1

Stock Data

Sector Media &

Entertainment

Face Value Rs. 1.00

52 wk. High/Low (Rs.) 163.00/122.00

Volume (2 wk. Avg.) 148000

BSE Code 505537

Market Cap (Rs.In mn) 137262.3

Financials (Rs.in.mn) FY10 FY11E FY12E

Net Sales 21997.8 28597.1 32886.7

EBIDTA 7354.8 8958.8 10207.5

PAT 6165.6 6694.7 7408.6

EPS 14.21 6.85 7.58

P/E 9.88 20.50 18.53

Zee Entertainment Enterprises Ltd BUY

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SYNOPSIS

• Zee Entertainment Enterprises Limited (Zee)

is one of India’s leading television media and

entertainment companies. It is amongst the

largest producers and aggregators of Hindi

programming in the world and it has over

500 million viewers across 167 countries.

• During the year ended, the robust growth of

revenue is increased by 31.66% Rs.7115.70

million.

• ZEEL has issuance of Bonus Equity Share

in the ratio of 1 (one) Equity share of Re. 1

each for 1 (one) Equity Share of Re. 1 each

held.

• ZEEL would also take over liability of Rs

600 million.

• Net Sales and PAT of the company are

expected to grow at a CAGR of 15% and

12% over 2009 to 2012E respectively.

1 Year Comparative Graph

Zee Entertainment BSE SENSEX

V.S.R. Sastry

Equity Research Desk

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

C.M.P: Target Price: Rs.140.35 Rs.180.00

Share Holding Pattern

Nov 27th, 2010

2

Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Zee Entertainment 140.35 137262.3 5.94 23.63 4.86 400.00

Sun Networks 489.55 192924.1 16.63 29.44 9.57 150.00

Tv Today 67.05 3875.5 - - 1.28 15.00

UTV software 527.00 21413.2 131.85 4.00 2.15 0.00

Investment Highlights

� Q2 FY11 Results Update

Zee Entertainment Enterprises reported a phenomenal rise in consolidated net

profit for the quarter ended September 2010. During the quarter, the profit of the

company rose 13.84% to Rs 1263.00 million from Rs 1109.50 million in the same

quarter last year. Net sales for the quarter for the quarter jumped 31.66% to Rs

7115.70 million, while total income for the quarter jumped 29.13% to Rs 7355.40

million, when compared with the prior year period. It reported earnings of Rs 2.58

a share during the quarter, registering 1.03% growth over previous year period.

Quarterly Results - Consolidated (Rs in mn)

As At Sep-10 Sep-09 %change

Net sales 7115.70 5404.80 31.66

PAT 1263.00 1109.50 13.84

Basic EPS 2.58 2.56 1.03

3

� Break up of Expenditure

� Segment wise revenue

Revenue Streams 2Q FY 2011 2Q FY 2010

Advertising 4121.5 2476.1

Subscription 2736.8 2434.7 Other sale & services 257.4 494

Total Revenue 7115.7 5404.8

4

ZEEL’s advertising revenue was Rs 4,122 million, an increase of 66% as compared

to the corresponding quarter last fiscal. Advertising revenues continued to show a

robust increase attributable to higher channel shares across the network, a

buoyant macro environment and a continued preference of advertisers towards

television.

The total subscription revenue for the quarter was Rs 2,737 million, registering an

increase of 12.4% over the corresponding quarter last fiscal.

Other sales and services, comprising syndication sales, play out and production

services, events and commission on advertisement and subscription sales, stood at

Rs 258 million.

� Issue of bonus shares

Zee Entertainment Enterprises Ltd has been fixed as the Record Date for the

purpose of determination of members of the Company, who would be eligible for

issuance of Bonus Equity Share in the ratio of 1 (one) Equity share of Re. 1 each

for 1 (one) Equity Share of Re. 1 each held in the Company. With the issue of

bonus shares the equity capital has increased from Rs.489 million to Rs.978

million.

