september 25, 2012 zee entertainment enterprise...

September 25, 2012

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Growth in sight; valuations stretched… Zee Entertainment Enterprise Limited (ZEEL), one of the leading broadcasting companies with a bouquet of 30 channels across genres and languages will be a major beneficiary of the digitisation wave resulting in doubling of subscription revenues with complete digitisation. Continual investment in high quality content and increasing programming hours have catapulted Zee TV to the No. 2 Hindi GEC slot from No. 4 last year. We believe the flagship channel would be able to maintain healthy GRPs, going ahead, resulting in higher than industry ad revenue growth. Recently formed JV Media Pro would further enhance bargaining power to extract better deals from distributors. We expect 12.1% and 16.5% CAGR over FY12-14E in revenue and EPS, respectively. Over aggressive bidding for quality content may be a key risk for ZEEL. We value ZEEL at 21x (in line with last five year average) FY14E arriving at a target price of | 175. Though there has been marked improvement in the company’s operating performance, due to the recent run up, the stock looks fairly valued at current levels. We initiate coverage on ZEEL with HOLD rating.

Strategy change to benefit ad growth

Change in strategy to acquire quality content and increase programming hours has started to pay off, with Zee TV reaching the No. 1 position after several years in the Hindi GEC space for week 34 and 36 in 2012 (overall No. 2 position post FY12 at weekly GRP of 225 vs. 183 in FY12). Going ahead, we expect the company to increase programming hours further and monetise recently acquired movies to sustain leadership position. High GRP in both GEC and Hindi movie space would enable ZEEL to post higher than industry ad revenue growth of 10.6% over FY12-14E.

Digitisation to drive subscription revenue

Subscription revenue is expected to grow at 19.6% CAGR over FY12-14E, led by the digitisation mandate. It will also enable the company to recover investments in sports and niche channels, which rely primarily on subscription revenue. Moreover, a gradual decline in carriage fees would help the margins, going ahead.

Expensive valuation ZEEL has traded at an average multiple of ~21x one year forward EPS since 2007. However, during its recent peak in 2007, ZEEL traded at 39x, over 200% premium to Sensex. It is currently trading at ~84% premium to the Sensex vs. its long term average of 48%. Valuing ZEEL at 21x FY14 EPS at | 175, we initiate coverage with HOLD rating. Further improvement in Zee TV’s GRPs and market share could lead to expansion in multiples.

Exhibit 1: Valuation Metrics (Year-end March) FY10 FY11 FY12 FY13E FY14ENet Sales (| crore) 2,199.8 3,013.6 3,040.5 3,370.3 3,819.9 EBITDA (| crore) 613.5 826.6 739.5 903.0 1,044.7 Net Profit (| crore) 634.4 637.0 589.1 677.0 800.0 EPS (|) 14.6 6.5 6.1 7.1 8.3 P/E (x) 12.0 26.9 28.5 24.8 21.0 Price / Book (x) 2.0 5.5 4.9 4.3 3.7 RoCE (%) 14.8 25.9 20.5 21.7 21.7 RoE (%) 16.6 20.6 17.1 17.2 17.5

Source: Company, ICICIdirect.com Research

Zee Entertainment Enterprise (ZEETEL) | 175

Rating Matrix Rating : Hold

Target : | 175

Target Period : 12-15 months

Potential Upside : 0%

YoY Growth (%) (YoY Growth) FY11 FY12 FY13E FY14ENet Sales 37.0 0.9 10.8 13.3 EBITDA 34.7 (10.5) 22.1 15.7 Net Profit 0.4 (7.5) 14.9 18.2 EPS (55.5) (5.7) 14.9 18.2

Stock Data Market Capitalization | 16782.5 CroreTotal Debt (FY12) | 24 CroreCash and Investments (FY12) | 328.3 CroreEV | 16478.2 Crore52 week H/L 185 / 112Equity capital | 95.9 CroreFace value | 1MF Holding (%) 13.1FII Holding (%) 35.4

Comparative return matrix (%) 1M 3M 6M 12M

Sun TV Network 7.8 16.6 1.2 8.6Network 18 -9.3 -9.7 -22.0 -66.9ZEEL 4.1 31.7 41.3 52.6 Price movement

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Analyst’s name

Karan Mittal [email protected]

Anil Shenoy [email protected]

Valuation Summary FY11 FY12 FY13E FY14E

P/E 26.9 28.5 24.8 21.0 Target P/E 26.9 28.5 24.8 21.0 EV / EBITDA 19.8 22.3 18.0 15.3 P/BV 5.5 4.9 4.3 3.7 RoNW 20.6 17.1 17.2 17.5 RoCE 25.9 20.5 21.7 21.7


Company background Zee Entertainment Enterprise Ltd (ZEEL) is a part of the Essel group promoted by Subhash Chandra. Apart from ZEEL, Essel group also owns the television network Zee News. Also, it has a presence in print media (DNA), cable distribution (Wire & Wireless), DTH (Dish TV), satellite communication (Agrani & Procall), theme parks (Essel World and Water Kingdom), online gaming (Playwin), education (Zee Learn), flexible packaging (Essel Propack), infrastructure development (Essel Infraprojects) and family entertainment centres (Fun Cinemas). ZEEL owns one of the largest broadcasting networks in India with 30 TV channels including four HD channels and 22 beams in international markets with a global viewership of above 650 million. The company launched its flagship channel Zee TV in 1992, which currently operates in a highly competitive market and forms a major part of the revenue. After falling to the No. 4 slot in the Hindi GEC space in FY12, the company changed its strategy to aggressively acquire high cost properties. Post FY12, Zee TV has improved its ranking and after many years and reached the No. 1 position in week 34 and 36 of CY12 (overall No. 2 position post FY12). The company’s Hindi movie offerings include four channels, which have collectively been dominating the Hindi movie space. Also, the company has a significant presence in regional markets with a presence in Maharashtra, West Bengal, Karnataka, Andhra Pradesh and Tamil Nadu (newly launched). With its acquisition of a 50% stake in Taj TV (Ten Sports) in 2007 and a further 50% in 2012, Zee has a strong presence in the sports segment, with four channels viz. Ten Sports, Ten Action, Ten Cricket and Ten Golf. ZEEL also has a presence in content distribution through both analogue & digital platforms through Media Pro Enterprise India, which is a joint venture between Zee Turner & 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 company derived 52% of its revenues in FY12 from advertising while subscription income accounted for 43% of total revenues. While majority of the subscription revenue (30%) came from domestic operations, international subscription revenues contributed 13%.

