Post on 20-Jan-2021
Page 1
SPARK RESEARCH
01 July 2016
WHAT’S INSIDE
Initiating Coverage – Indian Media & Entertainment Sector
– Zee Entertainment Enterprise Limted ; Sun TV ; Dish TV
AR and Company Update – Ultratech Cement – ADD (TP of Rs. 3600)
Exchange and Currency Performance
Spark Focus Stocks
Technical Indicators
Spark Model Portfolio
Today’s News and Announcements
Find Spark Research on Bloomberg (SPAK <go>),
Thomson First Call, Reuters Knowledge and Factset
DEALER’S COMMENTS
Stocks of power sector, telecom and private sector banks led gains
for the benchmark equity indices. A likely boost to consumption
demand from increase in salaries and payment of arrears to
government employees due to the implementation of the 7th Pay
Commission recommendations, gains in global markets and short
covering aided the upmove. Market breadth was strong. BSE Mid-
Cap index outperformed the Sensex while BSE Small-Cap index
underperformed the Sensex. Among BSE sectoral indices, realty
gained the most followed by power, consumer durables and
infrastructure. India VIX advanced 0.83% to 16.2900. On the NSE, 89
shares rose to fresh 52 week high while 15 fell to new 52 week low.
VIJAYARAGHAVAN SWAMINATHAN raghavan@sparkcapital.in +91 44 4344 0022
Among the digital advertisement avenues, videos are the rapidly growing segment, especially on entertainment content
Source:FICCI KPMG, Industry Sources & Spark Capital research
Video 25%
Search & Display
47%
Classifieds 15%
Social 8%
Others 5%
Youtube 67%
Others 33%
Film/TV, 60.0%
Music, 28.0%
Education, 8.0%
Health, 1.0%
Others, 3.0%
Google dominating
offerings across
digital offerings has
certainly emerged as
the BAAP of Indian
Digital Space (Click
here for additional
information)
Page 2
SPARK RESEARCH
01 July 2016
Exchange and Currency Performance
Today 1d 5d 1m 3m 6m 12m Today 1d 5d 1m 3m 6m 12m
US (Dow Jones) 17,930 1.3 -0.5 0.8 0.8 2.9 1.0 -1.3 16.7 Dollar Index# 95.8 -0.3 0.4 0.4 1.3 -2.8 -0.5 -4.6 4.3
UK (FTSE100) 6,504 2.3 2.6 5.0 5.8 4.2 -1.6 -4.5 18.3 Pound 1.3 0.2 -2.5 -7.4 -6.2 -9.7 -14.6 -15.7 1.7
Japan (Nikkiei 225) 15,680 0.7 4.9 -7.5 -3.0 -17.6 -22.9 -25.1 5.5 Yen 102.9 0.3 -0.7 6.5 8.5 17.0 19.7 -17.9 4.0
Germany (DAX) 9,680 0.7 -5.6 -5.1 -1.2 -9.9 -13.4 -18.0 11.3 Euro 1.1 0.0 -0.1 -0.8 -2.5 2.2 0.4 -5.2 5.5
Brazil (IBOV) 51,527 1.0 -0.1 5.1 1.9 18.9 -2.3 -6.3 39.1 Real 3.2 0.2 3.9 12.4 11.8 23.3 -3.4 -24.4 3.3
Russia (Micex) 1,891 0.2 -1.5 -0.1 1.8 7.4 15.3 -4.3 20.4 Ruble 63.9 0.0 1.9 5.0 5.9 13.5 -12.6 -25.7 15.5
India (Sensex) 27,000 1.0 0.0 1.1 6.8 3.2 -3.6 -5.5 20.0 Rupee 67.5 0.2 -0.4 -0.4 -1.9 -2.0 -5.7 -1.8 6.7
China (SHCOMP) 2,937 0.3 2.9 0.8 -2.4 -17.0 -27.5 -32.0 11.3 Renminbi 6.7 -0.1 -0.5 -1.1 -2.6 -2.4 -6.8 -0.2 7.2
South Africa (Jalsh) 52,218 0.6 -2.6 -2.4 1.2 3.0 0.6 -4.6 13.6 Rand 14.8 -0.2 2.2 5.8 -0.3 5.5 -16.9 -17.7 21.2
HK (H S I) 20,794 1.8 -0.4 0.2 1.4 -5.1 -20.8 -21.4 13.8 HK Dollar 7.8 0.0 0.0 0.2 -0.1 -0.1 -0.1 -0.9 0.1
Korea (Kospi) 1,991 1.1 3.4 0.4 0.9 1.5 -5.1 -5.7 10.6 Won 1,146.5 0.5 2.8 4.1 0.7 2.3 -2.5 -7.9 3.1
Singapore (Straits) 2,841 0.0 3.9 1.8 0.8 -1.4 -14.7 -16.0 12.4 SG Dollar 1.3 0.1 0.6 2.3 0.4 5.0 0.6 -6.9 1.1
Malaysia (KLCI) 1,650 -0.3 1.0 1.4 -3.5 -2.5 -4.5 -5.4 9.7 Ringgit 4.0 1.1 2.7 4.1 -2.4 7.7 -6.0 -11.1 6.2
Indonesia (Jakarta) 5,020 0.1 3.8 3.7 3.7 9.3 2.4 -0.4 24.5 Ind Rupiah 13,190.0 0.2 1.5 3.6 -0.2 4.9 1.0 -11.0 1.6
Commodities Commodities
Brent ($/bbl) 50.1 0.7 3.4 0.7 29.5 34.3 -19.3 -21.0 84.7 Indonesian Coal ($/MT) 51.8 NA NA 1.2 0.4 -3.2 -13.1 -12.4 1.7
WTI ($/bbl) 48.6 0.6 2.1 -1.7 22.1 16.1 -19.6 -21.0 50.9 S Africa Coal ($/MT) 61.0 NA -3.7 -7.6 -6.9 -16.7 -26.4 NA NA
Copper ($/MT) 4,840 0.2 1.3 3.0 -0.8 2.9 -15.9 -16.1 12.3 Australia Coal ($/MT) 61.8 NA -1.0 -0.6 -4.4 -11.9 -25.4 NA NA
Zinc ($/MT) 2,102 0.8 3.2 9.3 16.3 32.0 5.3 0.0 44.9 Gold Spot $/Oz 1,330 0.6 1.1 9.7 8.8 25.3 13.8 -2.1 27.1
Aluminium ($/MT) 1,643 1.0 0.6 6.4 8.8 9.5 -0.5 -11.1 15.4 GOLD INDEX (Rs./10g) 30,539.0 -0.2 3.0 6.7 5.0 22.2 15.9 -2.3 24.3
Iron Ore ($/MT) 54 1.5 7.0 11.9 1.9 24.7 -12.9 -59.6 42.9 Silver Spot $/Oz 19.1 1.8 7.4 19.4 26.6 37.9 22.3 0.0 39.6
Lead ($/MT) 1,785 1.0 3.5 5.3 5.2 -0.7 2.4 -5.9 14.9 MCX Silver (Rs./KG) 43,065.0 1.4 5.1 11.9 17.5 30.6 20.9 0.0 31.0
Asian Asian
Chg.
from
52WH
Chg.
from
52WL
Developed Developed
BRICS BRICS
Global Indices
Equity Performance (%) Chg.
from
52WH
Chg.
from
52WL
Currency
Currency Performance (%)
Performance (%) Performance (%)
Page 3
SPARK RESEARCH
01 July 2016
NSE / BSE Category wise turnover
Exchange and Currency Performance
Particulars Today 1D 1M 3M 6M 12M
Reverse Repo 225 264 32 431 98 191
Repo 48 29 99 66 104 81
MSF - 1 - 3 8 1
Net liquidity 177 234 (67) 362 (14) 110
Change in BPS
NSE MIBOR 6.78 (7) (55) (42) (99) (136)
1M CP 7.60 (2) (14) (109) (1) (39)
3M CP 7.79 (3) (18) (91) 6 (36)
6M CP 8.08 - (10) (71) 4 (33)
3M CD 7.26 - 11 (23) (87) (108)
6M CD 7.46 9 24 (19) (81) (101)
12M CD 7.62 3 17 (25) (71) (104)
Change in BPS
India 10 yr 7.45 - (4) (1) (28) (37)
US 10 yr 1.46 (1) (38) (31) (81) (97)
Spread (India 10Y-US10Y) 599
India 10YR AAA corp 8.36 4 5 (5) (6) (20)
Spread (India 10Y-AAA10Y) 91
91D T.Bills 6.73 (4) (13) (50) (50) (96)
1Y T.Bills 6.88 2 (5) (25) (36) (83)
Call rate 6.39 14 0 (37) (29) (67)
Change in BPS
LIBOR 0.45 (21) (50) (82) (40) (65)
MIFOR 7.06 (16) (27) (34) 22 (7)
OIS 6.47 (4) (12) (23) (14) (32)
12m OIS fw d 6.57 - (12) (11) (48) (96)
Money Market Rates
Liquidity (Rs. Bn)
LIBOR, MIFOR
Bond Market
Last 5 Day FII Buy FII Sell Net DII Buy DII Sell Net
30-Jun-16 81.1 70.1 11.1 31.2 33.1 -1.9
29-Jun-16 35.7 34.6 1.0 15.7 15.9 -0.2
28-Jun-16 36.7 38.6 -1.9 15.7 18.2 -2.4
27-Jun-16 34.2 35.7 -1.5 14.3 15.8 -1.5
24-Jun-16 38.7 44.9 -6.3 29.7 28.5 1.1
Market Activity FII & DII - Provisional (INR Bn)
79
151
70 75 70 84
34
64
32 34 30 58
89
82
100 88 96
144
-
50
100
150
200
250
300
350
1M avg30-Jun29-Jun28-Jun27-Jun24-Jun
Rs. b
n
FII DII Others
Date Script Client Name Type Quantity Price
30-Jun-16 ARMANFIN RELIANCE MUTUAL FUND B 1,81,175 195.00
30-Jun-16 EUROCERA ASPIRE EMERGING FUND B 3,08,239 6.64
30-Jun-16 ARMANFIN PARAM CAPITAL B 1,32,304 235.88
30-Jun-16 JUBLFOOD CREDIT SUISSE (SINGAPORE) LIMITED A/C CREDIT SUISSE (SINGAPB 31,860 1,136.02
30-Jun-16 JUBLFOOD CREDIT SUISSE (SINGAPORE) LIMITED A/C CREDIT SUISSE (SINGAPS 4,48,457 1,134.90
Bulk Deals (INR Mn)
Rank Company Delivery % 30D Del. % Price Chg
1 HCL TECHNOLOGIES LTD 78.9 76.8 0.0%
2 POWER GRID CORP OF INDIA LTD 75.4 64.5 -0.3%
3 HOUSING DEVELOPMENT FINANCE 73.8 67.8 0.0%
4 WIPRO LTD 73.1 71.1 0.4%
5 ITC LTD 72.2 63.9 -1.1%
6 SUN PHARMACEUTICAL INDUS 71.7 63.6 0.5%
7 UNITED SPIRITS LTD 68.9 43.9 -0.6%
8 TATA CONSULTANCY SVCS LTD 67.9 63.2 0.6%
9 TECH MAHINDRA LTD 67.7 54.8 -0.4%
10 INFOSYS LTD 67.6 68.0 -0.5%
Nifty Top 10 Deliveries
Page 4
SPARK RESEARCH
01 July 2016
Spark Focus Stocks
1D 1M 3M 1Y FY17E FY18E FY17E FY18E
ASHOK LEYLAND LTD 99.9 0.2 (0.1) (5.8) 39.6 5526.3 0.1 38.0 22.2 19.6 10.6 9.5 Buy
AMARA RAJA BATTERIES LTD 865.0 0.8 (6.2) (4.4) (1.2) 220.7 0.6 66.0 24.7 19.6 15.6 13.0 Buy
GATEWAY DISTRIPARKS LTD 314.0 - 10.0 16.6 (13.1) 52.2 (0.5) 51.1 20.2 13.2 10.4 8.1 Buy
WABCO INDIA LTD 5568.5 (2.3) (3.9) (9.1) 2.8 2.6 (0.3) 62.2 33.9 26.5 23.1 18.2 Add
CHOLAMANDALAM INVESTMENT AND 932.9 (0.8) 6.4 35.7 46.3 43.5 (0.8) 69.6 3.3 3.1 3.3 3.1 Buy
CITY UNION BANK LTD 110.1 - 6.8 20.1 7.9 232.3 (0.2) 72.4 1.7 1.5 1.7 1.5 Buy
DCB BANK LTD 97.1 (0.5) 9.8 27.7 (26.3) 553.6 0.0 57.1 1.4 1.3 1.4 1.3 Sell
FEDERAL BANK LTD 55.7 (2.4) 12.3 12.2 (21.8) 2919.2 (0.2) 49.1 1.0 1.0 1.0 1.0 Buy
KARUR VYSYA BANK LTD 493.4 1.9 3.1 15.0 6.1 72.7 (0.1) 59.9 1.3 1.1 1.3 1.1 Buy
REPCO HOME FINANCE LTD 756.9 2.3 12.9 28.7 20.1 16.1 (0.7) 51.3 4.4 3.7 4.4 3.7 Buy
SOUTH INDIAN BANK LTD 20.1 (1.7) 11.1 13.0 (17.1) 1175.1 (0.5) 31.6 0.8 0.7 0.8 0.7 Buy
DALMIA BHARAT LTD 1088.2 0.6 26.5 35.6 77.4 31.5 0.7 61.3 32.6 22.0 8.7 7.6 Buy
RAMCO CEMENTS LTD/THE 548.2 (1.7) 12.3 33.6 58.9 119.6 (0.4) 50.4 21.3 18.8 12.8 11.5 Add
BLUE STAR LTD 429.4 1.2 0.3 12.4 21.1 18.5 (0.2) 75.8 29.0 19.7 15.9 11.3 Buy
TTK PRESTIGE LTD 4636.4 (0.4) (1.6) 4.1 17.5 2.5 0.6 47.3 37.4 31.9 22.8 19.6 Sell
VA TECH WABAG LTD 569.8 (3.7) (0.0) 5.5 (23.6) 72.3 0.2 63.6 22.2 17.0 12.2 9.9 Add
V-GUARD INDUSTRIES LTD 1367.5 0.0 15.1 59.0 48.9 12.9 (0.4) 32.8 31.9 26.5 19.8 16.8 Buy
CYIENT LTD 499.0 1.5 9.3 16.3 (17.5) 5.1 (0.9) 60.8 14.8 12.8 10.7 9.4 Add
FIRSTSOURCE SOLUTIONS LTD 46.2 - 17.1 42.2 52.5 1133.1 (0.4) 40.8 10.3 8.9 6.6 5.9 Buy
HEXAWARE TECHNOLOGIES LTD 221.5 4.5 5.7 (17.3) (16.5) 336.8 (0.1) 47.9 15.0 13.0 10.5 9.2 Sell
INTELLECT DESIGN ARENA LTD 201.9 (1.0) (2.8) (4.9) 83.9 112.4 (0.4) 27.5 86.7 28.8 52.1 21.3 Buy
REDINGTON INDIA LTD 103.0 0.3 (5.5) (10.0) 2.8 163.1 (0.9) 50.7 9.0 7.8 5.9 5.4 Add
BAJAJ CORP LTD 395.5 0.3 1.3 7.9 (8.8) 17.3 (0.6) 59.5 21.2 18.6 16.7 15.9 Buy
BERGER PAINTS INDIA LTD 285.0 (2.0) 2.7 23.9 45.9 49.5 (0.7) 64.5 39.6 30.0 23.6 18.5 Reduce
INDIAN TERRAIN FASHIONS LTD 151.7 0.1 10.6 14.5 15.6 28.9 (0.5) 65.3 13.7 10.5 0.8 0.5 Buy
JYOTHY LABORATORIES LTD 297.4 (0.4) (0.3) 4.4 (1.5) 31.4 (0.8) 58.7 31.2 29.3 20.0 17.5 Add
KEWAL KIRAN CLOTHING LTD 1805.7 0.4 (0.5) 1.4 (18.5) 0.2 (0.9) 84.1 18.0 19.4 11.4 11.1 Add
LA OPALA RG LTD 548.5 3.3 5.7 (6.5) 52.7 11.0 (0.3) 73.1 43.4 33.4 27.4 21.6 Reduce
RELAXO FOOTWEARS LTD 484.4 (2.1) 5.5 30.2 8.5 13.3 (0.2) 43.0 18.0 14.3 20.2 16.2 Add
Consumption
Returns (%)
Auto, Agri &
logistics
Financials
Cement
Top Del. % Company Price
