-173
5,179
15,300
20,480
2016
14,994
1,685
-123
-5,553
-7,300
3,703
-3,545
-1,584
-5,129
646
-13
-2,613
59
-1,920
-3,347
20,480
17,123
(INR Million)
2017E
19,472
2,159
-323
-6,051
-3,525
11,732
-2,143
0
-2,143
0
10
-2,613
-72
-2,675
6,914
17,123
45,289
2018E
25,538
3,835
-303
-9,169
-5,227
14,675
-2,361
0
-2,361
0
-4,034
-2,903
-72
-7,009
5,305
45,289
50,594
23 November 2016
6

Zee Entertainment
Corporate profile
Company description
ZEEL is the leading player in television broadcasting
and syndication of content overseas with a bouquet
of 40 TV channels. Zee has well-established reach of
over 730m+ viewers across 169 countries. ZEEL has
channels encompassing all major genres like Hindi
GEC, Hindi Movies, Regional GECs and Sports.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Sep-16
Promoter
DII
FII
Others
43.1
3.6
48.0
5.3
Jun-16
43.1
3.8
48.1
5.0
Sep-15
43.1
3.5
48.4
5.0
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Oppenheimer Devloping Markets Fund
Government of Singapore
Vanguard International Growth Fund
Oppenheimer Global Fund
NA
% Holding
7.0
1.6
1.3
1.1
0.0
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Subhash Chandra
Punit Goenka
M Lakshminarayanan
Designation
Chairman
Managing Director & CEO
Executive VP & CS
Exhibit 5: Directors
Name
Ashok Kurien
Neharika Vohra
Subodh Kumar
Name
Manish Chokhani
Sunil Sharma
Adesh Kumar Gupta
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
MGB & Co LLP
Type
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
14.7
19.3
Consensus
forecast
13.5
17.3
Variation (%)
9.1
11.5
Source: Bloomberg
Source: Capitaline
23 November 2016
7

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