Exhibit 2: ZEEL - FY12 revenue split

Ad revenue, 52%

Domestic Subscription, 30%

International Subscription, 13%

Others, 4%

Ad revenue Domestic Subscription International Subscription Others


The company derived 52% of its revenues in FY12 from

advertising while subscription income accounted for 43%

of total revenues

Shareholding pattern (Q1FY13)

Shareholder Holding (%)Promoter 43.87FII 35.35DII 13.11Others 7.67

FII & DII holding trend (%)

35 36 37 35

13 13 13 13

0

10

20

30

40

Q2FY12 Q3FY12 Q4FY12 Q1FY13

FII DII


Exhibit 3: Diversified set of channels



Investment Rationale Ever growing media industry

As with every emerging market, India has been home to a growing media industry, which has grown at a CAGR of 9% in CY07-11. The growth has been in spite of the global recession, which led to subdued growth of 1% in CY09. Even in CY11 when the economy started showing signs of slowing down, the media industry grew by 11.7% representing a digital dawn. Going forward, the media industry is expected to grow at a CAGR of 14.9% from | 728 billion in CY11 to | 1457 billion in CY16.

Exhibit 4: Media industry | billion 2007 2008 2009 2010 2011 CAGR (07-11) % 2012E 2013E 2014E 2015E 2016E CAGR% (11-16) %Television 211 241 257 297 329 11.7 380 435 514 618 735 17.4Print 160 172 175 193 209 6.9 226 247 270 295 323 9.1Film 93 104 89 83 93 0.0 100 110 121 135 150 10.1Radio 7 8 8 10 12 13.2 13 16 20 24 30 20.7Music 7 7 8 9 9 6.5 10 11 13 15 18 15.1OOH 14 16 14 17 18 6.2 20 22 24 26 29 10.3Animation 14 17 20 24 31 22.0 36 43 51 61 69 17.4Gaming 4 7 8 10 13 34.3 18 23 29 37 46 28.8Digital 4 6 8 10 15 40.1 20 26 34 44 57 29.9Total 516 579 587 652 728 9.0 823 932 1076 1254 1457 14.9

Source: FICCI-KPMG report 2012, ICICIdirect.com Research

The television industry has been the major contributor to the media industry, contributing ~45% of the total revenue of the industry in CY11 up from 41% in CY07. Riding the digitisation wave, the television industry is expected to outgrow the overall media industry, to grow at a CAGR of 17.4% from | 329 billion in CY11 to | 735 billion in CY16 to more than half of the industry. Exhibit 5: TV as percentage of media industry

40.9 41.543.8

45.6 45.2 46.2 46.7 47.849.3 50.4

25.0

30.0

35.0

40.0

45.0

50.0

55.0

2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E

%

TV as a % of Media Industry


Television industry – Ad revenue to show robust growth

India is currently the third largest TV market in India with 146 million TV households next only to the US and China. The Indian TV market is characterised by lower TV penetration and lower ARPU as compared to other countries in the world, providing significant room for growth.

The TV industry will form more than half of the media

industry by 2016


Exhibit 6: Households (HH) data

230 million HHs

146 million TV HHs 84 million non TV HHs

118 million Pay TV HHs28 million Terrestrial TV

HHs

68 million analogue HHs 37 million DTH HHs6 million digital cable

HHs

Immidiate opportunity

Long term opportunities


The television industry earned | 115 billion or 35% of the revenue in CY11 from advertisement while | 214 billion was contributed by subscription revenue. While ad revenue accrues to the broadcaster, the subscription income is shared by the broadcaster and the C&S industry including MSOs, LCOs and DTH operators. Exhibit 7: Television - Ad and subscription revenue split

71 82 88 103 115 130 148 170 197 230140 158 169 194 214 250287

344421

505

0

100

200

300

400

500

600

700

800

CY07 CY08 CY09 CY10 CY11 CY12E CY13E CY14E CY15E CY16E

| bi

llion

Ad revenue Subscription revenue

Source: FICCI KPMG report 2012, ICICIdirect.com Research

Television takes the second highest share of advertising in the media industry next only to print. In CY11, while print formed 46% of the total ad revenue, television formed 39%. However, television has been increasing its share in the ad revenue of the total media from 36% in CY07 to 39% in CY11. With a wider reach, ability to reach illiterate audience as well and a large category of untapped advertisers who are currently using print media, ad revenues for the television industry are expected to grow from | 116 billion in CY11 to | 230 billion in CY16 at a CAGR of 14.7%.

While the 28 million terrestrial TV households and 84

million non-TV households (HHS) provide long term

opportunities for digitisation, 68 million analogue cable

households are the short term opportunity

The television industry earned | 115 billion or 35% of the

revenue in CY11 from advertisement while | 214 billion

was contributed by subscription revenue


Exhibit 8: Advertising revenue split

| billion 2007 2008 2009 2010 2011 CAGR (07-11) % 2012E 2013E 2014E 2015E 2016E CAGR% (11-16) %Television 71 82 88 103 116 13.1 130 148 170 197 230 14.7Print 100 108 110 126 139 8.7 154 172 193 215 241 11.5Radio 7 8 8 10 12 11.7 13 16 20 24 30 20.7OOH 14 16 14 17 18 6.2 20 22 24 26 29 10.0Digital 4 6 8 10 15 40.1 20 26 34 44 57 29.9Total 196 220 228 266 300 11.2 337 384 440 506 586 14.3


Subscription revenue – riding the digitisation wave The lion’s share of the subscription revenue of the TV industry has been going to the C&S industry predominantly due to huge under declaration in the C&S industry. According to a Ficci-KPMG report 2012, in CY11, the broadcasters’ subscription revenue stood at | 49 billion at just 23% of the industry’s subscription revenue. However, with the advent of digitisation, under declaration is expected to go down gradually and eventually be completely eliminated from the system. This would benefit MSOs and broadcasters to a huge extent. While the overall subscription revenue for the industry is expected to grow at a CAGR of 19% from CY11-16 to | 505 billion, broadcasters would witness a subscription revenue CAGR of 29% from | 49 billion to | 176 billion. Exhibit 9: Subscription revenue - share between broadcaster and C&S industry

31 41 49 62 78 106 145 176138 153 165 188 209238

276329

0

100

200

300

400

500

600

CY09 CY10 CY11 CY12E CY13E CY14E CY15E CY16E

| bi

llion

Broadcasters C&S


In an analogue system, LCOs typically under declare ~80% of the subscription income collected from subscribers. This results in a considerably lower wallet share of the consumer to the broadcaster. However, with the advent of digitisation, under declaration will be eliminated from the system and the previously under declared revenue would go in a large way to benefit MSOs and broadcasters at the cost of LCOs. Post complete digitisation, the subscription income of the broadcaster is expected to go up to ~2x.