IT Services
Delivery
Volume
('000)
Rating
PE for all sectors &
P/ABV for banksEV/EBITDA (x)
Capital Goods
% inc/dec
to 30D avg
Delivery
%
Page 5
SPARK RESEARCH
01 July 2016
0
150
7700
7750
7800
7850
7900
7950
8000
8050
8100
8150
8200
8250
8300
8350
8400
8450
8500
8550
8600
8650
Rs. b
n
Total Call Value Total Put Value
Max Pain Theory (based on Index Options) – Indicative Nifty closing for next Expiry
Nifty Open Interest (‘000 contracts)
Technical Indicators
Nifty PCR
0
20
40
60
7500
7600
7700
7800
7900
8000
8100
8200
8300
8400
8500
8600
8700O
I ('0
00)c
on
tracts Call Put
0.6
0.8
1.0
1.2
1.4
19-M
ay
21-M
ay
23-M
ay
25-M
ay
27-M
ay
29-M
ay
31-M
ay
2-J
un
4-J
un
6-J
un
8-J
un
10-J
un
12-J
un
14-J
un
16-J
un
18-J
un
20-J
un
22-J
un
24-J
un
26-J
un
28-J
un
30-J
un
Nifty PCR Nifty PCR (30D avg)
FII Open Interest 6-23 6-24 6-27 6-28 6-29 Delta 6-30 Delta Delta
Index Futures 137 143 120 140 153 13.7 165 11.1 (27.9)
Stock Futures 546 549 534 555 560 5.6 572 11.2 (108.2)
Stock Options 62 67 68 68 70 1.6 70 0.1 (69.0)
Index Options 466 488 519 548 564 16.1 586 21.8 6.5
Total (Rs. Bn) 1212 1246 1241 1310 1347 36.9 1392 44.2 (198.6)
Top CompanyPrice
Change
OI
Change
Close
Price
(Rs. / sh)
Indian Overseas Bank 0.9% 133.9% 27
Housing Development & Infrastr 3.9% 27.7% 103
PTC India Ltd 2.3% 25.1% 77
Adani Pow er Ltd 0.2% 22.6% 31
DLF Ltd 4.4% 22.0% 150
Reliance Communications Ltd 4.8% 20.7% 51
Shriram Transport Finance Co L 5.2% 16.4% 1,204
Oriental Bank of Commerce 1.5% 13.9% 108
Adani Enterprises Ltd 4.1% 12.2% 87
Tata Motors Ltd 1.4% 11.2% 292
IDFC Ltd -1.5% 21.5% 48
MRF Ltd -1.3% 15.5% 33,078
JSW Energy Ltd -0.8% 12.5% 84
Godrej Industries Ltd -3.1% 11.9% 397
Bata India Ltd -1.1% 10.9% 546
GAIL India Ltd 0.0% 6.8% 385
Sun Pharmaceutical Industries -0.9% 6.6% 763
Ambuja Cements Ltd -0.4% 5.3% 255
Cipla Ltd/India -0.3% 3.6% 501
Infosys Ltd -0.5% 1.9% 1,171
Ashok Leyland Ltd -1% -4% 98
Indian Oil Corp Ltd 0% -1% 441
- - 0% -
- - - -
- - - -
UCO Bank 3.1% -22.0% 43
Hero MotoCorp Ltd 0.7% -18.9% 3,178
NHPC Ltd 0.8% -14.6% 25
CESC Ltd 2.0% -8.3% 597
Unitech Ltd 1.6% -6.8% 6
Lo
ng
Un
win
dS
ho
rt
Co
veri
ng
Lo
ng
Bu
ild
up
Sh
ort
Bu
ild
up
Page 6
SPARK RESEARCH
01 July 2016
0.7%9.6% 5.9% 7.4%
111.7%
-0.4%
5.4% 1.6%
-1.8%
51.2%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
1M 3M 6M 1 yr Since Oct'13
Spark BSE 200
0
50
100
150
Oct-
13
No
v-1
3D
ec-1
3Jan
-14
Feb-1
4M
ar-
14
Ap
r-14
May-1
4Jun
-14
Jul-
14
Aug
-14
Sep
-14
Oct-
14
No
v-1
4D
ec-1
4Jan
-15
Feb-1
5M
ar-
15
Ap
r-15
May-1
5Jun
-15
Jul-
15
Aug
-15
Sep
-15
Oct-
15
No
v-1
5D
ec-1
5Jan
-16
Feb-1
6M
ar-
16
Ap
r-16
May-1
6Jun
-16
%
Spark Portfolio BSE 200 INDEX
Spark Portfolio returns vs. BSE 200 returns
Spark Model Portfolio
Spark Portfolio returns vs. BSE 200 returns CompanyB SE 200
Weights
Spark
Weights
M cap
(R s. B n)CMP
6M A T V
(R s. M n)
Fina nc ia ls 2 7 .9 % 3 3 .0 %
HDFC Bank Ltd 7.0% 2,978 1,176 1,681
Yes Bank Ltd 6.0% 466 1,107 3,478
Kotak Mahindra bank 5.0% 1,401 763 1,246
IndusInd Bank Ltd 5.0% 662 1,112 1,488
Federal Bank Ltd 4.0% 99 58 356
Karur Vysya Bank 3.0% 60 496 62
City Union Bank 3.0% 70 116 53
Consume r 13 .8 % 15 .0 %
Asian Paints Ltd 4.0% 962 1,003 1,056
Voltas Ltd 3.0% 107 322 525
Arvind Ltd 3.0% 85 329 616
Bata India Ltd 3.0% 70 546 231
Wonderla Holidays 2.0% 23 406 30
Auto 10 .8 % 16 .0 %
Maruti Suzuki India Ltd 4.0% 1,265 4,187 3,635
Hero Motocorp Ltd 4.0% 635 3,178 1,226
Eicher motors 3.0% 522 19,222 1,259
Exide Industries Ltd 3.0% 144 170 23
Timken India 2.0% 39 567 14
He a lthc a re 7 .6 % 4 .0 %
Sun Pharma 2.0% 1,837 763 2,874
Aurobindo pharma 2.0% 434 743 1,702
Informa tion Te c hnology 13 .1% 2 .0 %
Wipro Ltd 2.0% 1,379 558 831
Oil & Ga s 7 .8 % 4 .0 %
BPCL Ltd 2.0% 775 1,072 1,328
GSPL Ltd 2.0% 81 143 63
Infra struc ture 10 .6 % 2 1.0 %
Coal India 4.0% 1,977 313 1,418
Ultratech Cement 4.0% 936 3,411 956
Cummins India Ltd 3.0% 235 849 261
Sadbhav Engineering Ltd 3.0% 50 293 43
Ramco cements 3.0% 132 554 131
KNR constructions 2.0% 16 558 11
VA Tech Wabag 2.0% 32 592 80
Othe rs 2 .0 %
Kaveri Seed Ltd 2.0% 31 444 400
Ca sh & Othe rs 8 .5 % 3 .0 %Tota l 10 0 .0 %
Page 7
SPARK RESEARCH
01 July 2016
Today’s News
Today’s News
Sector News
Macro In FY16, external debt rose 2.2% to $485.6 b
Delay likely in farm sector recovery: Ind-Ra
CAG to audit crop insurance schemes in nine States
Petrol price cut 89 paise, diesel slashed 49 paise per liter
Maharashtra may have to spend Rs 21,000 cr on 7th pay panel proposals
Japan Manufacturing PMI 48.1 In June - Nikkei
South Korea Manufacturing PMI Climbs To 50.5 - Nikkei
Growth cheer! April core sector output at 8.5% rising for 5th straight month
April-May fiscal deficit at 43% of Budget estimates
Financials HDFC, SBI Life buy 18.5% in IDFC Infra Debt Fund
Reserve Bank to sell Rs 1.85 lakh cr of T-bills in Q2
Banks may need to write off 40-70% of bad loans in infrastructure sector
CAG to audit crop insurance schemes in nine States
Page 8
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
Over The Top (OTT)
Find Spark Research on Bloomberg (SPAK <go>),
Thomson First Call, Reuters Knowledge and Factset
GNANASUNDARAM S gnanasundar@sparkcapital.in +91 44 4344 0062
Initiating Coverage Indian Television industry is at the cusp of digital revolution. Digitization is expected to play a key role in how content would
be consumed as well as how content is transmitted. On analysis, we believe the key themes impacting the television industry
are: (1) Emergence of Digital advertising is certainly a threat, but only on a longer term timeframe in the television industry,
(2) Over The Top (OTT) content applications are for certain exciting and promising, 3Ps in programming, Pricing and
Payment infrastructure would shape the growth of the OTT market in India, (3) Given the consumption opportunity in India
across FMCG and discretionary categories, advertisement growth from these sectors would continue driving advertisement
income for the television Industry, (4) Regional markets which boast of higher than national per capita income have become
the consumption companies’ key markets, thereby driving broadcasters to regional markets, (5) Television was not the most
effective medium for reaching out to rural audience, however this has changed with new Broadcast Audience Research
Council (BARC) data, growth of DD dish and digitization into rural markets, (6) Except for a few pockets, Digitization of
network to track the last mile user is progressing stealthily. Though a few litigations have temporarily halted the progress of
digitization in certain pockets, it is inevitable that the entire user base will be digitized but probably extending beyond the
stipulated December 31, 2016 deadline. (7) With several vertical holdings present across media houses, few Distribution
Platform Operators (DPO’s) complain of discriminatory pricing at wholesale level; Telecom Regulatory Authority Of India
(TRAI) has floated a consultation paper, and recommendations by TRAI on the pricing format is for sure set to have a bearing
across all the players in the industry.
Zee Entertainment Enterprise Limted (ZEEL) – Zealous Pursuit
We initiate coverage on Zee Entertainment Enterprise Limited (ZEEL) with a ‘BUY’ rating (TP: Rs. 510) on the back of revenues and
earnings CAGR assumptions of ~17% and ~25% respectively from FY16 –FY18 led by (1) ~19% advertisement revenue CAGR as
viewership across Hindi & Regional markets gain traction, (2) Mid teens growth in subscription revenues as broadcasters are expected
to get a larger share of subscription income, (3) Content cost rationalisation as new channel investments begin to pay off, (4) EBITDA
margin expansion on the back of lower business promotion and marketing expenses, (5) Established strong Over The Top (OTT)
platforms which should enable them to take advantage of rise in digital spends
Sun TV – Cloudy Skies Clearing
We initiate coverage on Sun TV with a ‘BUY’ rating (TP: Rs.433) as we believe revenues and earnings would grow at a CAGR of
~13% and ~17% respectively from FY16 –FY18 led by (1) Sun TV consolidating its market leadership in the lucrative Tamil market, (2)
Improving viewership traction in Telugu and Kannada market, (3) Cost savings arising from increased number of dubbed serials, (4)
Further reduction in Cable & Satellite (C&S) costs of movies, (5) Heightened subscription revenues on the back of digitization gaining
momentum in 3 of the 4 southern states and (6) Radio business improving its mileage
Dish TV – High Definition leverage play
We initiate coverage on Dish TV with a ‘BUY’ rating (TP: Rs.122) on the back of revenues and earnings CAGR assumptions of ~13%
and ~36% respectively from FY16 –FY18 led by (1) Increase in net subscriber base as digitization coverage extends to phase 4 cities,
where Direct To Home (DTH) operators are expected to gain higher traction Vs digital cable, (2) Dish TV anticipated to gain higher
share among DTH players led by its distinguished rural presence, higher number of channels and High Definition (HD) channels,
attractive bouquet packaging and superior technology (3) Average Revenue Per User (ARPU) increasing by ~2% led by price
increases and increasing traction for HD channels, (4) Improved EBITDA margins arising out of operating leverage that emerges out of
fixed fee content costs and other operating expenses (6) Lower Interest expenses with majority of debt being repaid over the next two
years.