� Demerge of education business

The education business has been demerged from the Company from the Appointed

Date April 1, 2010, pursuant to the Scheme of Amalgamation and Arrangement

which became effective from August 30, 2010. Accordingly, an amount of Rs 109

million, which was revenue from the education business during the first quarter,

has been reversed during this quarter.

5

� Acquired ETC Network Ltd shares

Zee Entertainment Enterprises Ltd has fixed September 17, 2010 as the Record

Date for determining members of ETC Networks Ltd (Transferor Company) who

would become eligible for issuance of equity shares by the Company upon Merger

in the ratio of 10 fully paid equity shares of Re. 1 each of the Company for every 11

equity shares of Rs. 10 each held in ETC Networks Ltd (Transferor Company).

� Approved scheme of arrangement

Zee Entertainment Enterprises' composite scheme of Amalgamation and

Arrangement between Zee Entertainment Enterprises, ETC Networks and Zee

Learn and their respective shareholders, has become effective on August 30,

2010, upon order of Bombay High Court with the Registrar of Companies,

Maharashtra, Mumbai.

The scheme of for the amalgamation includes merger of ETC Networks with Zee

Entertainment Enterprises, with effect from March 31, 2010, which was its

merger appointed date and upon such merger, scheme of arrangement includes

de-merger of Education Business Undertaking from Zee Entertainment

Enterprises into Zee Learn with effect from April 01, 2010.

6

Company Profile

Zee Entertainment Enterprises was previously known as Zee Telefilms Limited which

was founded in October 1992 as a content supplier for Zee TV - India's first Hindi

satellite channel. It was promoted by Subhash Chandra, one of India's leading

entrepreneurs, who sought to establish Zee as an 'infotainment' company focused on

the convergence of media and communications.

Zee Entertainment Enterprises Limited, together with its subsidiaries, operates as a

media and entertainment company. It’s Content and broadcasting segment comprises

various general entertainment, sports, movies, music and English channels, and

software production-related activities, including ideation, development, creation of

television programs, and acquisition of film rights for cable and satellite television. In

addition, it broadcasts 15 channels worldwide, such as Zee TV, Zee Cinema, Zee smile,

Zee Music, Zee Cafe, Zee Studio, Zee Trendz, ETC Music, ETC Punjabi, Zee Premier,

Zee Action, Zee Classic, Zee Jagran, Zee Sports, and Ten Sports. The company’s Film

Production and Distribution segment consists of the production, acquisition, and

distribution of feature films, animation films, and programs.

ZEE Alliances/Partnerships:

� ZEE Tuner

� ETC Networks

� Ten sports

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Financials Results

12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) FY09 FY10 FY11E FY12E

Description 12m 12m 12m 12m

Net Sales 21773.10 21997.80 28597.14 32886.71

Other Income 1572.20 1220.10 951.68 999.26

Total Income 23345.30 23217.90 29548.82 33885.97

Expenditure -16292.70 -15863.10 -20589.94 -23678.43

Operating Profit 7052.60 7354.80 8958.88 10207.54

Interest -1339.10 -331.40 -66.28 -59.65

Gross profit 5713.50 7023.40 8892.60 10147.89

Deprecation -310.30 -285.40 -256.86 -269.70

Exceptional Items 25.80 0.00 290.60 0.00

Profit Before Tax 5429.00 6738.00 8926.34 9878.19

Tax -207.90 -572.40 -2231.58 -2469.55

Profit After Tax 5221.10 6165.60 6694.75 7408.64

Equity capital 434.00 434.00 978.00 978.00

Reserves 33560.99 39726.59 46421.34 53829.98

Face value (Rs.) 1.00 1.00 1.00 1.00

EPS 12.03 14.21 6.85 7.58

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) 31-Mar-10 30-Jun-10 30-Sep-10 31-Dec-10E