While the overall subscription revenue for the industry is

expected to grow at a CAGR of 19% from CY11-16 to | 505

billion, broadcasters would witness subscription revenue

growth at a CAGR of 29% from | 49 billion to | 176 billion


Exhibit 10: Broadcasters & MSOs to benefit from digitisation

Unit Analog Digital Cable DTH Digital Cable DTHTotal Subscibers Million 68 6 37 64* 47ARPU** | 150 160 160 160 160Subscription Revenue | crore 12240.0 1152.0 7104.0 12249.6 9062.4

LCO Share % 85 35 35MSO/DTH Share % 7.5 30 65 30 65Broadcaster Share % 7.5 35 35 35 35

LCO's Share | crore 10404.0 403.2 4287.4MSO/DTH Share | crore 918.0 345.6 4617.6 3674.9 5890.6Broadcasters Share | crore 918.0 403.2 2486.4 4287.4 3171.8

Total LCO Share | crore

MSO/DTH Share (net of LCO and Broadcasters costs)

| crore

Total Broadcaster | crore 7459.2

Post DigitisationPresent Scenario

10807.2

5881.2

4287.4

9565.4

3807.6

* - Assuming 15% churn to DTH ** - Assuming ARPU to remain stable Source: ICICIdirect.com Research

In Q1FY12, Zee earned | 110.7 crore of subscription income from DTH operators while cable operators contributed | 96.8 crore. The subscription income from DTH operators was more even when the numbers of DTH subscribers stood at ~30 million while the cable subscribers stood at ~81 million. It implies that revenue growth from subscription income will grow ~2x for broadcasters by the time complete digitisation is achieved. An analogue cable can carry 70-90 channels on its network whereas the number of channels in India is ~623. This led to broadcasters paying a huge carriage fees to MSOs to carry their channel on the MSOs network. Due to digitisation, the channel carrying capacity of cable would significantly increase and with Trai guidelines of increasing the channel carrying capacity to 500 by January 1, 2013, carriage fees are expected to reduce significantly for broadcaster. However, tiering fees (for placement of channel in various packages) would partly offset the decline in carriage fees.

Increasing TV penetration to further fuel subscription revenue growth Subscription revenues for the television industry would also be helped by an increase in the number of TV households, increase in C&S penetration and increase of digital subscribers share in total C&S households. While TV households are expected to increase from 146 million to 188 million, the C&S penetration is expected to increase from 81% to 88% in CY11-16 resulting in the addressable market increasing from 118 million in CY11 to 165 million in CY16 at a CAGR of 6.9%. While DTH subscribers are expected to increase from 37 million to 86 million, digital cable is expected to witness an increase from 6 million to 75 million in CY11-16. Analogue cable, which accounts for 68 million subscribers currently, is expected to be negligible by CY16.

Post complete digitisation, the subscription income of the

broadcaster is expected to double


Exhibit 11: C&S penetration

129 138 146 154 163 171 180 188

95 108 118 128 137 147 156 16574

78

8183

8486

8788

020406080

100120140160180200

CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16E

milli

on

65

70

75

80

85

90

%

TV Households C&S Households C&S penetration


Exhibit 12: Digital system to knock out analogue

69 68 6859

50

32

1244 5 6

19

32

49

6775

16

2837

4653

64

7886

0102030405060708090

100

CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16

milli

on

Analog Cable Digital Cable DTH

Source: FICCI KPMG report 2012, ICICIdirect.com Research

ARPU growth to also help subscription income The ARPU in the Indian market has been traditionally lower than other countries. ARPUs may continue to remain somewhat pressurised in the near term as DTH operators and MSOs compete to digitise the same subscriber base.

Exhibit 13: India - one of the lowest ARPUs in the world

56.9

45.4

20

3.5

0

10

20

30

40

50

60

USA UK Malaysia India

$


C&S HH’s penetration is expected to increase from 81% in

CY11 to 88% in CY16

Though the digitisation mandate directs complete digitisation

by December 31, 2014, Ficci estimates expect analogue

cable to remain even after that although in small numbers

The ARPU in the Indian market has been traditionally lower

than other countries


However, as digitisation progresses, the ARPU is expected to increase due to consumer willingness to pay more for higher number of channels at better picture quality. Moreover, as the distribution industry starts focusing on profitability, we expect tariff hikes to take place, which would further propel the ARPU. DTH operators have already raised their tariffs three times in the last year. Along with a raise in tariffs, ARPU is also expected to see an upward pressure as consumers shift from the lower priced base package to higher packages with more channels. Higher uptake of HD channels will help the growth in ARPU. Currently, there are ~30 HD channels in the industry. The ARPU growth would benefit broadcasters in terms of higher subscription income. Exhibit 14: Ficci - ARPU estimates

ARPU (|) CY11 CY12 CY13 CY14 CY15 CY16Analog 160 165 170 170 171 171Digital 160 170 180 201 226 253DTH 160 170 180 201 226 253IPTV 160 170 180 201 226 253


Exhibit 15: Rising ARPU for Dish TV

139 139

142

150 150152 152 151

156

130

135

140

145

150

155

160

Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13


Zee TV – Change in strategy starting to yield results ZEEL competes in the most watched Hindi GEC segment through its flagship channel Zee TV. The company currently derives more than half of its revenues from Zee TV. The Hindi GEC market is a highly competitive market with four strong players including Zee TV, Star TV, Sony and Colors. As per TAM data, Star TV has been dominating the ratings for a long time. Since the launch of Colors, Zee has been consistently in the third spot till Q1FY12 post which Zee further slid to the fourth position when Sony overtook it. The superior performance of other channels was predominantly due to acquisition of high cost movies and higher proportion of non-fiction reality shows. Zee, on the other hand, had shied away from acquiring high cost content till FY12. Though it still had the largest inventory of blockbusters of yesteryears, lack of new movies reflected in its ratings for FY12 as well as ad revenue de-growth of 6.9%. Zee TV commanded a market share of 19.9% among the top 4 Hindi GECs and on an average was in the fourth position in the Hindi GEC space in FY12.