Performance (%)
1m 3m 12m
Z IN 1% 18% 25%
DITV IN 10% 15% -8%
SUNTV IN 1% -3% 31%
Market data
BSE SENSEX 27184
Nifty 8343
-20%
-10%
0%
10%
20%
30%
Jul-15 Oct-15 Jan-16 Apr-16 Jul-16
NIFTY Media Index Sensex
Page 9
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#6 –Broadcasters
& DTH players to
gain the most in
next phase of
digitization
#4 – Regional
markets gaining
in prominence as
investments
increase
#2 – Content
holders to be the
king as OTT
platforms gains
acceptance
14%
213 361
637 116
181
320
2011 2015 2019P
Television Industry growth
Subscription Revenue Advertisement Revenue
12%
15%
15%
13%
15%
#1 – Impact due to
emergence of
digital platform to
be limited in near
to medium term
#3 – Consumption
growth should
continue to drive
television
advertisement
#5 – Broadcasters
changing the
game to suit
BARC &
regulatory needs
Page 10
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
Digital advertisements have gained significant mileage in the past few years, contributing to ~5% in 2015 and to contribute ~11% by 2020
% of market 2010 2011 2012 2013 2014 2015 2015-10 2020E 2020-15
TV 45.6% 45.2% 45.1% 45.4% 46.3% 46.9% 133bps 48.6% 167bps
Print 29.6% 28.7% 27.3% 26.5% 25.7% 24.5% -508bps 18.2% -626bps
Films 12.8% 12.8% 13.7% 13.6% 12.3% 11.9% -83bps 10.1% -189bps
Radio 1.5% 1.6% 1.5% 1.6% 1.7% 1.7% 18bps 1.9% 20bps
Music 1.3% 1.2% 1.3% 1.0% 1.0% 0.9% -39bps 0.9% -2bps
OOH 2.5% 2.4% 2.2% 2.1% 2.1% 2.1% -42bps 2.0% -11bps
Animation 3.6% 4.3% 4.3% 4.3% 4.4% 4.4% 78bps 4.8% 36bps
Gaming 1.5% 1.8% 1.9% 2.1% 2.3% 2.3% 76bps 2.2% -5bps
Digital Advertising 1.5% 2.1% 2.6% 3.3% 4.2% 5.2% 366bps 11.3% 609bps
Total Market Size (Rs.bn) 652 728 820 918 1026 1157 12.1% 2260 14.3%
Driven by rising aspirations and increase in disposable income, more Indian consumers are migrating to smartphone,
which should be the key driver to digital advertisement growth in India
Source: FICCI KPMG, Industry Sources & Spark Capital research
#1 – Impact due to emergence of digital platform to be limited in near to medium term
Among the digital advertisement avenues, videos are the rapidly growing segment, especially on entertainment content
Source:FICCI KPMG, Industry Sources & Spark Capital research
Video 25%
Search & Display
47%
Classifieds 15%
Social 8%
Others 5%
Youtube 67%
Others 33%
Film/TV, 60.0%
Music, 28.0%
Education, 8.0%
Health, 1.0%
Others, 3.0%
Google dominating
offerings across
digital offerings has
certainly emerged as
the BAAP of Indian
Digital Space (Click
here for additional
information)
CLICK HERE FOR ADDITIONAL DATA
Page 11
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
If international geographies are any indication, pace of digital growth to be humongous as 3Ps – Program, Pricing and Payment in India matures
% Contribution 2012 2015 2015-12 2020E 2020-15
USA UK CHINA USA UK CHINA USA UK CHINA USA UK CHINA USA UK CHINA
TV 39.1% 26.0% 36.0% 37.7% 25.2% 28.3% -140bps -80bps -771bps 32.9% 21.5% 15.4% -480bps -370bps -1286bps
Digital 22.3% 40.0% 30.0% 32.6% 50.7% 44.8% 1030bps 1070bps 1484bps 44.9% 60.0% 68.2% 1230bps 930bps 2332bps
Mobile 2.6% 4.0% 4.0% 17.3% 21.2% 24.6% 1470bps 1720bps 2062bps 32.9% 44.4% 57.4% 1560bps 2320bps 3281bps
Print 20.7% 24.0% 14.7% 15.4% 15.4% 8.6% -530bps -860bps -610bps 11.1% 11.0% 4.0% -430bps -440bps -455bps
Newspapers 11.5% 17.3% 12.8% 8.0% 11.1% 7.4% -350bps -620bps -539bps 5.5% 7.9% 3.4% -250bps -320bps -397bps
Magazines 9.2% 6.2% 1.9% 7.4% 4.3% 1.2% -180bps -190bps -72bps 5.6% 3.1% 0.6% -180bps -120bps -58bps
Radio 9.3% 3.0% 6.7% 7.8% 2.2% 6.2% -150bps -80bps -48bps 6.1% 1.8% 3.9% -170bps -40bps -229bps
Out of Home 4.0% 7.0% 12.0% 4.0% 6.6% 12.1% 0bps -40bps 6bps 3.4% 5.7% 8.4% -60bps -90bps -362bps
Directories 4.5% 0.0% 0.0% 2.5% 0.0% 0.0% -200bps NA NA 1.6% 0.0% 0.0% -90bps NA NA
Digital is certain to increase its share given its better efficiency vs other mediums however
we believe the loser in near to medium term would be print advertising and not television
Source: FICCI KPMG, Industry Sources & Spark Capital research
#1 – Impact due to emergence of digital platform to be limited in near to medium term
However, our analysis reveals that advertisement segment for digital currently overlaps more with Print media, leading them to losing share
E-Comm Telecom BFSI Travel Auto FMCG Media Education HH
Durables
Real
Estate Retail
Clothing/
Fashion Others Corporate
Alcoholic
Beverage
Digital
Advertisement 15% 15% 11% 11% 10% 7% 7% 7% 5% 4% 3% 2% 1% 1% 1%
Advertisement 22% 1% 0% 5% 1% 10% 7% 2% 5% 4% 6% 6% 13% 15% 4%
Print 2015-10
CAGR NA -2% -4% 3% 22% 24% -7% 0% 5% 6% 8% 11% 7% -8% -6%
Television
Advertisement 5% 3% 3% 3% 4% 36% 2% 4% 5% 2% 12% 5% 14% 1% 1%
Source: FICCI KPMG, Industry Sources & Spark Capital research
CLICK HERE FOR ADDITIONAL INFORMATION
Page 12
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#2 – Content holders to be the king as OTT platforms gains acceptance
Video has been the fastest growing segment among digital spends… …leading to several content owners launching OTT services
However the challenge would be to transform users from ‘YouTube’
Given that Indian consumer has got used to streaming videos for free in ‘YouTube’, we believe it would be difficult to convince consumers to
shift to Subscription based model until differentiated and exclusive content is offered.
Source: Industry & Spark Capital Research.
Youtube 67%
Others 33%
Typically the revenues are shared
in the ratio of 45:55 between
google and the content producer.
Being the pioneer in online videos
coupled with model being based
on Advertisement, YouTube
commands a significant following.
Average Cost Per Thousand (CPT)
for a content provider in 2013 on
YouTube was $7.60
OTT Brand Company India Launch Business Model
Yupp TV Yupp TV 2006 SVOD
YouTube Google 2008 AVOD
Viu PCCW-Vuclip 2008 TVOD
Zenga Zenga Media Pte 2009 SVOD
nexGTV Media Matrix 2010 SVOD
The Viral Fever TVF 2010 TVOD
Ditto TV Zee Group 2012 SVOD
Sony Liv Multi Screen Media 2013 AVOD
Dish Online Dish TV 2013 TVOD
Box TV Times Group 2013 TVOD
Eros Now Eros International 2014 TVOD
Lukup Lukup Media 2014 TVOD
Spuul Spuul 2014 TVOD
Hotstar Star India 2015 TVOD
Hooq Singtel 2016 SVOD
Netflix Netflix 2016 SVOD
PressPlay Pressplay 2016 AVOD
Voot Network 18 2016 AVOD
Arre Udigital 2016 TVOD
Ozee Zee Group 2016 AVOD
ALTBalaji Balaji Telefilms TBL 2016 SVOD
21.7 27.0
37.3 3.6
8.3
15.0
3.9
7.0
4.8
0.9
1.3
3.0
2013 2014 2015
Search & Display Video Social Others
2.4x
7.3x
2.2x
AVOD: Advertisement based Video On Demand, SVOD: Subscription based Video On Demand, TVOD: Transaction based Video On Demand
Source: Industry & Spark Capital Research.
Source: Industry & Spark Capital Research.
Page 13
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#2 – Content holders to be the king as OTT platforms gains acceptance
Three essential infrastructure services that needs to be improved for OTT market to improve its reach
Given that users and their requirements are different in OTT platforms as against what is available on Cable & Satellite (C&S), innovative
content, improvement in pricing infrastructure and Payment gateways to lead to next leg of growth for OTT platforms in India
PROGRAM (Click here for details)
PRICING (Click here for details)
PAYMENT (Click here for details)
3 essential P’s driving the growth of Over The Top (OTT) market in India
Tailor made to suit youth
audience needs
Movie content being
available sooner
Improving speed – 4G to
provide further impetus
Encountering piracy
Reducing smartphone
prices
Faster internet at lower cost (RELIANCE JIO to be a revolution)
3G/4G has bought down
pricing levels
Government initiatives to
provide Wi-Fi zones
Credit card enrolments still
low
Emergence of payment
gateways
Prominence of mobile
wallets
Financial service inclusion
“In India, entertainment is life. The fact that
today people are finding it easy to cut away
from appointment viewing and are able to watch
their chosen entertainment anytime and
anywhere has only driven consumer
expectations higher.” - Punit Goenka, Zee
Entertainment Enterprises Ltd
"The idea is to move to a fee-based subscription
model over a period of time and see what content
can be monetised with advertising and what
content can be charged to the customer. We will
have a combination of these two models going
forward,“ - Uday Sodhi, Multi Screen Media
“There aren’t many platforms available to Indian
consumers offering high-quality, curated content
besides, say, YouTube,”
“It’s a valuable audience and advertising will be
very targeted. We can charge a premium versus
other digital players,” - Sanjay Gupta, Star India,
Page 14
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#3 – Consumption growth should continue to drive television advertisement
Advertisement revenue growth for the industry pegged at 13% CAGR Led by GDP growth rates improving and…
…A&P spending of key categories sustaining
Consumption sector strongly reliant on Television advertisements, which makes broadcasting players as ZEEL and Sun TV a proxy to playing
Indian consumption story.
Source: FICCI KPMG, Industry Sources & Spark Capital research Source: FICCI KPMG, Industry Sources & Spark Capital research
88 103
116 125 136 155
181 198
226
260
299
0
50
100
150
200
250
300
350
2009 2010 2011 2012 2013 2014 2015 2016P 2017P 2018P 2019P
Rs. B
n
17.0%
12.6%
7.8% 8.8%
14.0%
16.8%
10.3%
6.6%
5.1% 6.9%
7.3% 7.6%
4%
6%
8%
10%
12%
14%
16%
18%
2010 2011 2012 2013 2014 2015
TV Advertisement Industry growth (%) GDP growth (%)
E-Comm, 5%
Telecom, 3%
BFSI, 3%
Travel, 3%
Auto, 4% FMCG, 36% Media, 2%
Education, 4%
HH Durables, 5%
Real Estate, 2%
Retail, 12%
Clothing/Fashion, 5% Others, 16%
, 0% , 0%
Patanjali has earmarked Rs.3bn crore for advertisement
spend to make Patanjali a "recallable brand"
“Amazon will invest $3 billion more in India. This is in
addition to the $2 billion announced in 2014,” CEO -Jeff
Bezos
Reliance JIO is slated to spend upwards of Rs.10bn on
commercial launch indicate industry sources.
Key near term themes to watch out for
Source: FICCI KPMG, Industry Sources & Spark Capital research Source: FICCI KPMG, Industry Sources & Spark Capital research
Page 15
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
SECTOR CONTRIBUTION KEY ADVERTISEMENT
MEDIUM
INFLUENCE OF
DIGITAL NEAR TERM MONITORABLES OPPORTUNITIES
FMCG ~35% Television Limited Raw material prices and competitive
intensity from Patanjali and P&G.
Increasing focus on rural
consumers
RETAIL ~12% E-Commerce/ Television High Western brands plaguing the market
should keep advertisement outlay high Increase in modern trade
CONSUMER
DISCRETIONARY ~10% Television High
Incessant launches by new players and
incumbents
Emergence of regional
players
AUTO ~4% Print/Digital Medium Passenger Vehicle and two wheeler
industry volumes
Increasing number of new
launches
E-COMMERCE ~5% Digital/Print High Funding constraints and emergence of new
platforms
Rise in multi national
participants
TELECOM ~3% Television/Print Medium Reliance JIO launch and the counter spend
from other providers
Technological
advancements
BFSI ~3% Print/Digital High Spends from Insurance sector New age banking solutions
TRAVEL ~3% Print/Television Medium Air passenger growth and increase in flight
services
International tourism
growth
EDUCATION ~4% Print/Digital Medium Admission spends from coaching institutes Rise in number of
universities
Near term triggers and long term opportunities across sectors keeps us sanguine on the near and long term advertisement growth.
Source:
#3 – Consumption growth should continue to drive television advertisement
Source: FICCI KPMG, Industry Sources & Spark Capital research
Page 16
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#3 – Consumption growth should continue to drive television advertisement
FMCG advertisements have been a key driver to television advertisement growth…
…our analysis of BARC data indicates that there are 8 FMCG
products on an average among top 10 advertisements every week
Despite gross margins not being as lucrative as it was in FY16, we believe increase in competitive intensity will keep advertisement spend to
their historical ranges.