Description 3m 3m 3m 3m

Net sales 6492.90 6769.90 7115.70 7258.01

Other income 290.80 125.90 239.70 242.10

Total Income 6783.70 6895.80 7355.40 7500.11

Expenditure -4656.50 -4899.60 -5230.40 -5153.19

Operating profit 2127.20 1996.20 2125.00 2346.92

Interest -110.30 -50.70 -4.70 -4.79

Gross profit 2016.90 1945.50 2120.30 2342.13

Deprecation -56.00 -61.90 -56.30 -55.17

Exceptional Items 0.00 290.60 0.00 0.00

Profit Before Tax 1960.90 2174.20 2064.00 2286.95

Tax -672.90 -673.20 -801.00 -571.74

Profit After Tax 1288.00 1501.00 1263.00 1715.21

Equity capital 434.00 484.50 489.00 978.00

Face value (Rs.) 1.00 1.00 1.00 1.00

EPS 2.97 3.10 2.58 1.75

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Key Ratios

Particulars FY09 FY10 FY11E FY12E

No. of Shares(In Million) 434 434 978 978

EBITDA Margin (%) 32.39% 33.43% 31.33% 31.04%

PBT Margin (%) 24.93% 30.63% 31.21% 30.04%

PAT Margin (%) 23.98% 28.03% 23.41% 22.53%

P/E Ratio (x) 11.67 9.88 20.5 18.53

ROE (%) 15.36% 15.35% 14.12% 13.52%

ROCE (%) 18.52% 18.47% 18.94% 18.67%

Debt Equity Ratio 0.17 0.03 0.03 0.02

EV/EBITDA (x) 8.64 8.28 15.32 13.45

Book Value (Rs.) 78.33 92.54 48.47 56.04

P/BV 1.79 1.52 2.90 2.50

10

Charts:

11

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Outlook and Conclusion

At the current market price of Rs.140.35, the stock is trading at 20.50 x FY11E

and 18.53 x FY12E respectively.

Price to Book Value of the stock is expected to be at 2.90 x and 2.50 x

respectively for FY11E and FY12E.

Earning per share (EPS) of the company for the earnings for FY11E and FY12E

is seen at Rs.6.85 and Rs.7.58 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 15% and

12% over 2009 to 2012E respectively.

On the basis of EV/EBITDA, the stock trades at 15.32 x for FY11E and 13.45 x

for FY12E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.180.00 for Medium to Long term investment.

Industry Overview

Media, the fourth estate, when entwined with the entertainment component represents

an effective facet of consumers in India. Technology has played a key role in

influencing the entertainment industry, by redefining its products, cost structure and

distribution.

The Indian Media and Entertainment (M&E) industry stood at US$ 12.9 billion in

2009 registering a 1.4 per cent growth over last year, according to a joint report by

KPMG and an industry chamber. Over the next five years, the industry is projected to

grow at a compound annual growth rate (CAGR) of 13 per cent to reach the size of US$

24.04 billion by 2014, the report stated. Additionally, the gaming segment is expected

to be the fastest growing sector in the M&E industry. The sector showed a 22 per cent

growth in 2009 and is expected to grow at a CAGR of 32 per cent to reach US$ 705.2

13

million by 2014, while the animation segment is expected to record a CAGR of 18.7

per cent in the next five years as per the joint report.

Television

According to the figures released by an industry chamber in March 2010, the

Broadcast and Television (TV) sector comprised over 43 per cent of the overall M&E

sector wherein the total size of the television sector accounted for US$ 5.7 billion. The

broadcast sector is on a strong growth path and the outlook for advertisement

expenditure is on a rise for the television sector.

A report by research firm Media Partners Asia (MPA) stated that India is poised to

become the world's largest direct-to-home (DTH) satellite pay TV market with 36.1

million subscribers by 2012, overtaking the US. Furthermore, in its report titled 'Asia

Pacific Pay-TV and Broadband Markets 2010', MPA said India's DTH subscriber base

will increase from 17 million in 2009 to 45 million by 2014 and 58 million by 2020.

Anil Dhirubhai Ambani Group's company, Reliance MediaWorks (RMW) has signed a

memorandum of understanding (MoU) with IMAGICA Corp of Japan for film

processing services. Under this alliance, RMW, on behalf of IMAGICA, would provide

film restoration, image processing and enhancement and high definition (HD)

conversion services to the Japanese clients. IMAGICA Corp would work with RMW's

Los Angeles-based subsidiary Lowry Digital, which has handled projects for leading

studios like Walt Disney, Paramount Pictures, MGM and 20th Century Fox. RMW

would be doing the processing job for IMAGICA either in India or in California in the

US.

