ZEE ENTERTAINMENT ENTERPRISE LTD: Accumulate at every levels !!!

Scrip Code: 505537 / ZEEL

CMP:  Rs. 235.55; Buy at Rs. 230-Rs. 235 levels.

Medium to Long Term Target: Rs. 258; STOP LOSS – Rs. 216.70; Market Cap: Rs. 22,470.47 Cr; 52 Week High/Low: Rs. 255.20 / Rs. 131.45.

Total Shares: 95,39,57,720 shares; Promoters : 41,36,70,212 shares –43.36 %; Total Public holding : 54,02,87,508 shares – 56.64 %; Book Value: Rs. 31.23; Face Value: Rs. 1.00; EPS: Rs. 6.68; Dividend: 150.00 %; P/E: 35.26 times; Ind. P/E: 30.26; EV/EBITDA: 20.13.

Total Debt: 1.00 Cr; Enterprise Value: Rs. 22,144.17 Cr.

ZEE ENTERTAINMENT ENTERPRISES LTD: Zee Entertainment Ltd was founded in the year 1982, based in Mumbai. Company was originally incorporated as Empire Holdings Ltd on November 25, 1982, it later on September 8,1992 changed its name to Zee Telefilms Limited. In January 10,2007, post de-merger of News and Cable Business Undertaking, the company changed its name to Zee Entertainment Enterprises Limited. The company came with an IPO in August 1993 with 89,28,000 shares of Rs. 10 each at Rs. 30 per share these were listed on BSE on November 25, 1993. In 1999, company announced a stock split of 1:10 and the face value was reduced to Rs. 1 per share. ZEEL, together with its subsidiaries, operates as a vertically integrated media and entertainment company in India. Zee entertainment enterprise operates in three segments: Broadcasting and Content, Education and Film Production. The Broadcasting and Content segment develops, produces, and procures television programming and film content and delivers those through satellites, cable, and Internet. It broadcasts channels, such as Hindi general entertainment channels and regional language general entertainment channels, Bollywood channels, sports channels, English entertainment channels, alternate lifestyle channels. The company broadcasts Hindi entertainment channels - Zee TV, Zee Smile, and 9X; Hindi movies channels - Zee Cinema, Zee Premier, Zee Action, and Zee Classic; English entertainment, movies, and life style channels - Zee Studio, Zee Café, and Zee Trendz; and Sports channels - TEN Cricket, TEN Action, TEN Sports, and TEN Golf. It also broadcasts Regional language entertainment channels, including Zee Marathi, Zee Bangla, Zee Talkies, Zee Telegu, Zee Kannada, ETC Punjabi, and Zee Tamil; religious and alternate lifestyle channels comprising Zee Jagran and Zee Salaam; music channels, such as Zing and ETC Music; niche and special interest channels comprising Zee Khana Khazana; and HD channels, including Zee TV HD, Zee Cinema HD, Zee Studio HD, and TEN HD. Company earns revenues by the way of advertisement and subscription revenues and syndication. The Education segment engages in distribution of software learning products; and provides education and training in information technology. The Film Production segment produces and distributes films. The company has a library housing approximately 1,00,000 hours from 80,000 hours of television content; and rights to approximately 3,000 movie titles. Effective March 29, 2010, Zee News Ltd. demerged its Regional General Entertainment channel business undertaking and transferred its operation to Zee Entertainment Enterprises Limited. It has operations in India, the United States, Canada, Europe, Africa, the Middle East, Southeast Asia, Australia, and New Zealand. ZEEL can be locally be compared with Sun TV Network Ltd, Network 18 Media & Investment Ltd and TV18 Broadcasts Limited and Globally with Walt Disney company of USA, News Corp of USA, Time Warner of USA , CBS of USA, VIACOM of USA, NBC Universal of USA.