FMCG companies apportion ~15% of sales on A&P
8.8% 10.0%
9.1% 9.1%
8.9% 9.1%
9.5%
12.3% 12.4%
14.5%
17.0%
12.6%
7.8% 8.8%
14.0%
16.8%
4%
6%
8%
10%
12%
14%
16%
18%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
FMCG A&P expenses (% of sales) Television Advertisement spend growth (%)
FMCG related Advertisements
85.0%
Others 15.0%
0%
5%
10%
15%
20%
25%
30%
Source: FICCI KPMG, Industry Sources & Spark Capital research
Source: Industry Sources & Spark Capital research Source: Industry Sources & Spark Capital research
Page 17
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#3 – Consumption growth should continue to drive television advertisement
Despite near term pressure emanating in a few sectors, we see that underlying consumption opportunity should keep advertisement counters
ringing for the broadcasters
Launches from Auto sector should lead to heightened A&P spend E-commerce funding's are drying up, Amazon is the sweet spot
Source: Industry Sources & Spark Capital research
With the advent of JIO, more A&P to flow from telecom operators
EM Upcoming launches Segment
Bajaj
Pulsar 400 SS Premium
Pulsar 160 NS Premium
Pulsar 400 CS Premium
Platina Refresh Economy
HMCL
Impulse 250 Premium
Xtreme Sport Premium
HX250R Premium
Hastur Premium
I Smart 110 Economy
HMSI
CB Hornet Premium
CBR 300R Premium
CB500F Premium
CBR500R Premium
CB500X Premium
Suzuki Gladius 650 Premium
Source: Industry Sources & Spark Capital research Source: Industry Sources & Spark Capital research
Rs in million FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
Bharti Airtel 7,215 5,586 5,993 6,074 7,022
Idea 3,848 4,211 4,536 4,617 4,929
Reliance
Communications 4,440 3,550 2,310 7,140 6,860
BSNL 1,861 489 407 638 867
$ Mn Jan 1- May 31, 2015 Jan 1 – May 31, 2016
Rounds Deals Funds Raised Deals Funds Raised
Series A 54 272.6 38 158.7
Series B 29 950.5 22 234.6
Series C 11 329.1 13 505.2
Total 94 1552.2 73 898.5
Page 18
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
Hindi GEC, 31%
Hindi Movies, 14% Kids, 7%
Hindi News, 4%
Music, 3%
Sport, 2%
Others, 11%
Regional, 27%
#4 – Regional markets gaining in prominence as investments increase
Regional markets to benefit from the next leg of advertising growth
With regional markets catching the attention of national players, several national players through organic and inorganic acquisitions have
ventured into these markets and have tasted good success
…led by superior programming content
BARC data on top 5 shows for 42 weeks Source:
Sun TV ZEEL Star TV Network18
Tamil 55% 6% 9% NA
Telugu 20% 27% 24% 25%
Kannada 18% 18% 20% 35%
Malayalam 10% NA 31% NA
Marathi NA 50% 14% 29%
Bengali NA 35% 57% 8%
With exceptions in a few, most markets have a dominant leader…
Sun TV ZEEL Star TV Network18
Tamil 5 - - NA
Telugu 1 2 - 2
Kannada - - 1 4
Malayalam - - 5 NA
Marathi NA 3 - 2
Bengali NA 1 4 -
Tamil, 28%
Telugu, 24%
Marathi, 14%
Kannada, 12%
Bengali, 12%
Malayalam, 5%
Others, 5%
Source: Industry Sources & Spark Capital research
Source: Industry Sources & Spark Capital research
Page 19
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#4 – Regional markets gaining in prominence as investments increase
Tamil Nadu
Population (mn) 69
Per capita income ($) FY16 2807
GDP (bn $) 194
Andhra Pradesh
Population (mn) 51
Per capita income ($) FY16 1794
GDP (bn $) 92
Telangana
Population (mn) 37
Per capita income ($) FY16 2415
GDP (bn $) 89
West Bengal
Population (mn) 93
Per capita income ($) FY16 1488
GDP (bn $) 139
Kerala
Population (mn) 34
Per capita income ($) FY16 2610
GDP (bn $) 89
Karnataka
Population (mn) 62
Per capita income ($) FY16 2539
GDP (bn $) 158
Maharashtra
Population (mn) 120
Per capita income ($) FY16 2490
GDP (bn $) 298
India
Population (mn) 1283
Per capita income ($) FY16 1615
GDP (bn $) 2072
Fortune at the bottom
Given the regional market’s higher per capita income Vs the national
average, regional markets form an important consumption market
making these markets significant for national advertisers
Further, a good retail market has also fueled several regional
advertisers, who strongly bank on these regional channels to carry
their advertisements.
Source: Industry Sources & Spark Capital research
Page 20
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#4 – Regional markets gaining in prominence as investments increase
Marathi
Zee Marathi 1999
Zee talkies 2005
Star Pravah 2008
Colors Marathi 2015
Star Pravah HD 2016
Colors Marathi HD 2016
Kannada
Udaya TV 1994
Udaya Movies 2002
Udaya Comedy 2002
Udaya News 2004
Zee Kannada 2006
Udaya Music 2006
Asianet Suvarna 2009
Chintu TV 2009
Suriyan TV 2012
Asianet Suvarna Plus 2013
Colors Kannada 2015
Colors Kannada HD 2016
Bangla
Star Jalsha 2008
Zee Bangla 2009
Jalsha Movies 2012
Zee Bangla Cinema 2012
Colors Bangla 2015
Star Jalsha HD 2016
Star Jalsha Movies HD 2016
Colors Bangla HD 2016
Star Jalsha 2008
Zee Bangla 2009
Jalsha Movies 2012
Zee Bangla Cinema 2012
Malayalam
Surya TV 1998
Asianet 2008
Asianet Plus 2008
Kochu TV 2011
Asianet Movies 2012
Surya Action 2012
Kiran 2013
Surya Music 2013
Asianet HD 2016
News18 Kerala 2016
Tamil
Sun TV 1993
Sun News 2000
KTV 2001
Star Vijay 2004
Sun Music 2004
Chutti TV 2007
Zee Tamil 2008
Adithya TV 2009
Sun TV HD 2011
K TV HD 2011
Sun Music HD 2011
Sun Life 2012
Sun Action 2012
Sun TV RI 2012
STAR Vijay HD 2016
News18 Tamil 2016
Telugu
Gemini TV 1995
Gemini News 2004
Zee Telugu 2005
Gemini Music 2008
Kushi TV 2009
Gemini TV HD 2011
Gemini Comedy 2012
Gemini Action 2012
Gemini Life 2012
Gemini Movies 2013
Maa TV 2015
Maa Music 2015
Source: Industry Sources & Spark Capital research
Page 21
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#5 – Broadcasters changing the game to suit BARC & regulatory needs
…change in key universe profile…
Ambiguity and mistrust of Television Audience Measurement (TAM) led to the formation of Broadcast Audience Research Council (BARC)
BARC was different from TAM for the number of rural audience
profiled…
Source: BARC, Industry Sources & Spark Capital research:
…and for the new SEC classification
Broadcast Audience Research Council (BARC) held by 3 federations
Source: BARC, Industry Sources & Spark Capital research:
4 - 8 yrs 8%
9 - 14 yrs 10%
15 - 21 yrs 15%
22 - 30 yrs 20%
31 - 40 yrs 17%
41 - 50 yrs 13%
51 - 60 yrs 9%
61 yrs 8%
A 23%
B 25%
C 30%
DE 22%
Indian Broadcasting
federation 60%
Indian Society of advertisers
20%
Advertising Agencies
Association of India 20%
Metro 12%
10-75L Population
12%
<10 L Population 27%
Rural 49%
Source: Industry Sources & Spark Capital research
Source: BARC, Industry Sources & Spark Capital research: Source: BARC, Industry Sources & Spark Capital research:
Page 22
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#5 – Broadcasters changing the game to suit BARC & regulatory needs
Rural increasingly becoming important for FMCG companies too...
Rural has emerged to be a key segment, that is beginning to get advertisers interest given that BARC data with higher rural population and
digitization has given better clarity about the target market which were largely difficult to crack through television media.
Phase 3 & 4 digitization to encompass smaller towns
Source: Industry Sources & Spark Capital research
…given that rural continues to outpace urban growth
DD Dish bringing in rural consumers under the foray of digitization
Rollout of DAS in Phase 3 areas where there is high proportion of cable dark
areas and consumers affordability for paid DTH is low
Inclusion of rural market data by BARC India in its TV viewership
measurement which has led broadcasters and advertisers to realize that there
is a large audience being catered by DD Free Dish
The Operator recently added 50 new channels on the new MPEG 4
technology after moving its transponder to GSAT-15 satellite.
The Free Dish platform already has an estimated 20mn installations, making it
the biggest DTH operator in the country.
Some pay channels like Aaj Tak and Big Magic Ganga have chosen to give
their feeds free of cost of Doordarshan
Phase Regulatory Date
for Shutdown
No of Paid C&S
Subs
Non-digitized
subs Digitization Including
I Jun-12 14 1.2 >90% (100% exclusive
Chennai)
II Mar-13 25 1.2 >95%
III Dec-15 40 8 >80%
IV Dec-16 81 61 ~25%
159 71 ~67%
Rural Contribution
35%
Urban Contribution
65%
Consumer durables growing at 25% CAGR (All India – 17%)
Tele-density at 50% (All India: 76%)
More than 80% of FMCG products posted faster growth than in Urban
FMCG consumption grew at 12.5% during 2013-14 (All India: 17%; FMCG
accounts for 50% of Rural spending (Urban – 40%)
Rural markets bigger than Urban markets for many categories
36% of mobile app users are from small town India
Source: Industry Sources & Spark Capital research
Source: Industry Sources & Spark Capital research Source: Industry Sources & Spark Capital research
Page 23
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#5 – Broadcasters changing the game to suit BARC & regulatory needs
A two hour prime time has got extended to 6 hours in 2016
Though Effective Rate (ER) for FTA channels are expected to remain far lower to the Pay channels, advertisement potential excitement on these
channels has certainly caught up off late given that content cost is often nil.
…broadcasters increasing their upper band of prime time fiction
Average market share for a period of 42 weeks from BARC data Source: BARC, Spark capital Research
Broadcasters FTA channels gain all the more significance now
Rural has a early viewing peak habit which has translated to a few…
02:0
0
03:0
0
04:0
0
05:0
0
06:0
0
07:0
0
08:0
0
09:0
0
10:0
0
11:0
0
12:0
0
13:0
0
14:0
0
15:0
0
16:0
0
17:0
0
18:0
0
19:0
0
20:0
0
21:0
0
22:0
0
23:0
0
00:0
0
01:0
0
Rural Urban
1 Colors 12%
2 STAR Plus 12%
3 Zee TV 10%
4 STAR Utsav 10%
5 Zee Anmol 9%
6 Sony Pal 8%
7 Life Ok 8%
8 SONY SAB 7%
9 Sony Entertainment Television 7%
10 Rishtey 6%
2001 2002 2004 2006 2008 2010 2012 2014 2016
2008 2009 2012 2016
Primetime Start 8PM 8PM 6PM 5PM
Primetime End 10PM 11PM 11PM 11PM +
Source: BARC, Spark Capital Research
Source: Industry Sources, Spark Capital Research Source: Industry Sources, Spark Capital Research
Page 24
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
With limitations to advertisement inventory, flanking channels
increased to tap into the market
#5 – Broadcasters changing the game to suit BARC & regulatory needs
12 minute advertisement rule as per current status is restrained only to paper, any adverse court ruling could however have serious impacts to
revenue profile of all the broadcasters and remains a key risk to our thesis.
Recent comments from I&B ministry provides for hope for
broadcasters
Despite the Advertisement Cap ruling in 2013, several broadcasters
continue to flout it citing the lack of subscription revenue flow through
Geo-targeting prospects exciting but doubts over practicability
prevails
55% 54% 52%
45% 46% 48%
0%
20%
40%
60%
80%
100%
June 2015 September 2015 December 2015
Quarter ending
% of pay channels that flouted the 12 minute Advertisement Cap Rule Others
2013 TRAI issues a notification capping the number of minutes of
advertisement in an hour to 12
2014 Mr. Prakash Javdekar, erstwhile I&B ministry had indicated over
exempting Free To Air channels from the Ad Cap rule
2016 Mr. Arun Jaitley, has indicated that government should not be
dictating how much ads a TV channel or a newspaper can carry.
Current
Status
The matter is before Delhi High Court, next hearing scheduled to be
in August 2016
It allows the broadcasters to sell higher inventory for the same cost base
Increasingly tapping into regional advertisers
Media planners are excited given that it is expected to reduce cost
Star has developed its own software known as Adsharp, while other third
party providers are Amagi and Vubites
Small and regional based advertisers may have an advantage to target
programs on popular GEC's at lesser cost
National advertisers could better plan and execute advertisement campaigns
especially in the Hindi speaking belt.
Given that ~30% of television advertisement spend is wasted, sharper focus
to improve efficiency
Source: TRAI, Spark Capital Research Source: Industry Sources, Spark Capital Research
Source: Industry Sources, Spark Capital Research Source: Industry Sources, Spark Capital Research
Page 25
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#6 –Broadcasters & DTH players to gain the most in next phase of digitization
Digitization to increase the advertisement revenues for the industry... …with the share for broadcasters increasing
We from our industry interaction believe that ~70mn households are yet to be digitized
Digitization progress has been slow and hindered with several challenges which has delayed the benefits the broadcasters were to accrue for it,
which should start monetizing in near to medium term.
213 245 281
320 361
407 468
548
637
0
100
200
300
400
500
600
700
800
2011 2012 2013 2014 2015 2016P 2017P 2018P 2019P
Subscription Revenue
47 57
69 75 86
114
145
174
201
-30
20
70
120
170
220
2011 2012 2013 2014 2015 2016P 2017P 2018P 2019P
Subscription Revenue for broadcasters
14
25
40
81
1.2
1.2
8
61
Jun-12
Mar-13
Dec-15
Dec-16
Non-digitised subs
No of Paid C&S Subs
Phase 1
Phase 2
Phase 3
Phase 4
>90% (100% exclusive Chennai)
>95%
>80%
~25%
Source: FICCI KPMG 2016, Spark Capital Research
Source: FICCI KPMG 2016, Spark Capital Research
Source: FICCI KPMG 2016, Spark Capital Research
Page 26
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#6 –Broadcasters & DTH players to gain the most in next phase of digitization
TV Households on the rise
Source: FICCI KPMG 2016, Spark Capital Research
Digitization benefits fro here on expected to benefit Broadcasters and Direct To Home (DTH) players as leftover digitization markets are highly
fragmented
So have been the C&S households Digital cable has gained in Phase 1&2
Phase 3 & 4 though to benefit DTH players Gross ARPU’s in DTH higher… …leading to intense battle among the 6
players
138
146
154
161
169
175
185
191
194
197
76.8%
81.5%
84.4%
86.3%
88.2%
91.4%
91.9%
93.7%
95.9%
97.5%
2010
2011
2012
2013
2014
2015
2016P
2017P
2018P
2019P
Number of TV Households (mn)
C&S households (%)
98
111
122
130
139
146
151
159
165
170
71.0%
76.0%
79.2%
80.7%
82.2%
83.4%
81.6%
83.2%
85.1%
86.3%
2010
2011
2012
2013
2014
2015
2016P
2017P
2018P
2019P
Paid C&S households (mn)
Paid C&S households (%)
65 74
69 68 70 65
5 6
19 25
29 37 28 31 34 37 40
44
8
8
9 9 10 15
2010 2011 2012 2013 2014 2015
Analog Cable Digital Cable
Pay DTH Free DTH
160 170 175 196
248 258
160 166
200 220 214 219
2011 2012 2013 2014 2015 2016P
AR
PU
(R
s.
Per
mo
nth
)
DTH Digital cable
Phase 1 Phase 2 Phase 3 Phase 4
Digital DTH
Dish TV, 27%
Tata Sky, 21%
Sun Direct, 11%
Big TV, 5%
Airtel Digital, 20% Videocon
D2H, 16%
Source: FICCI KPMG 2016, Spark Capital Research
Source: FICCI KPMG 2016, Spark Capital Research Source: FICCI KPMG 2016, Spark Capital Research
Source: FICCI KPMG 2016, Spark Capital Research
Source: Dish Presentation, Spark Capital Research
Page 27
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#6 –Broadcasters & DTH players to gain the most in next phase of digitization
Despite court cases, Digitization has progressed across other states except for in Tamil Nadu, where a stiff continues between the state run
Arasu Cable and I&B ministry over grating of DAS license
Phase 3 completed
Phase 3 – Stayed by
court orders
No Progress
Phase 3 completed States
Andaman and Nicobar
Arunachal Pradesh
Assam
Bihar
Delhi
Goa
Gujarat
Haryana
Himachal Pradesh
Jammu and Kashmir
Karnataka
Kerala
Maharashtra
Meghalaya
Nagaland
Punjab
Sikkim
Uttarakhand
West Bengal
Court Stays
High Court of Judicature at
Hyderabad
Bombay High Court
Sikkim High Court
Odisha High Court
High Court of Chhattisgarh
Madras High Court
Allahabad High Court.