Digital ARPU to grow from | 160 in CY11 to | 253 in CY16

Dish TV witnessed an increase in its ARPU from | 139 in

Q1FY11 to | 156 in Q1FY13 on the back of tariff hikes

taken during the period


Exhibit 16: ZEEL picking up movie acquisition in 2012

Zee TV Star Plus Sony ColorsAll The Best Housefull 3 Idiots Dabangg Kambakkht Ishq De Dana Dan Badmaash Company Ajab Prem Ki Ghazab Kahani Peepli Live Wanted Dil Bole Hadippa Khatta Meetha (Akshay)

Veer Do Knot Disturb Atithi Tum Kab Jaoge Raavan Paa Kites My Name Is Khan Once Upon A Time In Mu Khichdi The Movie

Bbuddah Hoga Terra Baap Action Replayy Robot Golmaal 3 Double Dhamaal Singham Band Baaja Baaraat Ready Tanu Weds Manu Bodyguard Mere Brother Ki Dulhan Tees Maar Khan

Anjaana Anjaani Yamla Pagla Deewana Thank You Zindagi Na Milegi Dobara Murder 2 Rascals

Aarakshan Haunted

Agneepath (Hrithik Roshan) Ra-One Ladies Vs Ricky Bahl Blood Money Desi Boyz Force Tere Naal Love Ho Gaya Don 2 Kahaani The Dirty PicturePlayers Rockstar Ek Main Aur Ek TuAgent Vinod Jodi Breakers Paan Singh TomarBarfee Dabangg 2 Tere Naal Love Ho GayaHeroine Housefull 2 Jannat 2Joker Ghayal 2 TezzMichael And My Friend Pinto Kaal Returns Razz 3

Kya Super Kool Hain HumRowdy RathoreEk Tha Tiger

2010

2011

2012

Source: TAM, Media Reports, ICICIdirect.com Research

However, the company has now changed its strategy and has been investing in high cost reality shows as well as movies, which got reflected in its Q1FY13 performance wherein the company reported an 18.1% jump in its ad revenue. The company’s superior ratings in Q1FY13 were on the back of reality show Dance India Dance and movies like Agneepath and Don 2. On the back of these high cost content, Zee TV improved its market share in the period post FY12 to 24.5% and on an average stood in second position in the Hindi GEC space. Recently, Zee TV had reached the top position for week 34 and 36 of CY12 as well after many years thanks to the finals of Dance India Dance and Dance India Dance Superkids. The company also has the rights to some of the latest/forthcoming movies like Agent Vinod, Barfi, Heroine, Joker and Michael and my friend Pinto.

The superior ad revenue growth in Q1FY13 is also attributable to an increase in programming hours by the company. The company added three more hours of fresh programming recently with the addition of Fear Files and Ramayan. The management indicated that currently the industry operates with an average of 26-27 hours of fresh programming per week. After lagging behind the industry standards for a long time, ZEEL is currently at par with the industry in terms of programming hours after the introduction of its new shows. The management has guided an increase in fresh programming per week to 32-33 subsequently. We have factored in fresh programming of 29 hours for FY14.

Also, the competitive intensity in the movie space seems to be on the decline with Colors slowing down its activities. According to media reports, in the beginning of CY12 Colors sold its 500 plus movie library to Star India for ~| 500 crore. Also, Viacom18 (Colors) were planning to launch a movie channel, which was cancelled. Colors has acquired only one new movie in 2012.


Exhibit 17: April 2011 - Present day average weekly GRPs for Hindi GECs

100

150

200

250

300

350

400

W15

W19

W23

W27

W31

W35

W39

W43

W47

W51 W2

W6

W10

W14

W18

W22

W26

W30

W34

Colors Viacom18 SONY ENTERTAINMENT TV Star Plus Z Zee TV

Change in strategy started yielding results post FY12

FY12

2011 2012

Source: TAM HSM, CS4+, ICICIdirect.com Research

Exhibit 18: Effect of GRP market share on quarterly ad growth*

23.020.0

16.518.7

21.2

-10.1-13.5

18.1

0.5

-4.2

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13

Market share (%) Ad Revenue growth (%)

* - GRPs of Zee TV, Ad growth of overall company Source: TAM HSM, CS4+, Company, ICICIdirect.com Research

Exhibit 19: Zee TV - shows in top 100 shows week wise

05

1015202530354045

W15 W25 W35 W45 W2 W12 W22 W32 W34 W36 W37

Colors Star Plus Zee TV Sony

2011 2012


The change in strategy yielded immediate results with Zee

TV improving its market share post FY12

With the market share improvement, Zee reported a

handsome 18.1% growth in Q1FY13

With its market share improvement, Zee has also managed

to increase the number of shows in the top 100 shows

week wise


Zee Cinema – Strong movie library ZEEL has a strong presence in the Hindi movie space with four channels including Zee Cinema, Zee Premier, Zee Action and Zee Classic. These channels collectively commanded a market share of 31.8% in FY12 (post IPL Season 4), which is the highest in the Hindi movie space with Star Gold a close second at 30.9%. However, the company had not acquired any new movies for the most part of FY12, which led to inconsistency in its leadership position. For many a week ZEEL gave up its leadership position due to telecast of new movies by other channels.

Exhibit 20: April 2011-March 2012 (excluding IPL) average weekly GRPs - Hindi movie channels

80

100

120

140

160

180

200

220

240

W25

W27

W29

W31

W33

W35

W37

W39

W41

W43

W45

W47

W49

W51

W53 W2

W4

W6

W8

W10

W12

SONY MAX Star Gold ZEEL


However, near the end of FY12, the company changed its strategy and acquired some high cost movies. Such movies led to an improvement in TRPs of both Zee TV and Zee Cinema as the first telecast of a new movie is done on Zee TV and the subsequent ones find a place on Zee Cinema and other Hindi movie channels of ZEEL. Zee Cinema telecast Don 2 in the last week of FY12, which led to ZEEL leading the Hindi movie space by a clear mile. Also, post FY12 (excluding IPL season 5) Zee Cinema has benefited significantly from the change in the strategy. Zee Cinema telecast big movies like Agneepath in Q1FY13, which complemented its previously held library and aided ZEEL’s consistency as a leader in the Hindi movie space. Post FY12, the movie business of ZEEL garnered a market share of 33.9%. Continuous acquiring of rights of new movies along with the recently acquired new movies would provide a huge impetus to the company’s ratings in the Hindi movie space and its consistent leadership position.

The portfolio of movie channels of ZEEL remained at the top

position in FY12 due to its strong library of 3000 plus

movies. However, there were weeks when it gave up its

numero uno position due to new movie telecasts by

competitors


Exhibit 21: Post March 2012 (excluding IPL) weekly average GRPs - Hindi movie channels

85

105

125

145

165

185

205

W23 W24 W25 W26 W27 W28 W29 W30 W31 W32 W33 W34 W35 W36 W37

SONY MAX Star Gold ZEEL


Considerable presence in regional languages

ZEEL has a significant presence in the regional language market wherein the ad growth is expected to be higher than the national channels. ZEEL operates in Maharashtra with Zee Marathi, West Bengal with Zee Bangla, Andhra Pradesh with Zee Telugu, Karnataka with Zee Kannada and Tamil Nadu with Zee Tamil. Also, the company has very recently launched the only movie channel in Bangla – Zee Bangla Cinema.