Music

The music industry is a vast entity and over the years it has witnessed change

significantly. The potential of the Indian music industry can be better understood from

its size estimated at around US$ 182.9 million in 2010, up from US$ 160.9 million in

2008, portraying a growth of 14 per cent during the reporting period. It is expected to

grow at a CAGR of 16 per cent over 2010-14 to reach US$ 379.1 million.

Advertising

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A report by consultancy firm KPMG stated that the US$ 5.2 billion advertising

industry is set to grow at a compounded annual growth rate (CAGR) of 14 per cent in

2010, in comparison to the last year. KPMG observed that online advertising will grow

about 30 per cent per annum, establishing itself as the fastest growing advertising

medium. While elaborating further it stated that the growth in regional advertising is

partly driven by new sectors such as education, hospitality, jewellery and real estate

which often have local brands and therefore prefer to advertise through local channels.

Emphasising on the Internet advertising industry, KPMG said the US$ 185 million

industry would encourage both multinational companies and local brands to focus on

their marketing strategies.

Cinema

Films Division has been motivating the broadest spectrum of the Indian public with a

view to enlisting their active participation in nation building activities.

According to the joint report by KPMG and an industry chamber, the film industry

contracted 14 per cent growth in 2009 wherein the industry is projected to grow at a

CAGR of 9 per cent to touch an estimated amount of US$ 3.02 billion over the next

five years. Growth drivers for the sector would include expansion of factors like an

increase in the number of multiplex screens, digital screens facilitating wider releases,

higher cable and satellite revenues, improving collections from the overseas markets

and supplementary revenue streams like DTH, digital downloads, etc, which are

expected to emerge in future.

Reliance MediaWorks Ltd has signed a deal with UFO Moviez to establish a gateway

for digital film releases on Indian screens. The pact will enable the firm to combine

UFO Moviez' digitisation technology with its programming expertise and digital cinema

experience as stated by Reliance Mediaworks.

Print/Publishing

The print media industry is projected to grow at a CAGR of 9 per cent and targets to

reach around US$ 5.93 billion by 2014, according to the joint report by KPMG and an

industry chamber.

15

Jagran Prakashan of Jagran Group, which publishes one of India's largest read

language dailies, stated that it will acquire all the publications of Mid-Day Multimedia

in a stock deal valued nearly at US$ 40 million.

Foreign investment, including foreign direct investments (FDI) and investment by non-

resident Indians (NRIs)/person of Indian origin (PIO)/foreign institutional investor

(FII), up to 26 per cent, is permitted for publishing of newspapers and periodicals

dealing with news and current affairs under the Government route.

FDI policy for publication of Indian editions of foreign magazines dealing with news

and current affairs is:

• Foreign investment, including FDI and investment by NRIs/PIOs/FII, up to 26

per cent, is permitted under the Government route.

• 'Magazine', for the purpose of these guidelines, will be defined as a periodical

publication, brought out on non-daily basis, containing public news or

comments on public news.

• Foreign investment would also be subject to the Guidelines for Publication of

Indian editions of foreign magazines dealing with news and current affairs

issued by the Ministry of Information and Broadcasting (I&B) on

Publishing/printing of Scientific and Technical Magazines/specialty journals/

periodicals 100per cent FDI is permitted under the Government route.

Theatre

Mexico-based multiplex operator Cinepolis plans to set up 40 screens over the next 12

months in India, which could entail an investment of US$ 28 million.

Milan Saini, Head and Managing Director, Cinepolis India Country stated that "India

is a huge opportunity for us as the market is under-penetrated. We plan to set up 40

screens over the next 12 months across seven properties in cities like Mumbai,

Bangalore, Chennai and Hyderabad."

Digital Media

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The digital technologies and their innovative applications have changed the

entertainment sector considerably, especially the content production and its quality.

Internet has also emerged as the latest revenue stream and has become one of the

fastest growing advertising medium and has made a significant impression on the

entertainment industry.