Chandigarh
Allahabad
Indore
Jaipur
Source: TRAI filings, Spark Capital Research
Page 28
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#6 –Broadcasters & DTH players to gain the most in next phase of digitization
Several litigations by stakeholders have led to gains of digitization not really benefitting anyone in the value chain, much awaited Telecom
Regulatory Authority Of India (TRAI) recommendation on pricing expected to settle the ambiguity
BROADCASTERS
574 Free To Air
(FTA) channels
256 Pay channels –
53 broadcasters
LOCAL CABLE
OPERATORS
~60000 operators
MULTI SYSTEM
OPERATORS
~6000 operators, ~534
DAS registered
DIRECT TO HOME
6 Pay DTH players DD
Dish – Free DTH Subscription Income
Carriage Fees
Placement Fees
Marketing Fees
Subscription Income
Subscription Income
For addressable systems, the channels or bouquets are required to be offered at 42% of
the corresponding rates applicable for non addressable systems.
The composition of bouquets offered in addressable systems shall be the same as offered
for non addressable systems.
Broadcasters have to offer all its channels on a-la-carte basis. In addition, the broadcaster
may offer bouquet of channels, subject to the following TWIN conditions
− The sum of the a-la-carte rate of pay channels forming part of such bouquet shall in no
case exceed 1.5 times of the rate of that bouquet of which such pay channels are a part.
− The a-la-carte rate of each pay channel shall in no case exceed 3 times the average rate
of a pay channel of that bouquet.
Niche channel like HD/ advertisement free channels are under price forbearance. However,
twin conditions are applicable, if niche channels are offered as part of bouquets.
Every broadcaster is required to report the a-la-carte and bouquet rate fixed by it to TRAI
and shall also publish such rates on its website. Any change in the rate has to be reported
at least 30 days prior to the proposed date of change.
If the broadcaster intends to convert a free to air channel into pay channel then it should
inform to TRAI, at least 30 days prior to the proposed date of such conversion.
At present the retail tariff in addressable system for both FTA and Pay channels is under
price forbearance i.e. the DPOs are free to decide their price as per market conditions.
All broadcast TV channels (FTA and Pay) are mandated to be provided to customers on a-
la-carte basis so that customers can choose any channel. The DPOs are free to form
bouquet of channels and price them.
If the DPOs provide broadcast TV channels as bouquet(s), the bouquet price is linked to a-
la-carte rate of the channels forming part of the bouquet to check unrealistic variations
between bouquet price and a-la-carte price. The revised tariff order has been issued and
will be applicable from 01.04.2016.
It is mandated by the Government that public broadcasting service channels as notified
from time-to-time must be carried by the DPOs and be delivered to the subscribers
irrespective of whether the subscriber subscribes to any a-la-carte channel(s) or bouquet(s)
or both.
A Basic Service Tier (BST) comprising of 100 FTA channels at Rs. 100 plus taxes is
mandated to be provided.
In case of FTA channels, it is mandated that the price of FTA channels be uniform.
It is open to the DPOs to specify a minimum monthly subscription limit of not exceeding Rs.
150/-
CONSUMERS
~160mn Cable &
Satellite
Households
Source: TRAI filings, Spark Capital Research
Page 29
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#6 –Broadcasters & DTH players to gain the most in next phase of digitization
With several broadcasters having vertical cross holdings, TRAI recommendation on the fee structure to have an impact across companies in the
broadcasting value chain
CONSUMER
Average Revenue Per user has not
increased to the proportion of
advertisement income
Lack of Foreign Direct Investment
(FDI) in the sector
Does not support innovation due to
price curbs
DISTRIBUTION PLATFORM
OPERATORS (DPOs) BROADCASTERS
Discriminatory pricing
Revenue realisation on ground
remains low despite cost of pay
channel increasing
Large gap between Reference
Interconnect Offer (RIO) and mutually
agreed pricing
Compulsion to subscribe to bouquets
as a la carte rates are untenable
Small and medium sized MSOs being
squeezed
High number of litigations on pricing
Despite wide availability, price control
of channels not in their hands.
Subscription or discontinuation of
channels is opaque
Channel selection is cumbersome and
non-customer friendly
High number of litigations on pricing
Pricing linked to
‘non-addressable’
prices
Discriminatory
pricing
Players holding
stake across value
chain
Regulatory
ambiguity
Consumer interest
not kept in mind
Political involvement
at MSO & LCO levels
Source: TRAI filings, Spark Capital Research
Page 30
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#6 –Broadcasters & DTH players to gain the most in next phase of digitization
Most broadcasters have recommended a price forbearance + regulatory pricing cap model
Regulating price caps only
for the mass genres of entertainment (Hindi
and regional), movies (Hindi and regional) and
sports genres. wholesale price forbearance
for all other genres like English entertainment
and movies, lifestyle, kids, other genres, HD
and upcoming 4K, 3D and virtual reality. It has
also proposed to cap the wholesale discounts
at 33%.
While calling for the total
abolition of carriage fee in digital addressable
system (DAS) areas, the NBA has proposed that
TRAI should regulate it in non-DAS areas. The
association has submitted that till such time that
DAS is fully implemented, the price cap should
be between 50 paisa and one rupee per set-top
box (STB) on carriage fee payable by
broadcasters to DPOs.
They have also proposed that
the broadcasters will have to offer HD and SD
channels as part of separate bouquets.
Broadcasters are to offer maximum 50%
discount on a la carte rates and bouquet rates
under different schemes offered to DPOs on
non-discriminatory basis including but not limited
to (i) the number of channels subscribed by
DPOs, (ii) reach of the channels/placement of
the channels on packages formed by DPOs, (iii)
placement of the channels on particular LCN,
etc.
TRAI should fix genre-wise tariff
ceiling of a la carte channels based on the
maximum existing tariffs of a la carte
channels. The maximum existing tariffs of a la
carte channels needs to be considered as a
broadcaster would offer discounts on such price.
Such ceiling shall be subject to inflation-based
increase or annual increase of 5%, whichever is
higher.
Broadcasters should be allowed to
execute mutual agreements based on details
provided in the RIO, Sony said in its response
to TRAI. This, in effect, will take best note of
transparency and non-discrimination issues
raised by TRAI. It also suggested that
broadcasters should be allowed to have
flexibility to price their channels within the
limits prescribed by TRAI.
The broadcaster has proposed that the
prices of the mass genre would be regulated
by TRAI through stipulation of RIO methodology
and prices for the niche channel would be
under forbearance. It has also proposed that
the cumulative discount on the listed wholesale
price because of various parameters should not
exceed 40%. Like Star, ZEEL has suggested
that the carriage fee/placement fee/marketing
fee should be subsumed in the
discounting/incentive scheme and no separate
payment would be made for the same.
NEWS BROADCASTERS ASSOCIATION
Source: Industry Sources, Spark Capital Research
Page 31
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#6 –Broadcasters & DTH players to gain the most in next phase of digitization
Recommendations across DTH players though not in cognizance with each suggesting a model that suits them the best
It has proposed that the
regulated RIO model must provide the flexibility
to the broadcasters and distributors of TV
channels to enter into fixed-fee arrangements.
TRAI should have the power to conduct audit of
all the stakeholders so as to verify the
compliance of the regulations by the said
stakeholders.
Provision of carriage fee, marketing fee,
placement fee and packaging fee should be
regulated, made transparent and uniform for all
DPOs without discriminating against the DTH
operators.
Videocon d2h submitted that
the wholesale pricing of both SD and HD
channels should be regulated to ensure that
DPOs could offer reasonable a la carte rates to
subscribers. The regulated RIO should be
adopted looking at existing and historical
commercial deals between broadcasters and
DPOs.
Tata Sky submitted that TRAI
should do away with the price cap on
wholesale price and continue forbearance
on retail pricing. The existing regulations to
ensure non-discriminatory access, including a
‘must carry’ obligation, are enough to check
discrimination in offering content. Further, it
stated that there are sufficient laws that already
provide safeguards against monopolies.
Carriage/placement fees should not be
regulated and the regulator should allow
market forces to decide on the same. It noted
that placement fee is a common place in many
industries.
The RIO rate of bouquets
formed by the DPO from the channels of a
broadcaster should be as per the existing twin
conditions at the wholesale level. The price
forbearance model would be suitable at the
retail level in the broadcasting sector.
As an alternative to the cost-
based model, Sun Direct said that the
regulated RIO model would be in the best
interest of the industry, as it would provide
flexibility to the broadcasters to price their
channels within the prescribed price caps while
controlling risk of exorbitantly high price due to
their monopolistic behaviour. It further
submitted that there should be further
rationalisation of tariff for DTH operators to
ensure a level playing field between DTH
operators and MSOs.
Airtel Digital TV argued that a
cost-based model would allow for an effective
recovery of the seller’s costs with a reasonable
margin. This makes the broadcasters’ business
viable as costs and returns are accounted for.
Further, it constrains the ability of broadcaster
to charge monopolistic price (i.e. an
unwarranted price premium) as the price must
be aligned to the cost base. This protects
consumer interests and prevents over-charging
Attempt to lay down a ceiling on carriage or
placement will only result in market distortions
and may lead to covert or disguised deals,
which will be difficult to regulate.
Source: Industry Sources, Spark Capital Research
Page 32
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY ZEALOUS Pursuit
Stock performance (%)
1m 3m 12m
Z 1% 18% 25%
Sensex 1% 7% -3%
NSE Media 3% 13% 18%
Financial summary
Year Revenues (Rs. mn) EBITDA margin PAT (Rs. mn) EPS (Rs.) P/E(x) ROE (%)
FY15 48,837 25.7% 9,775 10.2 43.7 31%
FY16 58,515 25.8% 10,482 10.9 40.8 27%
FY17E 68,377 27.8% 13,477 14.0 31.7 29%
FY18E 80,296 28.7% 16,341 17.0 26.2 29%
Date 1st July 2016
Market Data
Bloomberg Z IN
Shares o/s 960mn
Market Cap Rs. 438bn
52-wk High-Low Rs. 467-347
3m Avg. Daily Vol Rs. 862mn
Index member NIFTY
Latest shareholding (%)
Promoters 43.1
Institutions 51.3
Public 5.6
Initiating Coverage We initiate coverage on Zee Entertainment Enterprise Limited (ZEEL) with a ‘BUY’ rating on the back of revenues and
earnings CAGR assumptions of ~17% and ~25% respectively from FY16 –FY18 led by (1) ~19% advertisement revenue
CAGR as viewership across Hindi & Regional markets gain traction, (2) Mid teens growth in subscription revenues as
broadcasters are expected to get a larger share of subscription income, (3) Content cost rationalisation as new channel
investments begin to pay off, (4) EBITDA margin expansion on the back of lower business promotion and marketing
expenses, (5) Established strong Over The Top (OTT) platforms which should enable them to take advantage of rise in
digital spends.
ZEEL, a pioneer of the Indian Media and Entertainment (M&E) sector has through the last 23 years not only established
itself as one of the largest media conglomerates in the country but has also been one of the most profitable. This approach
of foresightedness coupled with conservatism is what sets ZEEL apart from several other broadcasters. With a bouquet of
~32 domestic channels spread across the country, we firmly believe ZEEL is currently the best proxy play on Indian M&E
sector. Further, a healthy balance sheet, consistent dividend pay-out, repute promoters and steady free cash flow growth
further increases our comfort on stock. Target Price of Rs.510 (30x FY18e EPS )
• To outperform industry advertisement growth: With a wide and established presence across several languages, we
believe ZEEL should comfortably report ~19% growth over FY16-18, newly introduced channels are also expected to
contribute to increase in advertisement share.
• Subscription revenues to be in mid teens: With broadcasters expected to get a larger pie of digitization revenues in
near term, subscription revenues should inadvertently increase for ZEEL too, however we remain conservative in our
numbers as we understand that several negotiations with Distributor Platform Operators (DPO’s) are put on hold in
anticipation of the new pricing announcement from the regulators.
• Cost rationalisation with channels maturing: With the launch of ~13 channels over the past 3 years, ZEEL had to
forego its margins to invest and promote these new channels, however with these channels having established certain
mileage, savings in content costs and Advertisement & Publicity costs to accrue in near term.
• Exciting digital prospects: Though ZEEL’s digital investments do not contribute much to revenues, we believe these
are essentials as consumer tastes and preference evolve.
• Risks & Concerns: Increase in competitive intensity, Reduction of advertisement outlay by FMCG and discretionary
companies, adverse pricing contracts in newly formulated pricing order and lack of turnaround of the sports business
GNANASUNDAR S gnanasundar@sparkcapital.in
+91 44 4344 0062
Page 33
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Factsheet
Corporate Factsheet
Company Background
The Company was originally incorporated as Empire Holdings Ltd on November 25, 1982. In 1992, the Company entered the business of
entertainment software and the name was changed to Zee Telefilms Limited from September 8, 1992. Since then, the Company has expanded its
operations considerably. In 2007, post de-merger of News and Cable Business Undertaking, the name of the Company was changed to Zee
Entertainment Enterprises Limited (ZEEL) with effect from January 10, 2007.
Key Revenue Drivers
(FY16) Advertisement Revenues (~59% of revenues), Subscription Income (~35% of revenues), Others (~5% of revenues)
Management depth
Mr. Punit Goenka – Managing Director and Chief Executive Officer, Mr. Amit Goenka – Chief Executive Officer, International Broadcast Business,
Mr. Ashish Sehgal- Chief Sales Officer- ZEEL, Mr. M. Lakshminarayanan- Chief Compliance Officer & Company Secretary, Mr. Mihir Modi–
Chief Finance & Strategy Officer at ZEEL, Mr. Rajesh Sethi- CEO of Ten Sports and Taj TV Ltd, Mr.Rajendra Mehta- Head – Human Resources,
Ms.Sharada Sunder - Executive Vice President, Regional Channels and Mr.Sunil Buch, Chief Business Officer (CBO) at ZEE
Reach ZEEL currently has ~32 domestic channels & 37 international channels and is present in over 171 countries.
Library ZEEL houses over 222,000 hours of television content, with rights to more than 3,818 movie titles
High Definition (HD)
Channels ZEEL caters its offerings in 14 languages to ~959mn viewers.
Genre Split ZEEL has 20 direct and step down subsidiaries in India and Overseas
ZEEL currently has 8 HD channels – Zee TV, Z Cinema, &tv, &pictures, TEN 1, Zen Café, Ten Golf and Z Studio
Corporate Bankers BNP Paribas, Deutsche Bank, Kotak Mahindra Bank, Standard Chartered Bank ,Yes Bank Ltd.