Regional markets are currently under penetrated in terms of ad revenue as the ad revenue per C&S HH in most of the regional segments is considerably less than the overall level. Also, regional channels have a higher exposure to local ads, which are relatively insulated from the macroeconomic environment. In CY11, regional channels grew at 15% while the overall TV industry grew at 12%. Going forward, we expect the trend of regional markets outgrowing the overall TV market to continue.

Also, with regional channels in its bag, a national advertiser gets a higher bargaining power, which makes a stronger case for a higher subscription income and lower carriage fees. It is the primary reason for a lot of interest and M&A activity from large broadcasters the latest being the acquisition of Eenadu group of channels by TV18 at a premium. The management of TV18 has indicated that the company’s strategy would now be to increase its subscription revenue. While TV18 and ZEEL have comparable ad revenue, TV18’s (without Eenadu channels) subscription revenue of | 400 crore is considerably less than that of ZEEL signifying the importance of regional channels.

Though the company does not give the split of ad revenue, we have estimated the regional channels will form ~ 27% of the total ad revenue in FY12 and expect it to grow at a CAGR of 10.5% from FY12-14E beating the growth of Zee TV.

Post FY12, the company remained a consistent No. 1

thanks to acquisition of new movies


Exhibit 22: Regional markets

Total HH's Television HH's (mn) C&S HH's Ad market Ad revenue/C&S HHmillion million million | crore | crore

Tamil 17.5 16.1 15.4 1170 76.0Telugu 20.5 14.2 13.8 800 58.0Bangla 19.8 8.7 7.4 780 105.4Kannada 13.2 9.3 9.0 560 62.2Malayalam 8.1 7.4 7.0 575 82.1Marathi 24.6 16.2 13.3 390 29.3Oriya 9.8 3.9 3.2 70 21.9Gujarati 12.4 7.6 7.6 40 5.3National 230 146 118 11500 97.5


In West Bengal, ZEEL operates with Zee Bangla, which has been in the No. 2 slot consistently. The company boasts of 9000 hours of library and rights to over 600 movie titles. The market is currently dominated by Star India’s channel Star Jalsha. Zee Bangla garnered a market share of 39.7% among the top three GECs in West Bengal in FY12. However, post FY12, Star Jalsha has increased its lead, which led to Zee Bangla and ETV Bangla losing market share from 39.7% and 14.3% in FY12 to 36.8% and 12.8%, respectively, post FY12. However, in the recent few weeks, Zee Bangla has been closing the gap with Star Jalsha. Exhibit 23: Bangla GEC - average weekly GRPs in FY12

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ETV Bangla Star Jalsha Z Bangla

2011 2012

Source: TAM All West Bengal,, CS4+, ICICIdirect.com Research

Regional markets are under penetrated in terms of ad

revenue per C&S household. Regional markets would grow

faster than national markets

In West Bengal, ZEEL operates with Zee Bangla, which has

been in the No. 2 slot consistently


Exhibit 24: Bangla GEC - Average weekly GRPs post FY12

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ETV Bangla Star Jalsha Z Bangla

Source: TAM All West Bengal,, CS4+, ICICIdirect.com Research

ZEEL also has a presence in Andhra Pradesh with its channel Zee Telugu, which has been in the fourth position in FY12 behind Gemini TV, Maa and ETV Telugu. Zee Telugu had a market share of 18.1% in FY12 among the top 4 GECs in FY12. However, post FY12, the channel has improved the market share to 19.6% and has currently overtaken ETV Telugu to grab the third position in Telugu GEC. The channel has a library of over 7000 hours and rights to over 575 movie titles. Exhibit 25: Telugu GEC - Average weekly GRPs in FY12

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ETV GEMINI MAA Z Telugu

2011 2012

Source: TAM All Andhra Pradesh,, CS4+, ICICIdirect.com Research

Zee Bangla has been closing the gap with Star Jalsha in

the recent few weeks

ZEEL also has a presence in Andhra Pradesh with its

channel Zee Telugu, which has been in the fourth position

in FY12 behind Gemini TV, Maa and ETV Telugu with a

market share of 18.1%


Exhibit 26: Telugu GEC - Average weekly GRPs post FY12

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ETV GEMINI MAA Z Telugu

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In Karnataka, the company operates Zee Kannada, which has been in a consistent third position behind Udaya TV and Suvarna. Zee Kannada garnered a market share of 19.0% among the top 4 GECs in FY12, which reduced to 18.3% post FY12. The company has a library of over 6500 hours of programming and rights of over 150 movies in Kannada. Exhibit 27: Kannada GEC - Average weekly GRPs in FY12

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ETV Kannada Suvarna UDAYA Z Kannada2011 2012

Source: TAM All Karnataka,, CS4+, ICICIdirect.com Research

Post FY12, the channel has improved the market share to

19.6% and has currently overtaken ETV Telugu to grab the

third position in Telugu GEC

In Karnataka, the company operates Zee Kannada, which

has been in a consistent third position behind Udaya TV

and Suvarna with a market share of 19.0%


Exhibit 28: Kannada GEC - Average weekly GRPs post FY12

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ETV Kannada Suvarna UDAYA Z Kannada

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In Maharashtra, ZEEL operates Zee Marathi. The Maharashtra GEC space is dominated by three strong players who command ~90% of the market share. Zee Marathi has been in the third spot in the Maharashtra market with a market share of 27.7% in FY12 and 26.9% post FY12. For several weeks in that period, Zee Marathi has been at the second spot as well. The company has a library of over 9000 hours and rights to over 400 movie titles. Exhibit 29: Marathi GEC - Average weekly GRPs in FY12

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ETV Marathi Star Pravah Z Marathi

2011 2012

Source: TAM All Maharashtra,, CS4+, ICICIdirect.com Research

The market share of Zee Kannada reduced to 18.2% post

FY12

The Maharashtra GEC space is dominated by three strong

players who command ~90% of the market share. Zee

Marathi has been in the third spot in Maharashtra market

with a market share of 27.7% in FY12


Exhibit 30: Marathi GEC - Average Weekly GRPs post FY12

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ETV Marathi Star Pravah Z Marathi

Source: TAM All Maharashtra,, CS4+, ICICIdirect.com Research

Sports Business– losses to continue

ZEEL acquired a 50% stake in Taj TV India Ltd, which operated Ten Sports in 2007 and added another 50% stake in 2010. The company currently has four channels operating in the sports space including Ten Sports, Ten Action, Ten Cricket and Ten Golf.

