Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited Zee Entertainment Enterprises’ (ZEE) flagship channel Zee TV’s ratings are likely to rise from the doldrums with Sony’s mega show Kaun Banega Crorepati (KBC) going off air this week. Also, on the anvil are two more shows (including Dance India Dance) in H2FY12 and increase in the number of original programming hours from 28 to ~32 by FY12 end. The company has already soft launched four HD channels, a positive from the ARPU perspective. Overall, we remain positive on ZEE’s subscription revenue from a long‐term perspective. Maintain ‘BUY’. KBC ending a positive; ratings likely to rise from hereon After garnering 228 GRPs and becoming a close No. 3 player in June 2011, viewership of ZEE’s flagship channel Zee TV has nosedived, languishing at a poor No.4 spot. This has been primarily due to tremendous success of Sony’s KBC, which has consistently garnered GRPs of ~40‐45. However, with the current week (Week 47) being KBC’s last on air, ZEE’s ratings are likely to have bottomed out in our view. Two more shows on cards; sports losses to be sharply lower ZEE has already launched two new shows Star Ya Rockstar and Hitler Didi and will launch Afsar Bitiya and Dance India Dance (DID) in H2FY12. DID will be critical for Zee TV as it had garnered excellent GRPs (~25‐30) in the past. In our view, ZEE will have to change its cost‐focused strategy and maintain a healthy balance of movies and fiction shows. Sports EBITDA loss in H2FY12 is likely to be ~INR220mn versus a loss of INR792mn in H1FY12, which will cushion margin pressure. Outlook and valuations: Improving; maintain ‘BUY’ We remain positive on ZEE from a long term perspective as we expect subscription revenue to get a boost from the digitization mandate and the distribution JV with Star. At CMP of INR114, the stock is trading at P/E of 17.8x and 14.9x on FY12E and FY13E, respectively. We maintain ‘BUY’ recommendation and ‘Sector Outperformer’ rating. COMPANY UPDATE ZEE ENTERTAINMENT Likely to recapture eyeballs EDELWEISS 4D RATINGS Absolute Rating BUY Rating Relative to Sector Outperformer Risk Rating Relative to Sector Medium Sector Relative to Market Overweight MARKET DATA (R: ZEE.BO, B: Z IN) CMP : INR 114 Target Price : INR 150 52‐week range (INR) : 153 / 106 Share in issue (mn) : 978.1 M cap (INR bn/USD mn) : 111 / 2,191 Avg. Daily Vol.BSE/NSE(‘000) : 2,166.0 SHARE HOLDING PATTERN (%) * Promoters pledged shares (% of share in issue) : 10.3 PRICE PERFORMANCE (%) Stock Nifty EW Media Index 1 month 9.7 10.7 5.3 3 months (1.2) (0.9) (21.0) 12 months (14.3) (15.9) (35.7) Abneesh Roy +91 22 6620 3141 [email protected]India Equity Research| Media November 16, 2011 Financials (INR mn) Year to March FY10 FY11 FY12E FY13E Net revenue 21,998 30,136 31,628 35,929 Rev. growth (%) 1.0 37.0 5.0 13.6 EBITDA 6,135 8,266 8,144 9,773 Net profit 5,881 5,913 6,197 7,391 Shares outstanding (mn) 978 978 966 966 Diluted EPS (INR) 6.2 6.2 6.4 7.6 EPS growth (%) 46.7 (0.5) 3.7 19.3 Diluted PE (x) 18.3 18.4 17.8 14.9 EV/EBITDA (x) 16.8 12.1 11.6 9.3 ROACE (%) 15.5 26.7 30.8 32.0 Promoters* 43.3% MFs, FIs & Banks 13.2% FIIs 35.0% Others 8.5%
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Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Zee Entertainment Enterprises’ (ZEE) flagship channel Zee TV’s ratings are likely to rise from the doldrums with Sony’s mega show Kaun Banega Crorepati (KBC) going off air this week. Also, on the anvil are two more shows (including Dance India Dance) in H2FY12 and increase in the number of original programming hours from 28 to ~32 by FY12 end. The company has already soft launched four HD channels, a positive from the ARPU perspective. Overall, we remain positive on ZEE’s subscription revenue from a long‐term perspective. Maintain ‘BUY’. KBC ending a positive; ratings likely to rise from hereon After garnering 228 GRPs and becoming a close No. 3 player in June 2011, viewership of ZEE’s flagship channel Zee TV has nosedived, languishing at a poor No.4 spot. This has been primarily due to tremendous success of Sony’s KBC, which has consistently garnered GRPs of ~40‐45. However, with the current week (Week 47) being KBC’s last on air, ZEE’s ratings are likely to have bottomed out in our view.