Investment Rationale:

Zee Entertainment Enterprise Ltd the country's largest content provider has unveiled its new corporate brand identity that positions the company as one of the world for the world. The new brand logo this time includes the famous Indian maxim "Vasudhaiva Kutumbakam" or "The World is my Family" or shared humanity reflecting the corporate increasing global footprint over the last 20 years. ZEE globally comprises of 67 Cr people including viewers, shareholders, partners and other stakeholders and growing stronger. This new identity now encompasses the ZEE group's news and digital business verticlas, bringing them under one umbrella brand called "ZEE Media". ZEE has a presence in content distribution through both analog and digital platforms through Media Pro Enterprise India, which is a joint venture between Zee Turner and Star Den Media Services. The bargaining power of Media Pro enables Zee along with Star and Turner channels to command a higher share of the ARPU than their combined market share. The board of directors of ZEEL, as a Special Reward to its shareholders, on completion of 20 years of broadcasting business of the Company have announced and approved distribution of about Rs. 2,015 Crs, by way of Bonus issue of 6% Redeemable Preference Shares of Face value of Re. 1 each. The bonus issue is in ratio of 1:21 i.e. 21 redeemable preference shares with tenure of eight years of Re. 1 each for every 1 Equity share of Re. 1 held in a company. Board also recommended a dividend of Rs. 2 (200% of face value). The bonus issue will amount to outgo of Rs. 2,015 crore, with one-fifth of the amount i.e. around Rs. 400 Cr redeemable from fourth year onwards in five equal instalments till eight year. On the performance side the average weekly GRPs of ZEEL increased from 196 to 220 with a relative market share of 19% among the top 6 GECs, this was reflected in the ad growth of 15.5% YoY at Rs. 479.2 Cr in quarter gone by. The improving ad scenario is expected to provide impetus to ad growth subsequently. It is expected that company can have ad growth of 8.90% and 10.2% in FY14 & FY15 respectively. Also, the subscription revenue growth has been seen largely due to DTH penetration. Revenue from digital cable would further drive growth subsequently. Zee Entertainment’s Q4FY13 numbers were better on all the fronts. The top-line came in at Rs. 964.3 Cr showing growth of 11.0% YoY. Both ad revenues and subscription revenues posted growth of 15.5% YoY and 13.0% QoQ. The robust revenue growth led to a better-than-expected EBITDA margin of 25.1% expanding 6.71% YoY in spite of higher sport losses in this quarter. Consequently, PAT came in at Rs. 179.6 Cr posting growth of 12.1% YoY. Incremental subscription revenue from digital cable is yet to flow into the financials of Zee.

Outlook and Valuation:

ZEEL has recently launched Bengali movies channel Zee Bangla Cinema, Arabic GEC Zee Alwan and Kids edutainment channel ZeeQ. ZEEL’s subscription revenue continued its trend of posting strong growth due to increased penetration of digital systems, especially DTH, and better bargaining power because of Media Pro. The subscription revenue grew 13% QoQ to Rs. 454.6 crore. The growth was brought about by a domestic subscription revenue growth of 13.5% QoQ. The international subscription revenue grew by 3.2% QoQ to Rs. 117.2 crore. The under declaration by Local Cable Operators has badly affected the ARPU from analog cable, which currently stands around Rs. 4.00 per subscriber as compared to Rs. 17.00 per DTH subscriber. With impending digitisation, cable and DTH ARPU are expected to be on converging. This would lead to incremental subscription revenue of around Rs. 620.1 crore from FY12-15. The overall subscription revenue is expected to grow at a CAGR of 24.7% in FY12-15 to reach Rs. 2,531.0 crore for FY15. At the current market price of Rs. 235.55, the stock is trading at 28.04 x FY14E EPS of Rs 8.40/share and at 21.03 x FY15E EPS of Rs 11.12/share. Based on last quarterly performance and issuance of redeemable preference shares as bonus shows the management’s confidence in future cash flows of the company, but one should expect to take a hit in dividend pay-out, with Sports business continues to generate operating loss along with the TRAI's QoS regulations which is the cap on advertising time on a clock hour basis can impact ad volumes, hence ignoring little much of risk, the stock could be a buy at current levels with a medium to long term target of Rs. 258.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	3,041.00	3,699.60	4,276.40	5,029.60
NET PROFIT (₹ Cr)	589.10	719.60	803.50	1,070.60
EPS (₹)	6.10	7.50	8.40	11.20
PE (x)	38.30	31.20	28.10	21.10
P/BV (x)	6.60	5.70	5.00	4.10
EV/EBITDA (x)	30.10	23.10	20.20	14.20
ROE (%)	17.10	18.40	17.70	19.60
ROCE (%)	20.50	23.30	23.20	26.70

I would buy ZEE ENTERTAINMENT ENTERPRISE LTD with a price target of ₹ 258.00 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 216.70 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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