Currently, the sports segment in India is dominated by cricket especially matches where India is playing, which makes the rights to Indian cricket properties very costly. The company does not have rights for any home matches of India but boasts of rights of cricketing boards of five countries including Sri Lanka, Pakistan, South Africa, Zimbabwe and West Indies.

The company has acquired the satellite rights for Cricket for South Africa (CSA) for eight years for $180 million. Prior to that, the company had acquired the CSA rights for four years for $75 million and yet incurred losses on it. The company has also renewed its rights to cricket in Zimbabwe. The management indicated that the cricket rights for the other three nations would be up for renewal in FY13. ZEEL is keen to re-bid for them.


Exhibit 31: CSA cricket calendar

Opponent Period Test ODI T20New Zealand Dec 2012 - Jan 2013 2 3 3Pakistan Feb 2013 - Mar 2013 3 5 2India Nov 2013 - Jan 2014 3 7 2Australia Feb 2014 - Mar 2014 3 0 2West Indies Dec 2014 - Feb 2015 3 5 2England Dec 2015 - Feb 2016 4 5 2Australia Mar 2016 - Mar 2016 0 5 3Sri Lanka Nov 2016 - Jan 2017 3 5 3Bangladesh Oct 2017 - Nov 2017 2 3 1India Nov 2017 - Jan 2018 3 7 2Australia Feb 2018 - Mar 2018 3 0 0Zimbabwe Oct 2018 - Oct 2018 0 3 1Pakistan Dec 2018 - Jan 2019 3 5 3Sri Lanka Feb 2019 - Mar 2019 3 5 3England Dec 2019 - Feb 2020 4 5 1Australia Mar 2020 - Apr 2020 0 5 3

Source: ICC, ICICIdirect.com Research

Other key properties of the company include UEFA Champions League, US Open tennis, WWE, Moto GP and Tour de France. The company has followed the strategy of focusing on subscription revenue from non cricket categories. In line with the strategy, the company launched Ten Golf – a niche channel to cater to ~2 lakh registered golfers in India. The channel was launched at a premium of | 200/subscriber.

Exhibit 32: Key properties in sports


The CSA rights for the next eight years for $180 million

involves 290 days of cricket


Exhibit 33: Sports segment - Average weekly GRPs

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Neo Cricket Star Cricket Ten Cricket Ten Sports ESPN & Star Sports

2011 2012


The sports business has been making losses since FY10 and has been a drag on the company’s margins. The ad revenue from the sports business is highly dependent on properties telecast in a particular period, which tend to vary across quarters. The revenues from the sports business stood at | 393 crore in FY12 with an EBITDA loss of | 148 crore. The company missed its guidance of | 100 crore loss on the sports business by a huge margin in FY12.

Currently, the sports business reports a higher loss when the number of key properties telecast is higher as higher costs are allocated to the properties in the period when they are telecast. The management indicated that like the worldwide model for sports, the company plans to reach profitability in the sports business on the back of growth in subscription revenue. Sports channels are charged at a premium to increase the subscription revenue from them. Also, they do not form a part of Media Pro.

Currently, the management has refrained from guiding for sports losses for FY13 but expects it to reduce predominantly due to the increase in subscription revenue owing to increasing digitisation. Sports channels are charged at a premium to other channels. Hence, the sensitivity to digitisation would be more for sports business. Exhibit 34: Sports business

87106

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The company has garnered a 27.7% market share in the

sports segment since April 2011

Losses in sports to continue until subscription revenue

picks up


Ad revenue– to benefit from change in strategy

The change in the conservative strategy of the company to acquire high cost content and recently released movies has already started yielding results with the company reporting an 18.1% growth in its ad revenue in Q1FY13. The company is expected to up the ante and continue investing in high cost content including reality shows and new movies, which are expected to drive the GRP ratings of its channels, going forward. Also, an increase in fresh programming hours would drive the GRPs of its channels. Though it is somewhat premature to form a view on the company’s dominance in its segment, of late, with Zee acquiring big starrer movies like Agneepath, Don 2 and Agent Vinod, other channels, most notably Colors, are seen to be on the back foot. We expect the ad revenue to grow at a CAGR of 10.6% from FY12-14E. Exhibit 35: Ad revenue to grow strong

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* - Does not include financials of channels acquired from Zee News Source: Company, ICICIdirect.com Research

Investing in high cost content would take a toll on the margins. However, investing in high cost content is expected to lead to better GRPs, which would drive ad revenue growth. Going forward, the cost pressure on EBITDA is expected to be more than offset by ad revenue growth resulting in an expansion of margin.

Subscription revenue – to be driven by digitisation

ZEEL earned 30% of its revenues from domestic subscription income while 13% of its revenues were contributed by international subscription income in FY12. The domestic subscription income is set to grow by leaps and bounds owing to the impending digitisation.

The company has stopped reporting the split of domestic subscription revenue post the formation of Media Pro. Prior to that, the subscription revenue from cable grew at a CQGR of mere 1.6% from | 80.4 crore in Q1FY09 to | 96.8 crore in Q1FY12 while DTH grew at a CAGR of 13.2% from | 24.9 crore to | 110.7 crore. Subscription income from DTH was more than cable in Q1FY12 in spite of DTH households being about one third of cable homes. Going forward, we can expect the cable subscription revenue to follow a similar growth trajectory to the one witnessed by DTH, with increasing digitisation.

We expect the ad revenue to grow at a CAGR of 10.6%

from FY12-14E backed by higher investment in content


Exhibit 36: Fast growing DTH subscription income

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The company’s recent joint venture with Star-Den to form Media Pro, a distribution company, would benefit the company in terms of higher subscription income. The combination of ZEEL channels along with Star India channels would give Media Pro a higher bargaining power. The management has indicated that Media Pro commands a higher share of the broadcasters’ share of the ARPU than their corresponding channels’ market share due to the bargaining power of Media Pro. Exhibit 37: Media Pro bargaining power

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Media pro effect


The international subscription revenue has remained more or less stable from FY09 to FY12. However, in Q1FY13, the company reported a growth of 16.5% YoY in its international subscription revenue. The international subscription revenue is expected to remain more or less stable.

The company had 22 international beams in FY12 with a significant presence in the US, UK and the Middle East in terms of viewership within South Asian channels. Also, the company launched Zee Cinema International with English subtitles in Indonesia, Myanmar and Hong Kong in FY12.

