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23 Dec

Focus and future is on digital platform: Zee Entertainment and Sony Group

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,072 (+0.7%), 117 points higher. Among the sectoral indices, REALTY (+2.3%), PSU BANK (+1.6%), and FMCG (+1.3%) led the gainers. MEDIA (-1.1%) and METAL (-0.2%) were among the losers. Among the NIFTY50 components, POWERGRID (+3.7%), IOC (+3.0%), and ONGC (+2.7%) were the top gainers while DIVISLAB (-1.8%), JSWSTEEL (-1.7%), and BHARTIARTL (-0.8%) led the laggards.

Excerpts of an interview with Mr. Puneet Goenka, CEO and MD, Zee Entertainment (ZEEL), Mr. Ravi Ahuja, Chairman of Global television and corporate development, Sony Pictures Entertainment and Mr. N P Singh, MD and CEO of Sony Pictures Networks India with Business Standard on 22nd December 2021:

  • The deal ensued when Sony saw an opportunity in the high growth Indian media Industry when they bought Ten sports from Zee Entertainment in FY18.
  • Zee Entertainment and Sony both have a foothold in the digital OTT market with Zee5 and Sonyliv, respectively. As the firm has not received any regulatory clearances from the Competition Commission of India, the management does not have any precise operational plans, yet.
  • Invesco had reservations as the existing ZEEL promoters were given an option to increase stake in the merged company to 20%. Management has clarified the promoters will have to buy from the open market and there will not be any preferential allotment. As the matter between ZEEL and Invesco is still sub-judice the management has not shared further details.
  • Management is considering market share, growth possibilities, and profitability to provide strong value to shareholders and customers. The management anticipates the merged business to be in a position of leadership and powerful enough to compete with global competitors by FY25E.
  • The merged entity will be an Indian asset on the portfolio of Sony Pictures Entertainment, and given the size of the Indian market, the entity will be a significant revenue contributor to the multinational media company.
  • Even though digital and OTT platforms are experiencing increase in viewership and broadcasting is under immense pressure, the management believes that it still has a role to play in the dynamic entertainment business. The digital business needs scale. The merged company will have a capital of $ 15.7 mn. This arrangement gives the company advantages which the individual companies would not have.
  • Linear TV will continue for the foreseeable future. The future focus is on the digital as both old and new subscriber base is increasing. The company would invest in content, technology and distribution in this direction.

Asset Multiplier Comments

  • The merger plan would need shareholder approval as well as clearance from regulatory bodies such as SEBI and the Competition Commission of India (CCI). The merger approval is awaited, as is information on the status of the EGM sought by Invesco. If the approvals are not received, the merger will be scrapped.
  • The merger is projected to be beneficial in terms of market consolidation and revenue synergy. As the market leader, the merged company would have pricing power in terms of earning ad revenues. The resolution of channel overlap and OTT platforms would be key areas to monitor.

Consensus Estimate: (Source: market screener website)

  • The closing price of Zee Entertainment was ₹ 338/- as of 23-December-2021. It traded at 25x/21x/17x the EPS estimates of ₹ 13.5/16.5/19.1/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 366/- implies a P/E Multiple of 21 on FY23 EPS estimate of ₹ 17.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

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24 Jan

Zee Entertainment: Margins will improve once ad revenues bounce back.

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the green with 0.6% gains.  The gains were led by YESBANK (+6.6%), IOC (+5.9%), GAIL (+2.8%). The stocks that were beaten down in today’s session included ZEEL (-7.2%), UPL (-3.9%) and CIPLA (-1.4%). Most of the sectoral indices ended positive lead by REALTY (+2.1%), PSU BANK (+1.2%) and BANK (+1.0%). MEDIA (-2.1%) was the only sector that ended in the red.

Excerpts from an interview with Mr Rohit Gupta, CFO, ZEEL that aired on CNBC-TV18 on 22nd January 2020:

  • ZEEL reported 3QFY20 numbers. The growth in subscription revenue continued to be strong at 21.7% for 3QFY20 and 31.0% for 9MFY20. The economic slowdown and weakness in consumer sectors led to a decline in advertisement revenue.
  • In the last 5 years, ZEEL’s advertising revenue has grown at a CAGR of 16% while the topline growth has shown a CAGR of 12%. EBITDA also doubled in the same period.
  • Current year’s advertising revenue is impacted by 2-3 factors.  Two of ZEEL’s Free-to-air channels have become paid channels and removal of free dish had an impact of 500 bps. Also, in 3QFY19, the revenue growth was 20% on back of 30% growth in 3QFY18. On such high base, the decline this time is high at -15%. Advertising revenue should come back in the next 2-3 quarters.
  • After TRAI’s new tariff order last year (NTO 1.0), ZEEL has grown stronger. The reasons being very strong customer connect and brand pull of channel. The implementation of the NTO 1.0 has not completed a year yet and industry is still in a stabilizing phase for the entire subscription revenues. However, NTO 1.0 has been good both for consumers and industry.
  • ZEEL has been working on improving their balance sheet. The cash and equivalents have improved from 1,479 cr to 1,767 cr in 3QFY20. Management is working on improving FCF and PAT to cash conversion ratio. They expect to improve both in excess of 50% in the coming year.
  • ZEEL’s margins have been in excess of 30% for many quarters. However, 3QFY20 margins were lower than 27%.  The management says margins will improve as the advertising revenue bounces back.

Consensus Estimate: (Source: market screener website)

  • The closing price of ZEEL was ₹ 279/- as on 22nd January 2020. It traded at 15.9x/ 13.5x/ 12.6x the consensus earnings estimate of ₹ 17.6/ 20.7/ 22.2 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 334/- which implies a PE multiple of 15.0x on FY22E EPS of ₹ 22.2/-

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