IPO bankers ZEEL had its IPO in September 1993, wherein 8.2 mn equity shares of Rs.10 each were offered to the public at a premium of 20 per share. The
Company was listed on Bombay Stock Exchange (BSE) on November 25, 1993.
IPO money raised In 1999, the Company announced a stock split of 1:10 and the face value was reduced to 1 per share.
Corporate Auditors M/S MGB & CO. LLP
Page 34
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Z
ee A
cti
on
Zee T
V
Zee C
lassic
Zee C
inem
as
Zee B
an
gla
Zee M
ara
thi
LF
Liv
ing
Fo
od
z
Ten
Sp
ort
s
Zstu
dio
Z C
afé
Zee S
mile
Zee T
elu
gu
Zee K
an
nad
a
Zee t
alk
ies
Zee T
am
il
Zin
g
Z S
ala
am
Ten
Cri
cket
Ten
Acti
on
/ T
en
2
Zee T
V H
D
Zee C
inem
a H
D
Ten
1 H
D
Zee S
tud
io H
D
Zee B
an
gla
Cin
em
a
ZeeQ
&P
ictu
res
Zee A
nm
ol
Zin
dag
i
& P
ictu
res H
D
&T
V
& T
V H
D
Zee B
ollyw
orl
d
Zee C
afe
HD
Ten
Go
lf H
D
Timeline – A brief history over the years
1992 1994 1998 2000 2002 2004 2006 2008 2010 2012 2012
Launches Zee
TV
Initial Public
Offering of
Zee Telefilms
Limited
Zee TV goes
global -
launches Zee
TV, UK
Commences
Siticable
operations Joint
Venture with
News Corp
Launches
Zee TV,
Africa.
Launches
Zee TV in the
US.
Launches
regional
channels.
Launches
Internet over
Cable services
Introduces Zee TV and
Zee News as pay
television offerings.
De-merger of
Zee Telefilms
Limited.
Zee Entertainment
Enterprises Limited
(ZEE) gets listed as an
independent company.
ZEE's distribution arm, Zee-Turner Ltd,
enters into a 50:50 JV with Star Den Media
Services Pvt. Ltd. to form MediaPro
Enterprise India Pvt. Ltd.
Dec-9
1
Oct-
92
Oct-
93
Ap
r-95
Sep
-99
Sep
-99
Dec-0
1
Ap
r-02
Mar-
05
Mar-
05
Mar-
05
May-0
5
May-0
6
Au
g-0
7
Oct-
08
Ap
r-09
Fe
b-1
0
Au
g-1
0
Sep
-10
Au
g-1
1
Au
g-1
1
Au
g-1
1
Ap
r-12
Sep
-12
No
v-1
2
Au
g-1
3
Sep
-13
Ju
n-1
4
Au
g-1
4
Mar-
15
Mar-
15
Ju
l-15
Sep
-15
Oct-
15
1996
Launches Zee
News and Zee
Cinema.
Page 35
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Timeline – Channel Bouquet
Hindi Entertainment Hindi Cinema Regional Entertainment
Sports Music, Lifestyle and Niche English Entertainment
HD Channels Select International Channels
Page 36
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Key Financials
Zee revenues expected to grow at ~17% CAGR over FY16-18 led by… …~19% growth in advertisements and ~16% growth in subscription
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
With content investments lower, margins to expand… …leading to better than anticipated returns
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
30.1 30.4 37.0
44.2 48.8
58.5
68.4
80.3 37%
1%
22%
20%
10%
20%
17% 17%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
10
20
30
40
50
60
70
80
90
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rs. B
n
Revenue (Rs.bn) growth (%)
Advertisement Revenue
58.6%
Subscription Revenue
35.2%
Others 6.2%
18.0% 18.0% 19.6%
26.9%
31.3%
27.1% 28.6% 28.3%
17.5% 18.1% 19.5%
20.5% 18.8%
17.7% 18.6%
20.3%
15%
20%
25%
30%
35%
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
ROE (%) ROCE (%)
52.2% 52.9% 53.0% 53.2% 56.2% 55.5% 56.5% 57.2%
27.3% 24.3% 25.8% 27.2% 25.7% 25.8% 27.8% 28.7%
20.3% 19.4% 19.4% 20.1% 20.0% 18.0% 19.7% 20.3%
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Gross Margin (%) EBITDA Margin (%) PAT Margin (%)
Page 37
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Investment Thesis
Advertising revenues to
increase at ~19% CAGR from
FY16-18 led by traction
across Hindi & Regional
markets.
1
Subscription revenues to
grow in mid teens as Average
Revenue Per User (ARPU)
improves on digitization
2
With several investments
maturing, operating cost
leverage to lead to better
EBITDA margins
3
Sports investments loss to
prolong. Watch out for
traction in subscription
revenues and non-cricket
content
4
Opportunity in Over The Top
platforms augurs well from a
long term perspective
5
Page 38
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Advertising revenues to be driven by traction across Hindi & Regional markets
ZEEL well equipped to outpace industry growth given its dominant positioning across markets and their constant content innovations
ZEEL advertisement revenues to increase ~19% CAGR… …outpacing industry’s 14.5% growth CAGR
Increasing traction from &tv to lead to Hindi GEC growth… ZEEL well placed to outpace industry growth given its channel ratings
15.8 19.6
23.8 26.6
34.3
40.8
48.9
-7%
24% 21%
12%
29%
19%
20%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
0
10
20
30
40
50
60
FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rs. B
n
ZEEL Advertisement Revenue (Rs.bn) growth (%)
125 136 155 181 198
226 260
7.8% 8.8%
14.0% 16.8%
9.4% 14.1%
15.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0
50
100
150
200
250
300
FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rs. B
n
Industry Advertisement Revenue (Rs.bn) growth (%)
41.7% 44.7%
35.0% 34.9%
23.3% 20.4%
0%
20%
40%
60%
80%
100%
FY15 FY18 Hindi Regional Others
Channel Viewership Share among top 10 channels
Sun TV 17.8%
STAR Plus 13.6%
Colors 13.2%
Zee TV 11.3%
Sony Pal 9.5%
Life Ok 8.9%
STAR Utsav 8.3%
Zee Anmol 8.1%
Zee Telugu 7.6%
Rishtey 1.7%
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: BARC& Spark Capital Research Source: Company Filings & Spark Capital Research
Page 39
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Advertising revenues to be driven by traction across Hindi & Regional markets
Given ZEEL’s exposure to both Hindi and regional markets, ZEEL well equipped to outpace industry growth
Hindi Genre
What is in it for the Advertisers
Target market of ~500mn population
Constitutes the largest homogenous
markets
Caters to most of the North and Central
Hindi speaking markets
National level mass launches can be
concentrated here
Enables to target Rural and Urban with
the emergence of flanking and FTA
channels
Celebrity endorsements are easier
Regional Genre
What is in it for the Advertisers
Caters to a divers ~400mn population
across the 6 markets
Several of these states enjoy a GDP far
superior to National average
Higher disposable income in these
markets
Has a wide local advertisement market
Established Retail market in several of
these states
Homogenous celebrity endorsement not
possible
How Zee Capitalizes on the trend?
Zee with its 4 Hindi channels commands
consistent viewership and has competitive
advertisement rates in the Hindi GEC that makes
it a effective advertisement mode for advertisers.
Long standing relationship with production houses
and a strong in-house production team ensures
freshness and relevance in contents.
Flagship Zee Tv continues to command a strong
set of loyal women audience
In Zee Anmol, Zee caters to rural audience while
&TV with its contemporary shows acts as a
medium to target urban audience.
How Zee Capitalizes on the trend?
Zee operating in 6 of the 7 languages has
become an established player in several of these
markets
Commands strong market position across
Marathi, Telugu, Odia, Bengali and Kannada
languages
Being an established player in Hindi assisted in
cracking open the regional markets for Zee
Serials dubbed into various regional languages
have minimal cost but promises huge returns.
Source: Company Filings & Spark Capital Research
Page 40
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Advertising revenues to be driven by traction across Hindi & Regional markets
With ZEEL having made significant investments behind &TV over the past couple of years, non-linear revenue growth to emerge in near term in
the Hindi GEC
Zee TV caters to mass audience, Anmol as a Free To Air (FTA) channel to rural audience while &tv with contemporary program caters to urban
young audience
Zee TV Zee Anmol & TV
About the channel Flagship Channel, caters to all audience
types and age group
Free-To-Air TV channel primarily telecasting
repeat content from other group channels
Launched in 2015 as a flaking channel
targeting the urban young viewer
Launch date Oct-92 Sep/13 Mar-15
Prime time content Predominantly Fiction Fiction Fiction and Realty
Target Audience Caters mostly to women audience Rural audience Young audience
Story Pitch Stuggles of Women Mythological and Women empowerment
oriented
Cotemporary story lines showcasing
modern India dreams and struggles
Original content hours 26 NA 21
Episodes less than 100 NA 33% 50%
Episodes more than 100
and 300 70% 44% 20%
Episodes above 300 30% 22% 30%
Ratings
Consistently among top 5 in Rural and
Rural+Urban ratings, Among top 3 in
Urban impressions
Among the top 3 in Rural and Rural+Urban
ratings and Among top 10 in Urban markets
viewership
Among top 10 in urban impressions
Best Performing Shows Kumkum Bhagya Jodha Akbar, Bandini, Meri Doli Teri Angana Gangaa, Begusari
RIO rate (Rs.) 5.83 Free To Air Rs.9
Source: Company Filings & Spark Capital Research
Page 41
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Advertising revenues to be driven by traction across Hindi & Regional markets
ZEEL continues to invest in movies, however with overall cost for movies coming down, movie expenses assumed to be lower
ZEEL’s 3 strong regional markets are Marathi, Bengali and Telugu Vs the industry pie
ZEEL maintains its viewership in the Hindi movies genre… …by continuously buying blockbuster movies
Star Cinema Channels
28.0%
Zee Cinema Channels
32.3%
Sony Cinema Channels
19.2%
UTV Cinema Channels
12.5%
Others 8.0%
Sony 25%
Zee 24% Star
20%
UTV 11%
Colors 7%
Others 13%
Marathi 33.1%
Bengali 24.8%
Telugu 18.2% Kannada
13.2%
Tamil 4.0%
Oriya 6.5%
Others 0.3%
Among the top 100
movies released over
the past 5 years, ZEEL
has bought out rights
for ~24% of those
movies
Tamil 24.7%
Telugu 23.4%
Marathi 12.6%
Others 16.8% Kannada
10.6%
Bengali 6.6%
Malayalam 5.2%
0.0%
0.0%
0.0%
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 42
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Advertising revenues to be driven by traction across Hindi & Regional markets
ZEEL should continue its strong hold in both these markets given the strong properties they hold in these markets along with the potential for
dubbed Hindi serials in these markets
ZEEL dominates Marathi market… …while they are dominant in the Bangla market
Has emerged to be the third largest regional market with an estimated advertisement
market size of Rs.~8bn
Reaches out to ~17mn television homes in India
Marathi market captures ~5% of the regional viewership share.
Has managed to emerge as a alternate medium to Hindi, despite high prevalence of
floating Hindi population in state capital, Mumbai.
Zee is the market leader in this segment having ventured into this market as early 1999
Posses a library of over 9,000 hours & rights to over 400 movie titles
Zee Marathi has ~21 hours of original fiction content in a week and has about ~15 hours
of reality show content in a week
Key properties of Marathi includes Honar Soon Mi Hya Gharchi, Jai Malhar, Maze Pati
Saubhagyavati, Chala Hava Yeun Dya
Zee Marathi contents concentrated around Family issues and Love stories genres for its
fiction content
Sizeable advertisement market size of Rs.~6bn, catering to West Bengal and Bangladesh
audience
Reaches out to ~10mn television homes in India
Bengali market captures ~3% of the regional viewership share.
Zee is a dominant player in this segment having ventured into this market as early 1999
Has transformed itself to be the leading GEC in West Bengal with dominant share in non-
fiction programming
Zee Bangla has ~22 hours of original fiction content in a week and has about ~15 hours
of reality show content in a week
Zee holds a library of over 9,000 hours & rights to over 600 movie titles
Key properties of Zee Bangla includes Sa Re Ga Ma Pa, Didino. 1,Deep JweleJai, Eso
Ma Lakkhi, Goyenda Ginni, Mirakkel
Zee Bangla contents concentrated abound diverse topics as Family issues, women
struggles, horror and Investigation genres for its fiction content
Zee Marathi 49.0%
Star Pravah 20.8%
ETV Marathi 18.6%
Others 11.6%
Star Jalsha 47.3%
Zee Bangla 35.0%
ETV Bangla 9.6%
Others 8.1%
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 43
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Advertising revenues to be driven by traction across Hindi & Regional markets
ZEEL has certainly created niche for itself in both of these markets through innovative and off beat fiction shows targeting new age viewers
ZEEL through its innovative offerings has created a niche in Telugu... …and in Kannada by having more fiction targeting younger viewers
Sizeable advertisement market size of Rs.~9bn, catering to audience in Andhra Pradesh
and Telangana
Reaches out to ~15mn television homes in India
Bengali market captures ~24% of the regional viewership share.
Zee has emerged to be the dominant player in this segment having ventured into this
market in 2005
Leading GEC in Andhra Pradesh, through its differentiated and refreshing content
Zee Telugu has ~34 hours of original fiction content in a week and has about ~15 hours
of reality show content in a week
Library of over 18,000 hours & rights to over 500 movie titles
Key properties include Varudhini Parinayam, Mangammagaari Manavaraalu, Koncham
Ishtam Koncham Kashtam
Zee Telugu uses the dubbed versions of its popular Hindi Serials to fill up non-primetime
slots in Zee Telugu
Sizeable advertisement market size of Rs.~11bn, catering to the diverse Karnataka
market
The market commands ~10mn television homes in India
Kannada market captures ~11% of the regional viewership share.
Zee is a dominant player in this segment having ventured into this market as early 2006
Competitive player in the Kannada GEC, competes with all the other 4 major media
conglomerates in these markets
Zee Kannada has ~25 hours of original fiction content in a week and has about ~16 hours
of reality show content in a week
Zee Kannada boasts of a Library of over 14,000 hours & rights to over 225 movie titles
Zee Kannada Key properties include Srirastu Subhamastu, Mahadevi, Gruhalakshmi
Dubbed contents are not telecasted in Kannada market, fiction programs mostly have
youth oriented stories
Maa Telugu 27.3%
Gemini TV 25.7%
Zee Telugu 23.0%
Eenadu TV 21.5%
Maa Gold 2.5%
Udaya TV 32.6%
ETV 23.3%
Suvarna 21.1%
Zee Kannada
13.5%
Others 9.5%
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 44
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Advertising revenues to be driven by traction across Hindi & Regional markets
Journey in Tamil should remain a struggle despite seeing one off successes, Odisha market exciting, albeit currently small.