Though the company has been adding a number of channels abroad, the management has indicated that they are only for value addition. The international subscription revenue would be linked to the number of subscribers more than the number of channels.

Subscription income from DTH was more than cable in

Q1FY12 in spite of DTH households being about one-third

of cable homes. Going forward, we can expect the cable

subscription revenue to follow a similar growth trajectory to the one witnessed by DTH, with increasing digitisation

Zee Turner’s joint venture with Star Den to provide a higher

bargaining power for subscription income


Exhibit 38: International subscription revenue trend

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Going forward, we expect the domestic subscription revenue to grow at a CAGR of 26.2% from | 872.1 crore in FY12 to | 1389.8 crore while international subscription revenue is expected to grow by 3.7% from | 402.2 crore to | 432.9 crore. Overall, we expect the subscription revenue to grow from | 1274.3 crore in FY12 to | 1822.7 crore in FY14 at a CAGR of 19.6%. Exhibit 39: Subscription revenue to grow handsomely

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We expect the subscription revenue to grow from | 1274.3

crore in FY12 to | 1822.7 crore in FY14 at a CAGR of 19.6%


Financials Robust revenue growth

We expect the ad revenue for the company to grow at a CAGR of 10.6% in FY12-14E on the back of a change in strategy of the company to invest in content and increase its fresh programming hours. The subscription revenue would grow at a CAGR of 19.6% hugely benefiting from increasing digitisation. Overall, we expect revenues to grow at a CAGR of 12.1% in FY12-14E from | 3040.5 crore to | 3819.9 crore. Exhibit 40: Revenue growth trend

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EBITDA to grow even higher

The EBITDA of the company is expected to grow at a CAGR of 18.9% backed by strong revenue growth and an improvement in margins. EBITDA margins are expected to improve from 24.3% in FY12 to 27.4% in FY14 on the back of a robust ad revenue growth and reduction in carriage fees paid to the MSO. However, investment in costly programmes including reality shows would put downward pressure on margins. Exhibit 41: EBITDA growth trend

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We expect revenues to grow at a CAGR of 12.1% in FY12-

14E from | 3040.5 crore to | 3819.9 crore

The EBITDA of the company is expected to grow at a

CAGR of 18.9% backed by strong revenue growth and an

improvement in margins from 24.3% in FY12 to 27.4% in

FY14


PAT to grow at 16.5% CAGR from FY12-14

PAT is expected to grow at a CAGR of 16.5% in FY12-14 on the back of growth in revenue and improvement in EBITDA margins. We expect PAT to grow from | 589.1 crore in FY12 to | 800.0 crore in FY14. Exhibit 42: PAT & PAT margin trend

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Return ratios to improve

We expect growth in ad revenue to come from investment in costlier content including reality shows and big starrer movies. Hence, we expect return ratios to improve slightly in the next two years. We expect RoE to improve from 17.1% in FY12 to 17.5% in FY14 while RoCE is expected to improve from 20.5% to 21.7%. The growth in return ratios seems subdued due to huge cash flows. Consequently, the RoIC would improve significantly from 23.8% to 27.7%. Exhibit 43: Return ratios to improve

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PAT is expected to grow at a CAGR of 16.5% in FY12-14 on

the back of growth in revenue and improvement in EBITDA

margins

We expect RoE to improve from 17.1% in FY12 to 17.5% in

FY14, while RoCE is expected to improve from 20.5% to

21.7%.


Risk & Concerns Macroeconomic environment

CY11 has, thus, far been a tough year with GDP growth falling to below 6% levels (5.3% in Q4FY12 and 5.5% in Q1FY13). This has caused advertisers across the economy to cut down on their ad spends. Companies across the media sector ranging from print to broadcasters have felt the heat of the economic slowdown with most reporting a stagnant growth or de-growth in ad revenue. However, Zee has outgrown the industry in terms of ad revenue due to its improvement in market share. However, if the economic scenario continues to remain challenging, the overall ad pie could contract resulting in lower-than-expected growth for the company.

Investment in high cost content may not yield desired results

The company’s change in strategy of investing in high cost content may not yield an ad revenue growth in proportion to its cost as the popularity of the content is highly dependent on consumer taste and shows telecasted on other channels simultaneously. Also, the company would be launching new channels in the future based on the current library as well as acquisition of new content. The success of new channels depends on the quality of programming, price, marketing, etc. It is not assured that the new channels would be as successful as some of its existing ones. Margins would be under pressure if the high cost content fails to drive in expected ad revenue growth.

Moreover, it is yet to be seen if the strategy of paying huge amounts on the satellite rights of movies would generate suitable returns. The broadcasters started the practice of acquiring new movies at high prices only two or three years back while the license period is typically five to seven years. It remains to be seen if broadcasters can monetise the movie rights to generate profitable ratios over the life of the license.

Delay in digitisation

If there is a delay in digitisation, the subscription revenue may not grow as much as expected. The sports business would be the most affected due to the delay in digitisation as sports channels are more dependent on subscription revenue than advertisement revenue and, hence, are more sensitive to digitisation.


Valuation At a time when Hindi GECs were dominated by three GECs including Star Plus, Zee TV and Sony, Zee TV was a strong second player in the industry and the company was trading at a significant premium to Sensex forward PE. ZEEL’s P/E multiple reached a peak of over 200% over Sensex PE.

However, with Colors coming into the picture and competition toughening up resulting in a reduction in Zee TV’s market share in Hindi GEC, Zee’s premium to the Sensex started fading. Also, during the period of global recession, companies across the sector saw immense pressure on their ad revenue with lead Zee trading at a discount to Sensex PE.

Exhibit 44: Sensex vs. ZEE P/E

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ZEEL P/E Premium to Sensex Average Premium Zee TV Market Share among top 5 Hindi GEC


At the fag end of FY12 when the company started investing in high cost content, Zee TV witnessed an increase in its market share in Hindi GEC, which led to the company trading at a significant premium to the Sensex again. The average premium of Zee to Sensex since January 2007 has been ~ 48%.

The stock has traded at a maximum PE of 38.8x and a minimum PE of 6.8x since January 2007. The average PE for the same period has been 21.0x.

Sun TV network had been trading at PE of 21-27x before the promoter was named in a CBI charge sheet relating to the Airtel-Maxis deal. We believe that though Sun TV is fundamentally stronger than ZEEL owing to its leadership position in all the markets it operates in, ZEEL would also get a growth premium especially after improving its market share in Hindi GEC and step up in investments in quality content.