Two more shows on cards; sports losses to be sharply lower ZEE has already launched two new shows Star Ya Rockstar and Hitler Didi and will launch Afsar Bitiya and Dance India Dance (DID) in H2FY12. DID will be critical for Zee TV as it had garnered excellent GRPs (~25‐30) in the past. In our view, ZEE will have to change its cost‐focused strategy and maintain a healthy balance of movies and fiction shows. Sports EBITDA loss in H2FY12 is likely to be ~INR220mn versus a loss of INR792mn in H1FY12, which will cushion margin pressure.
Outlook and valuations: Improving; maintain ‘BUY’ We remain positive on ZEE from a long term perspective as we expect subscription revenue to get a boost from the digitization mandate and the distribution JV with Star. At CMP of INR114, the stock is trading at P/E of 17.8x and 14.9x on FY12E and FY13E, respectively. We maintain ‘BUY’ recommendation and ‘Sector Outperformer’ rating.
Curtains down on KBC may trigger uptick in Zee TV GRPs After garnering healthy 228 GRPs and closing the gap with Colors to just two points towards the end of June 2011, Zee TV’s GRPs have nosedived. From being a consistent player amongst the top 3 in the GEC genre, the channel has been pushed to the fourth spot in terms of TV ratings. The launch of Sony’s KBC on August 15, 2011, added salt to Zee TV’s injury and its ratings failed to recover. Having consistently garnered an average TRP of 4 and being amongst the top 3 shows in the GEC genre, KBC has had a successul run this year. Fig. 1: KBC has enjoyed enormous success yet again
Source: Edelweiss research
However, with the ongoing week (Week 47) being the show’s last on air, ZEE can expect some recovery in Zee TV’s ratings from the following week. To give some hope of a revival, Zee TV’s ratings have improves slightly in the past two weeks, which includes a 32 point surge in the last week (Week 46). Chart 1: Zee TV’s GRPs have nosedived since launch of KBC
Source: Company, Edelweiss research
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Before the launch of KBC, Sony was a no. 4 player in the GEC space. However, with a slew of hit serials apart from KBC like CID, Crime Patrol and Bade Acche Lagte Hai, Sony has jumped to the no.2 slot, overtaking Colors and Zee TV. Post KBC, Sony is launching two new fiction shows – Parvarish and Dekha Ek Khwab to replace KBC’s time slot. Even though these two serials are unlikely to replicate the immense success of KBC, we need to keep a close tab on their performance.
Fig. 2: Parvarish Fig. 3: Dekha Ek Khwab
Source:Edelweiss research Chart 2: The race between Colors, Sony and Zee has spiced up in H2CY11
Source: Company, Edelweiss research
Focus on extending original programming hours ZEE has already launched two new shows Star Ya Rockstar and Hitler Didi on Zee TV. The company has still not frozen the launch dates of its upcoming show Afsar Bitiya. Dance India Dance will be launched either near Q3FY12 end or the beginning of Q4FY12. Currently, Zee TV showcases 28 hours of original programming and is trying to increase it to ~32‐33 hours/week by FY12 end. However, ZEE will invest in high cost reality shows only after careful evaluation. Management admitted in the Q2FY12 conference call that the company will continue to invest agressively in movies. Recently, media articles suggested that the
company had bought the movie rights of the Hrithik Roshan starrer under production Agneepath for a whopping ~INR410mn.