Sarthak acquisition presents an opportunity in Odisha markets… …prospects in Tamil though remain weak from a near term perspective
Advertisement market size of Rs.~1.5bn, catering to audience in State of Odisha.
Reaches out to ~3.5mn television homes in India
Odriya market captures ~3% of the regional viewership share.
Zee bought out Sarthak in 2015 for an all cash consideration of Rs.~1.15bn
Dominant market leader in the Odia GEC space
Key properties of Sarthak includes: Paree, To Aganara Tulasi Mun, Sindura Bindu and
Badhu
Sarthak's shows include different exclusive shows like serials, movies, jatras, reality
shows and music
Largest regional advertisement market size of Rs.~16bn, catering to Tamil audience
Reaches out to ~16mn television homes in India
Bengali market captures ~26% of the regional viewership share.
Zee ventured into the market in 2008, but has ever since found it difficult to break into the
Tamil market
Unlike other genres, higher proposition of slot based models creates a strong entry barrier
for new comers
Zee Tamil did manage to grab some decent movies off late, but placement is found
mostly wanting.
Zee Tamil has a mix of its own shows, several dubbed content from Hindi and popular
reality shows.
Sarthak TV 50.0%
Tarang TV 32.7%
Odisha TV 7.1%
Alankar 5.6%
Colors Oriya 4.7% Sun TV
55.9%
KTV 18.6%
STAR Vijay 12.3%
Zee Tamil 8.3%
Polimer 4.9%
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 45
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Subscription revenues to grow in mid teens driven by digitization
ZEEL to benefit from increasing realization for broadcasters as ambiguity over pricing and customer base begin to dwindle
ZEEL currently has ~1/3rd of its revenues from Analog cable
ZEEL subscription revenues to grow in mid teens… …as industry level subscription share for broadcasters improve
Analogue Cable 32.9%
Digital Cable 22.1%
DTH 38.8%
Other Digital 6.2%
22.1% 23.3% 24.6% 23.4% 23.8%
28.0% 31.0% 31.8% 31.6%
0%
5%
10%
15%
20%
25%
30%
35%
2011 2012 2013 2014 2015 2016P 2017P 2018P 2019P
Broadcasters share in subscription revenues (%)
11.3 13.3
16.2 18.0 17.9
20.6
23.8
27.6
14.1%
17.7%
22.5%
11.0%
-0.5%
14.7%
15.7% 15.9%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0
5
10
15
20
25
30
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rs. B
n
Subscription income (Rs.bn) Growth YoY (%)
ZEEL proposal on the Telecom Regulatory Authority (TRAI)
wholesale pricing model consultation
The broadcaster has proposed that the prices of the mass genre
would be regulated by TRAI through stipulation of RIO methodology
and prices for the niche channel would be under forbearance. It
has also proposed that the cumulative discount on the listed
wholesale price because of various parameters should not exceed
40%. Like Star, ZEEL has suggested that the carriage fee/placement
fee/marketing fee should be subsumed in the discounting/incentive
scheme and no separate payment would be made for the same.
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 46
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY With several investments maturing, operating cost leverage to lead to better margins
&tv should not only to higher advertisement revenues in near term but should also assist in improving near term margins as profitability
improves
ZEEL content cost to come down as &TV costs come down… …especially in the programming front
9.5
14.4 14.3 17.4
20.7 21.4
26.0 29.7
34.4
43%
48% 47%
47%
47%
44%
45%
44% 43%
40%
41%
42%
43%
44%
45%
46%
47%
48%
49%
0
5
10
15
20
25
30
35
40
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rs. B
n
Cost of revenues (Rs.bn) % of sales
5.6 9.3 8.9 10.0 11.1
14.3 18.3
20.9 24.2
26%
31% 29%
27%
25%
29%
31% 31% 30%
0%
5%
10%
15%
20%
25%
30%
35%
0
5
10
15
20
25
30
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rs. B
n
Programming cost (Rs.bn) % of sales
&tv to be EBITDA positive in FY17 and margin accretive in FY18… …led by increase in advertisement share
0.2
2.9 3.4
4.1
-0.90
-1.60 0.08
1.24
-2
-1
0
1
2
3
4
5
FY15 FY16 FY17E FY18E
Revenues EBITDA
12.7%
14.4% 15.4%
14.6%
15.9% 16.6%
17.2%
12.7%
14.4% 15.4%
14.7%
17.3% 18.1%
18.8%
10%
12%
14%
16%
18%
20%
FY12 FY13 FY14 FY15 FY16 FY17E FY18E
ZEEL Advertisement market share excluding &TV
ZEEL Advertisement market share
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 47
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY With several investments maturing, operating cost leverage to lead to better margins
Marketing and advertising spends that were invested behind new shows and promotions on new channels should also rationalize in near to
medium term.
…new channels become EBITDA accretive and spend behind… …new launches dwindles
EBITDA margins to improve led by gross margin expansion… …and lower marketing expenses given that…
5.5 6.1 8.2 7.4
9.5 12.0 12.5
15.1 19.0
23.0 25%
28% 27%
24%
26% 27% 26% 26%
28%
29%
22%
23%
24%
25%
26%
27%
28%
29%
30%
0
5
10
15
20
25
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rs. B
n
EBITDA (Rs.bn) % margin
&Pictures Zee Anmol Zindagi & Pictures
HD &TV & TV HD
Zee
Bollyworld
Zee Cafe
HD
Ten Golf
HD
Aug/13 Sep/13 Jun/14 Aug/14 Mar/15 Mar/15 Jul/15 Sep/15 Oct/15
PICTURES HD
PICTURES
HD
10 10 15 18
25
37 47
4.5%
3.5%
4.9%
4.9%
5.6% 7.6%
8.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0
10
20
30
40
50
FY10 FY11 FY12 FY13 FY14 FY15 FY16
Rs. B
n
Advertisement & Publicity Expenses % of sales
29% 35% 39% 34% 33% 35% 32% 35% 35% 36%
10%
-18%
-47% -38%
-18% -15% -4% -6%
-15% -15%
2% 10%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Non Sports Excl &tv Sports &tv
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 48
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Watch out for traction in subscription revenues and non-cricket content
Subscription revenues and non-sports content to be the key growth and margin drivers for the sports business.
Success of Non-cricket properties key for success…
…given that India cricket series would lead to operating loss
Sports business expected to continue to bleed in near term… …until subscription revenues outpace advertisement growth
3.9 3.2
4.4 3.9
5
6.6 6.3 6.3
7.3 8.1 10%
-18%
-47% -38%
-18%
-15%
-4% -6%
-15% -15%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
0
1
2
3
4
5
6
7
8
9
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rs. B
n
Revenue Sports (Rs.bn) EBITDA margin (%)
Advertisement revenues
51%
Subscription Revenues
49%
Sport
Viewership
traction in
India
Revenue - Cost
economics
ZEEL's
dominance Properties with Zee
Cricket High Unfavorable Medium Matches held in South Africa, Sri Lanka,
Pakistan, Zimbabwe and West Indies
Football Medium Break-even Medium UEFA Champions league, Europa League,
ileague, ligue 1, DFB Pokal
Tennis Medium Break-even Medium US open, ATP & WTA series
Golf Low Favorable High Hazeltine, PGA, European Tour, Asian Tour,
LPGA
Athletics Low Break-even Medium Commonwealth Games, Asian Games
Wrestling High Favorable High WWE
Racing Medium Favorable Medium Le Tour France, Moto GP
Home Bangladesh Pakistan South Africa Sri Lanka West Indies Zimbabwe
Jul/16 India
Aug/16 West Indies
Sep/16
Oct/16 Australia Zimbabwe England
Nov/16 New Zealand
Dec/16 New Zealand Australia South Africa
Jan/17
Feb/17 New Zealand
Mar/17 West Indies
Apr/17
May/17 England England
Jun/17
Jul/17 Bangladesh England Sri Lanka
Aug/17 Australia England
Sep/17
Oct/17 South Africa Pakistan Zimbabwe
Nov/17 India South Africa
Dec/17 New Zealand
Jan/18 New Zealand Bangladesh Bangladesh
Feb/18
Mar/18 West Indies India
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 49
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Opportunity in Over The Top platforms augurs well from a long term perspective
ZEEL has been one of the early entrants into the space and has thereby attracted good base, piggybacking a popular show or event should help
them garner higher traction
Other digital initiatives by ZEEL includes…
Popular OTT platforms of ZEEL are Ditto TV and OZEE OTT brands in India and their launch dates and business model
Ditto TV Ozee
Ditto TV showcases content from
different providers and operates in a
SVOD format. It has ~3mn viewers
with an average monthly ARPU of
Rs.20. The OTT platform also has
several exclusive web only content
as Strugglers, etc
OZEE was launched to provide the
vast library of entertainment content
across the ZEEL channel network,
free of cost, on an anytime,
anywhere basis across devices. The
platform showcases the latest and
full episodes of TV shows
from popular ZEEL Channels.
OTT Brand Company India Launch Business Model
Yupp TV Yupp TV 2006 SVOD
Youtube Google 2008 AVOD
Viu PCCW-Vuclip 2008 TVOD
Zenga Zenga Media Pte 2009 SVOD
nexGTV Media Matrix 2010 SVOD
The Viral Fever TVF 2010 TVOD
Ditto TV Zee Group 2012 SVOD
Sony Liv Multi Screen Media 2013 AVOD
Dish Online Dish TV 2013 TVOD
Box TV Times Group 2013 TVOD
Eros Now Eros International 2014 TVOD
Lukup Lukup Media 2014 TVOD
Spuul Spuul 2014 TVOD
Hotstar Star India 2015 TVOD
Hooq Singtel 2016 SVOD
Netflix Netflix 2016 SVOD
PressPlay Pressplay 2016 AVOD
Voot Network 18 2016 AVOD
Arre Udigital 2016 TVOD
Ozee Zee Group 2016 AVOD
ALTBalaji Balaji Telefilms TBL 2016 SVOD
ZEE FAMILY TV INDIA.COM
ZEEL’s international OTT service,
Zee Family TV streams over 30 live
channels and has 2,000+ movies on
demand besides 25,000+ hours of
library content. It has over 86,000
users and is available across 152
countries.
India.com has gained significant
market position in several content
categories that include
entertainment, news and sports.
India. com also has transactional
brands in the automotive and
educational spaces that have the
potential to drive significant
revenue streams.
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 50
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Financial Analysis
Cash flow to significantly improve as operating margins carry limited capex investment need. Working capital limt increase to be in line with
sales.
Working capital days to fairly remain at current levels… …as inventory levels are expected to remain constant as a % of sales
Operating cash flow to be on the rising trend Leading to superior FCF growth
1.0
7.1
5.7
4.1 3.9 3.8
6.8 7.3 7.9
10.5
4.6%
32.1%
19.0%
13.4% 10.5%
8.7%
13.9% 12.4% 11.6%
13.1%
0%
5%
10%
15%
20%
25%
30%
35%
0
2
4
6
8
10
12
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rs. B
n
OCF (Rs.bn) % sales
0.4
6.5 5.3
3.3 3.2 2.4
5.7
4.5
7.4
10.0
1.9%
29.5%
17.8%
10.8% 8.5%
5.3%
11.7%
7.8% 10.7%
12.3%
0%
5%
10%
15%
20%
25%
30%
35%
0
2
4
6
8
10
12
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rs. B
n
FCF (Rs.bn) % sales
112 113
185
146 133
140 137 132 137 137
0
20
40
60
80
100
120
140
160
180
200
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
No
. o
f D
ays 108
124
106 104 98
85 80 83 80 80
0
20
40
60
80
100
120
140
160
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
No
. o
f D
ays
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 51
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Relative Valuation
ZEEL continue to trade at a year forward PE of ~32x, we believe the stock multiples would remain at these levels in near to medium term for
good Stocks don’t come cheap
…is within its stipulated range of 31x-34x Has been a clear outperformer in the media industry
ZEEL trading in excess of 30x multiple… …which is slightly above its +1sd levels though…
Source: Bloomberg & Spark Capital Research
15x
20x
24x
28x
32x
36x
100
150
200
250
300
350
400
450
500
550
Jun-1
1
Sep-1
1
Dec-1
1
Mar-
12
Jun-1
2
Sep-1
2
Dec-1
2
Mar-
13
Jun-1
3
Sep-1
3
Dec-1
3
Mar-
14
Jun-1
4
Sep-1
4
Dec-1
4
Mar-
15
Jun-1
5
Sep-1
5
Dec-1
5
Mar-
16
Jun-1
6
CM
P (
Rs.)
Average PE, 26.1
+1 SD, 31.7
+2 SD, 37.2
-1SD, 20.6
-2 SD, 15.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Jun/1
1
Sep/1
1
Dec/1
1
Mar/
12
Jun/1
2
Sep/1
2
Dec/1
2
Mar/
13
Jun/1
3
Sep/1
3
Dec/1
3
Mar/
14
Jun/1
4
Sep/1
4
Dec/1
4
Mar/
15
Jun/1
5
Sep/1
5
Dec/1
5
Mar/
16
Jun/1
6
1.81x
3.12x
50
100
150
200
250
300
350
Jun/1
1
Sep/1
1
Dec/1
1
Mar/
12
Jun/1
2
Sep/1
2
Dec/1
2
Mar/
13
Jun/1
3
Sep/1
3
Dec/1
3
Mar/
14
Jun/1
4
Sep/1
4
Dec/1
4
Mar/
15
Jun/1
5
Sep/1
5
Dec/1
5
Mar/
16
Jun/1
6
NSEMED Index Z IN Equity
P/E Multiple range No. of days
traded
% of of no. of
days
Cumulative
traded no. of
days
%of
Cumulative no.
of days
16 - 19x 304 16% 304 16%
19 - 22x 145 8% 449 24%
22 - 25x 266 14% 715 39%
25 - 28x 471 25% 1186 64%
28 - 31x 198 11% 1384 75%
31 - 34x 338 18% 1722 93%
34 - 37x 126 7% 1848 100%
Source: Bloomberg & Spark Capital Research Source: Bloomberg & Spark Capital Research
Source: Bloomberg & Spark Capital Research
Page 52
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Zee TV – Risks & Concerns
Source:
FMCG advertisement
spends decline
Intensifying
competition
Adverse ruling from
TRAI on tariff
regulations
Higher content costs
Digital platforms
grabbing more eye
balls
With the amount of investments that have gone behind &tv, it is paramount that the new channels at least
break-even at EBITDA level and not dilute margins
Performance of newly
launched channels
failing
Increase in content
cost
Though content cost and marketing expenses are expected to be well within control, any adverse price
increase could cause operating margin pressure
Any delay in digitization roll out and mapping consumers could result in further delay of income from
subscription for broadcasters as ZEEL
Though C&S continue to be the most effective form of advertisements, any shift to digital platforms could
severely impact advertisement revenues
With competitors in Hindi and Regional GEC’s investing in new and innovative content, any slowdown in
content innovating from ZEEL to impact advertisement revenues
Any adverse recommendation by TRAI could be detrimental to how we have projected for subscription
revenues, bargaining power at the hands of DPOs would be detrimental for the industry
Though competitive intensity is expected to keep advertisements on the higher side, slowdown in the
same could severely impact the advertisement revenue potential
Page 53
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Corporate Governance
Wealth Creation of group companies
Group Holdings
0
100
200
300
400
500
600
700
800
900
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16
Dish TV Zee Entertainment Zee Media Corp Siti Cable
ESSEL GROUP | Founder: Dr. Subhash Chandra | Market Cap: Rs. 578.8 bn
Media Other Businesses
Packaging (Essel Propack)
Market Cap: Rs. 31.7 bn
Theme Parks: Essel World and Water Kingdom
Playwin: India’s first and largest online gaming company
Cornership: Animation studio
Cyquator Technologies: IT Infrastructure outsourcing
Infrastructure
Education
Precious Metals
Health Lifestyle & Wellness
Launched in 1992
One of India’s largest
media and general
TV entertainment
network
Market Cap: Rs.