Exhibit 45: ZEEL - one year forward PE chart

Max P/E, 38.8

Min P/E, 6.8

Average P/E, 21.0

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Though the stock is trading at more than its five year average premium to the Sensex, it is trading at its long term average P/E of 21.0x one year forward earnings. The last few years have been marked by ZEEL’s underperformance to its peers due to low investment in content. However, with a pick-up in investment and improvement in GRP, the multiple and premium to the Sensex have started to expand as visible from the above charts.

We expect the company to continue to invest in high cost content, which would help improve its market share further. With increasing market share, the stock is expected to move further towards higher premium to Sensex multiples and the maximum one year forward PE of 38.8x.

We have valued Zee at 21x FY14E EPS to arrive at a target price of | 175. Though there has been a marked improvement in the company’s operating performance, due to the recent run up, the stock looks fairly valued at current levels. We initiate coverage on ZEEL with HOLD rating.

The stock has traded at a maximum PE of 39.8x and a

minimum PE of 7x since January 2007. The average PE for

the same period has been 21.0x


Financial summary

Profit and loss statement

(| Crore)(Year-end March) FY11 FY12 FY13E FY14ETotal operating Income 3,013.6 3,040.5 3,370.3 3,819.9Growth (%) 37.0 0.9 10.8 13.3Operational Cost 1,436.9 1,431.1 1,576.1 1,795.3Employee Expenses 273.8 292.5 303.6 334.2Marketing Expenses 189.6 0.0 0.0 0.0Administrative Expenses 286.6 577.4 587.5 645.6

Total Operating Expenditure 2,187.0 2,301.0 2,467.3 2,775.1EBITDA 826.6 739.5 903.0 1,044.7Growth (%) 24.2 -9.5 7.5 15.2

Depreciation 28.8 32.3 41.0 43.1Interest 10.4 5.0 7.2 7.2Other Income 85.1 138.4 124.7 160.0Exceptional Items (19.7) - - - PBT 892.2 840.6 979.6 1,154.4Minority Interest (11.8) 1.7 4.1 8.1 PAT from Associates 0.0 0.2 - -

Total Tax 267.1 250.0 298.5 346.3PAT 637.0 589.1 677.0 800.0Growth (%) 0.4 -7.5 14.9 18.2EPS (|) 6.5 6.1 7.1 8.3


Cash flow statement

(| Crore)(Year-end March) FY11 FY12 FY13E FY14EProfit after Tax 637.0 589.1 677.0 800.0Add: Depreciation 28.8 32.3 41.0 43.1(Inc)/dec in Current Assets -64.3 -179.3 -337.2 -429.3Inc/(dec) in CL and Provisions -3.9 79.0 93.2 127.0Others 10.4 5.0 7.2 7.2CF from operating activities 607.9 526.1 481.1 548.1(Inc)/dec in Investments -376.1 -103.5 0.0 0.0(Inc)/dec in Fixed Assets 1,083.4 -125.9 -100.0 -80.0Others -15.6 -123.1 0.7 3.4

CF from investing activities 691.7 -352.5 -99.3 -76.6Issue/(Buy back) of Equity 48.9 -1.9 0.0 0.0Inc/(dec) in loan funds -117.8 22.3 0.0 0.0Others -1,431.4 -251.5 -174.4 -174.4CF from financing activities -1,500.3 -231.1 -174.4 -174.4Net Cash flow -200.7 -57.5 207.4 297.2Opening Cash 586.6 385.8 328.3 535.8Closing Cash 385.8 328.3 535.8 832.9


Balance sheet

(| Crore)(Year-end March) FY11 FY12 FY13E FY14ELiabilitiesEquity Capital 97.8 95.9 95.9 95.9Reserve and Surplus 2,997.0 3,335.0 3,844.8 4,477.7Others - 4.6 4.6 4.6

Total Shareholders funds 3,094.9 3,435.5 3,945.3 4,578.2Total Debt 1.7 24.0 24.0 24.0Minority Interest (11.9) (3.2) 0.9 9.0 Total Liabilities 3,084.7 3,456.3 3,970.2 4,611.1

AssetsGross Block 973.5 1,120.5 1,220.5 1,300.5Less: Acc Depreciation 167.0 200.6 241.6 284.7Net Block 806.4 919.9 979.0 1,015.8Capital WIP 39.9 20.1 20.1 20.1Total Fixed Assets 846.4 940.0 999.1 1,035.9Investments 696.4 799.9 799.9 799.9Inventory 539.6 733.9 923.4 1,151.2Debtors 895.5 869.0 963.2 1,091.7Loans and Advances 480.5 488.9 541.9 614.2Other Current Assets 1.3 4.3 4.8 5.4Cash 385.8 328.3 535.8 832.9Total Current Assets 2,302.6 2,424.4 2,969.1 3,695.5Creditors 531.5 584.5 647.9 734.3Provisions 248.6 274.6 304.4 345.0Total Current Liabilities 780.1 859.1 952.3 1,079.3Net Current Assets 1,522.6 1,565.3 2,016.8 2,616.2Other non current assets 19.3 151.0 154.5 159.1Application of Funds 3,084.7 3,456.3 3,970.2 4,611.1


Key ratios

(Year-end March) FY11 FY12 FY13E FY14EPer share data (|)EPS 6.5 6.1 7.1 8.3Cash EPS 6.8 6.5 7.5 8.8BV 31.6 35.8 41.1 47.7DPS 2.0 1.5 1.5 1.5Cash Per Share 3.9 3.4 5.6 8.7Operating Ratios (%)EBITDA Margin 27.4 24.3 26.8 27.4PBT / Total Operating income 29.6 27.6 29.1 30.2

PAT Margin 21.1 19.4 20.1 20.9Inventory days 65.4 88.1 100.0 110.0Debtor days 108.5 104.3 104.3 104.3Creditor days 64.4 70.2 70.2 70.2Return Ratios (%)RoE 20.6 17.1 17.2 17.5RoCE 25.9 20.5 21.7 21.7RoIC 29.8 23.8 26.3 27.7Valuation Ratios (x)P/E 26.9 28.5 24.8 21.0EV / EBITDA 19.8 22.3 18.0 15.3EV / Net Sales 5.4 5.4 4.8 4.2Market Cap / Sales 5.6 5.5 5.0 4.4Price to Book Value 5.5 4.9 4.3 3.7Solvency RatiosDebt/EBITDA 0.0 0.0 0.0 0.0Debt / Equity 0.0 0.0 0.0 0.0Current Ratio 3.0 2.8 3.1 3.4Quick Ratio 2.3 2.0 2.1 2.4



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