Officials in the Information and Broadcasting Ministry have planned a roadmap for

making broadcasting operations completely digital. The Telecom Regulatory Authority

of India (TRAI) has suggested a three-stage process for digitisation, wherein tier one

cities would be covered by 2013, tier two cities by 2014 and tier three cities by 2017.

They further stated that the digital transmission helps in enhancing the audio and

picture quality.

Madison Media bagged the media buying account of US carmaker General Motors

(GM), estimated at more than US$ 22.1 million. GM, the third biggest ad spender

among auto companies in the country after Maruti Suzuki and Hyundai Motor, has

given the account to Madison for a period of three years.

Government Initiatives

The Government has initiated the following measures:

• The government has allotted US$ 50.13 million in the current Five-Year Plan

(2007-2012) for various development projects for the film industry. The funds

will be utilised to set up a centre for excellence in animation, gaming and visual

effects

• To offer better audio quality and sharper picture to millions of its viewers,

public broadcaster Doordarshan plans to go completely digital by 2017

According to the Consolidated Foreign Direct Investment (FDI) Policy document

released by the Department of Industrial Policy and Promotion (DIPP), Ministry of

Commerce and Industry, Government of India, foreign investment, including foreign

direct investments (FDI) and investment by non-resident Indians (NRIs)/person of

Indian origin (PIO)/foreign institutional investor (FII), up to 26 per cent, is permitted

17

for publishing of newspapers and periodicals dealing with news and current affairs

under the Government route.

The Consolidated FDI Policy document brings forth the following guidelines for the

M&E industry:

• Terrestrial Broadcasting FM (FM Radio): Foreign investment, including FDI, NRI

and PIO investments and portfolio investments are permitted up to 20 per cent

equity for FM Radio's Broadcasting Services with prior approval of the

Government subject to such terms and conditions as specified from time to time

by Ministry of Information and Broadcasting for grant of permission for setting

up of FM radio stations

• Cable Network: Foreign investment, including FDI, NRI and PIO investments

and portfolio investments are permitted up to 49 per cent for cable networks

under Government route subject to Cable Television Network Rules, 1994 and

other conditions as specified from time to time by Ministry of Information and

Broadcasting (I&B)

• Direct–to-Home: Foreign investment, including FDI, NRI and PIO investments

and portfolio investments are permitted up to 49 per cent for Direct to Home

under Government route. Within the limit of 49 per cent, FDI will not exceed 20

per cent. This will be subject to such guidelines/terms and conditions as

specified from time to time by Ministry of Information and Broadcasting (I&B)

• The total direct and indirect foreign investment including portfolio and foreign

direct investment in Headend-In-The-Sky (HITS) Broadcasting Service shall not

exceed 74 per cent. FDI upto 49 per cent would be on automatic route and

beyond that under government route. This will be subject to such

guidelines/terms and conditions as specified from time to time by Ministry of

Information and Broadcasting (I&B)

• FDI policy in the Up-linking of TV Channels is as under:

o Foreign investment of FDI and FII up to 49 per cent would be permitted

under the Government route for setting up Up-linking HUB/ Teleports;

18

o FDI up to 100 per cent would be allowed under the Government route for

Up linking a Non-News & Current Affairs TV Channel;

o Foreign investment of FDI and FII up to 26 per cent would be permitted

under the Government route for Up-linking a News & Current Affairs TV

Channel subject to the condition that 48 the portfolio investment from

FII/ NRI shall not be "persons acting in concert" with FDI investors, as

defined in the SEBI(Substantial Acquisition of Shares and Takeovers)

Regulations, 1997

Going Global

Reliance Big Entertainment, owned by Anil Ambani, has bought half of UK's games

and publishing company, Codemasters. The investment is expected to open up the

fast-growing Indian market for Codemasters, in order to assist Reliance tap the

potential of games which is vividly catching the fantasy of the growing local interest.

Rod Cousens, CEO of Codemasters stated that the deal will help the company realise

the full potential of their game coding and online excellence across various platforms,

especially in the world's fastest-growing markets.

________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

19

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