Fig. 4: Star Ya Rockstar Fig. 5: Hitler Didi
Source:Edelweiss research
Fig. 6: Dance India Dance Fig. 7: Afsar Bitiya
Source:Edelweiss research
HD channels to be officially launched soon Currently, ZEE is producing its entire content in HD. It has already announced the launch of four of its mainstream channels in HD viz., Zee TV, Zee Cinema, Ten Sports and Zee Studio. Currently, ZEE is in talks with cable operators and DTH companies for launch of the HD channels. In the past few months, STAR and Colors have launched channels in HD. Sony has also announced that it will be launching its HD channel soon. With rates of HD compatible television sets dipping considerably, we expect HD penetration to surge further. DTH companies like Dish TV are planning to raise funds to gear up for the compulsory digitization mandate and the increasing HD penetration. Thus, there lies a good opportunity to inrease subscription revenues through higher HD channels.
Sports business losses likely to be sharply lower in H2FY12 Although H1FY12 loss from sports stands at INR792mn (loss of INR226mn in Q2FY12 and INR566mn in Q1FY12), ZEE remains confident of meeting its FY12 guidance (loss of
Zee Entertainment Enterprise
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INR1,000mn) . We consider this to be a daunting task and expect a loss of ~INR1.1bn for FY12, especially in the context of a slowdown in ad spends. Chart 3: Ex‐sports EBITDA (approx)
Rejig in Zee’s management After joining ZEE in March 2005, Joy Chakraborty, Executive Director, Revenue and Niche channels, ZEE resigned from the company in October 2011. Meanwhile, ZEE has announced that Rajesh Jejurikar, CEO of Mahindra & Mahindra’s Automotive division, will be joining the company as President. Zee can benefit from Mr. Jejurikar’s immense experience in marketing and brand building.
Outlook and valuations: Improving; maintain ‘BUY’ We remain positive on ZEE from a long term perspective as we expect subscription revenue to get a boost from the digitization mandate and the distribution JV with Star. In the past few months, the stock has de‐rated because of sharp fall in Zee TV’s viewership and slowdown in ad revenue. At CMP of INR114, the stock is trading at P/E of 17.8x and 14.9x on FY12E and FY13E, respectively. We maintain ‘BUY’ recommendation and ‘Sector Outperformer’ rating on the stock.
Chart 5: Zee’s PE band chart – Valuations near lower end
Source: Edelweiss research
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Company Description ZEE is one of the largest media companies in India. It owns and operates Zee TV and Zee Cinema, both leading channels in the Hindi GEC and movies segment respectively. Besides these two, the company has an attractive bouquet of several other channels including Ten Sports, Ten Cricket, Ten Action +, Zing, Zee Jagran, Zee Premier, Zee Classic, Zee Action, Zee Cafe, Zee Studios, and Zee Trendz.
Investment Theme With the nominal GDP growth expected to improve, the outlook on ad spends is expected to improve in H2FY12. Also, higher penetration of DTH and sunset clause augur well for faster growth in subscription revenues. With the ordinance of digitization and the Star‐Zee deal, subscription revenues could see a positive surprise. We believe ZEE is poised to benefit from this favorable environment over the longer term.
Key Risks • Increase in competition from Colors & Sony
• Sports losses could be volatile
• Slowdown in ad spends
• Subscription revenue deal may take time to materialize
Coverage group(s) of stocks by primary analyst(s): Media Dish TV India, Jagran Prakashan, PVR, Sun TV Network, TV18 Broadcast, Zee Entertainment Enterprise
Distribution of Ratings / Market Cap
Edelweiss Research Coverage Universe
Rating Distribution* 119 47 15 184* 3 stocks under review
Market Cap (INR) 111 57 16
Date Company Title Price (INR) Recos
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Rating Expected to
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