420.2 bn
Launched in 1992
Strong presence in
national and regional
news genre
Market Cap: Rs. 8.6
bn
Launched in 2005
Asia’s largest DTH
service provider
Market Cap: Rs.
89.0 bn
Launched in 2006
One of India’s
largest MSO,
presence across 54
cities
Market Cap: Rs.
29.3 bn
Launched in 2005
English broadcast
daily with presence
across Mumbai,
Bangalore, Pune,
Ahmedabad, Jaipur
and Indore
CONTENT DISTRIBUTION
Source: Bloomberg & Spark Capital Research
Source: Company filing & Spark Capital Research
Page 54
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Crystal Ball Gazing
We believe Zee
TV would be able
deliver a total
return of ~1.6x
BY 2020 driven
by robust
advertisement
growth and
operating
leverage
Assuming a revenue
and PAT CAGR of 18%
and ~21%
respectively over
the next four years
Entry = Rs.445@
32x FY17E
Dividends of Rs.13.5 over the next 4 years
EPS CAGR of ~21%,
exit implied multiple of 30x FY20E
FY11 FY15 FY16P FY17E FY18E FY19E FY20E
Revenue 30,405 48,837 58,515 68,377 80,296 94,749 1,11,804
EBITDA 7,395 12,538 15,095 19,009 23,031 26,530 31,529
Margins 24% 26% 26% 28% 29% 28% 28%
PAT 5,891 9,775 10,482 13,477 16,390 19,045 22,808
EPS 6.1 10.2 10.9 14.0 17.1 19.8 23.7
With revenues
outpacing cost
increases and new
investments being
lower, operating
leverage to occur
ZEEL remains the most
attractive play on the
Indian Media and
Entertainment sector
and in our opinion will
always be at a premium
FY11 FY15 FY16P FY17E FY18E FY19E FY20E
ROE (%) 18% 31% 26% 29% 31% 32% 34%
ROCE (%) 18% 19% 25% 27% 29% 30% 32%
Dividend Per
Share 1.5 2.2 2.2 2.7 3.2 3.8 3.8
P/E multiple FY20E EPS Price target
26 Rs.23.7 Rs.617
30 Rs.23.7 Rs.712
TOTAL RETURN OF 1.6x
Source: Company filing & Spark Capital Research
Page 55
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY Financial Summary
Abridged Financial Statements
Rs. mn FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E
Profit & Loss Growth Ratios (%)
Revenue 48,837 58,515 68,377 80,296 Revenues 10.4% 19.8% 16.9% 17.4%
EBIDTA 12,538 15,095 19,009 23,031 EBIDTA 4.1% 20.4% 25.9% 21.2%
Depreciation & Amortization 673 840 860 928 PAT 9.6% 7.2% 28.6% 21.3%
EBIT 11,865 14,255 18,149 22,103 Margins (%)
Other Income 2,278 2,016 2,049 2,361 EBITDA 25.7% 25.8% 27.8% 28.7%
Interest 103 123 125 125 EBIT 24.3% 24.4% 26.5% 27.5%
PBT 14,040 15,817 20,073 24,339 PAT 20.0% 17.9% 19.7% 20.4%
Tax 4,285 5,528 6,624 8,032 Return Ratios (%)
Normalised PAT 9,775 10,482 13,477 16,341 RoCE 18.8% 17.7% 18.9% 20.6%
EPS (Rs.) 10.2 10.9 14.0 17.0 RoE 31.3% 27.1% 28.9% 28.8%
Balance Sheet Total Asset Turnover (x) 0.9 0.9 0.9 1.0
Net Worth 55,498 62,315 71,216 78,659 Leverage Ratios (x)
Debt 12 9 9 9 Debt to Equity 0.00 0.00 0.00 0.00
Minority Interest 4 85 85 85 Current Ratio 3.01 2.96 3.43 3.74
Other Long term liabilities 768 854 854 854 Working Capital Ratios
Sources of Funds 56,282 63,263 72,164 79,607 Debtor Days 80 83 80 80
Net Block 4,091 5,530 5,330 5,022 Inventory days 89 82 89 89
Intangibles 8,163 9,430 9,270 9,150 Creditor Days 31 32 32 32
Investments 15,762 16,946 16,946 16,946 Per Share
Other Long Term Assets 531 556 556 556 Face Value 1.0 1.0 1.0 1.0
Total Current Assets 41,511 46,480 56,542 65,458 Dividend 2.2 2.2 2.7 3.2
Total Current Liabilities 13,776 15,678 16,479 17,524 Valuation Metrics
Net Current Assets 27,735 30,802 40,063 47,934 Shares Outstanding (mn) 960 960 960 960
Application of Funds 56,282 63,263 72,164 79,607 Market Cap. (Rs. mn) 4,27,399 4,27,399 4,27,400 4,27,400
Cash Flow Enterprise Value (Rs. mn) 4,06,296 4,01,765 3,96,958 3,93,561
Cash Flow from Operation 6,809 7,254 7,931 10,526 EV /Sales (x) 8.3 6.9 5.8 4.9
Capex -1,091 -2,717 -500 -500 Price/Earnings (x) 43.7 40.8 31.7 26.2
Cash Flow from Investments -3,661 144 1,549 1,861 Price/Book (x) 7.7 6.9 6.0 5.4
Free Cash Flow 5,705 4,537 7,431 10,026 EV/EBIDTA (x) 32.4 26.6 20.9 17.1
Cash Flow from Financing -3,427 -4,053 -4,673 -8,989 FCF Yield (%) 1.4% 1.1% 1.9% 2.5%
Closing Cash Balance 5,353 8,698 13,505 16,903
Page 56
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Cloudy skies clearing
Stock performance (%)
1m 3m 12m
SUNTV -3% -4% 29%
Sensex 1% 7% -3%
NSE Media 4% 13% 18%
Financial summary
Year Revenues (Rs. mn) EBITDA margin PAT (Rs. mn) EPS (Rs.) P/E(x) ROE (%)
FY15 23,954 48.1% 7,820 19.8 18.5 25.4%
FY16E 25,698 53.0% 8,953 22.7 16.2 24.3%
FY17E 28,966 53.5% 10,567 26.8 13.7 26.0%
FY18E 32,823 55.0% 12,193 30.9 11.9 29.0%
Date 1st July 2016
Market Data
Bloomberg SUNTV
Shares o/s 394mn
Market Cap Rs. 143bn
52-wk High-Low Rs. 438-256
3m Avg. Daily Vol Rs. 438mn
Index member BSE 200
Latest shareholding (%)
Promoters 75.0
Institutions 19.7
Public 5.3
Initiating Coverage We initiate coverage on Sun TV with a ‘BUY’ rating as we believe revenues and earnings would grow at a CAGR of ~13%
and ~17% respectively from FY16 –FY18 led by (1) Sun TV consolidating its market leadership in the lucrative Tamil
market, (2) Improving viewership traction in Telugu and Kannada market, (3) Cost savings arising from increased number
of dubbed serials, (4) Further reduction in Cable & Satellite (C&S) costs of movies, (5) Heightened subscription revenues
on the back of digitization gaining momentum in 3 of the 4 southern states and (6) Radio business improving its mileage.
Though Sun TV has been incessantly trying to shackle off the political image being attached to it, we certainly cannot
ignore the favourability they would enjoy in case the Dravida Munetra Kazhagam (DMK) party reigns supremacy in Tamil
Nadu (TN). With opposition in power over the past 6 years in the state, Sun TV had to tweak several business practices
and alter its business model to be as much apolitical as possible. Despite several challenges emerging over broadcasting
distribution and movie buying over the past few years, Sun TV continues to dominate Tamil television market indicating its
strong connect with consumers. Standoff on digitization prevails in Tamil Nadu, however subscription revenues from other
three states are promising as Phase 4 digitization roll out commences. Strong balance sheet, Robust cash flows, healthy
dividend payout policy further augurs well from an investment angle. We believe negatives are priced in and with ‘cloudy
sky’ for sure clearing, we value the stock at 14x FY18E with a TP of Rs. 433.
Advertising revenue traction to improve: Sun TV enjoys a fanatical patronage among consumers in TN, which makes
Sun TV the most profitable and cost effective medium for content producers and advertisers respectively. In other three
southern markets though Sun TV has certainly ceded its dominant position to national broadcasters by not innovating
and faulty program choices. With Sun TV realising the same, the channel has hired a new set of team and improved its
content, which is beginning to reflect in improved ratings. Venture into dubbed serials and conversion to commission
based programming to rein costs in near to medium term. With the industry having rationalised that high cost movies
does not make economic sense, cost of movie C&S rights have considerably dropped over past few years
Subscription revenues to show non-linear growth: With ~20mn households to be converted into digital over the three
states excluding Tamil Nadu, Sun TV DTH subscription revenues should grow ~17-18%. Digitaization in TN continues
to be in a tiff with I&B ministry not granting DAS licence to the state run MSO, Arasu Cable.
Risks & Concerns: Business risks include Network18’s entry into Tamil GEC market, continued underperformance in
Telugu and Kannada market, slowdown in phase 4 digitization implementation and continuing losses from Indian
premier League franchisee. Stock price risks - any announcement on the court cases pending against the promoters.
GNANASUNDAR S gnanasundar@sparkcapital.in
+91 44 4344 0062
Page 57
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Corporate Factsheet
Corporate Factsheet
Company
Background
Sun TV Network Limited is a south Indian media conglomerate based out of Chennai, Tamil Nadu. Sun network entered the cable business as early as
1993 with the launch of its flagship Sun TV in Tamil Nadu as a Tamil GEC. The company has since then ventured across genres and South Indian
language establishing itself as one of the largest broadcasting companies in India.
Number of
channels Sun Network has 33 channels spread across 4 South Indian languages.
Management depth
Mr. Kalanithi Maran - Executive Chairman and his wife Mrs. Kavery Kalanithi who is an executive director of the company actively manage day to day
affairs of the Sun group. Further the team is well appointed with Mr. Mahesh Kumar as President, Sun TV network, Mr. KL Narayanan as Sun group
CFO, Mr. V.C. Unnikrishnan as Sun TV CFO, Mr. Praveen as Chief Operating Officer, Mr. Kannan as Chief Technical Officer and Mr. S .Ravi as
company secretary.
Key Revenue
Drivers (FY16) Advertisements (~47%), Subscription (~32%), Radio Advertisements (~6%), Broadcast Fees (~4%), IPL Income (~4%), International subscription (~7%)
Language Split –
Number of
channels
Tamil (12 channels), Telugu (8 channels), Kannada (7 channels) and Malayalam (5 channels)
Language Split –
Revenue Tamil (~64%), Telugu (~17%), Kannada (~15%) and Malayalam (~4%)
Genre Split GEC (~60%), Movies (~20%), Songs (~15%) and Others (5%)
Production
Capacity Sun TV has two subsidiaries viz., Kal Radio Limited and South Asia FM Limited.
Corporate Bankers Andhra Bank, Axis Bank, City Union Bank, Corporation Bank, HDFC Bank, ICICI Bank, Indian Bank, Indian Overseas Bank, Karur Vysya Bank, Kotak
Mahindra Bank, Ratnakar Bank, Standard Chartered, Bank State Bank of India and Yes Bank
IPO bankers Kotak Investment Banking DSP Merrill Lynch
IPO money raised Sun TV was listed on the Bombay Stock Exchange on 24 April 2006 upon raising $133 million.
Secretarial Auditors M/s. Lakshmmi Subramanian & Associates
Corporate Auditors M/s S.R. Batliboi & Associates LLP
Page 58
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Timeline – A brief history over the years
1992 1994 1998 2000 2002 2004 2006 2008 2010 2012 2014
Sun Network has 33 channels spread across 4
South Indian languages.
Source: Company Filings & Spark Capital Research
Page 59
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY
KARNATAKA – Kannada ANDHRA PRADESH & TELANGANA – Telugu
KERALA – Malayalam TAMIL NADU – Tamil
Entrenched presence across South India
Source: Company Filings & Spark Capital Research
Page 60
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Financials
Revenue growth has been fairly subdued… …as the business went through several testing times
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Margins finally beginning to inch up in FY16… …which should also witness capital efficiency increasing
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
14.5
20.1 18.5 19.2
22.2 24.0
25.7
0
5
10
15
20
25
30
2010 2011 2012 2013 2014 2015 2016
Rs. B
n
Advertising Income 54.1%
Broadcast fees 4.3%
International Subscription
5.6%
Domestic Subscription
32.0% Indian Premier
League 3.6%
Others 0.4%
91.6% 93.2% 92.8% 90.4% 86.5% 88.0% 88.3%
59.1% 58.8% 57.0% 55.5% 50.5% 48.1%
53.0%
34.5% 37.8% 37.0% 36.6%
33.5% 32.7% 35.1%
20%
40%
60%
80%
100%
2010 2011 2012 2013 2014 2015 2016
Gross margin (%) EBITDA margin post Amortization (%) PAT margin (%)
29.0%
37.2%
29.1%
26.8% 25.4%
24.3%
26.0%
26.0%
34.1%
26.9% 25.2%
24.1% 23.1%
24.6%
20.0%
25.0%
30.0%
35.0%
40.0%
2010 2011 2012 2013 2014 2015 2016
ROE (%) ROCE (%)
Page 61
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Investment Thesis
Enviable
moat in
Tamil
Dubbed
serials to
provide near
term margin
fillup
Steep
decline in
movie
buying cost
Subscription
income to
increase
exponentially Improving
traction in
Telugu
& Kannada
22.7
30.9
+[VALUE]
+[VALUE] +[VALUE]
+[VALUE]
-[VALUE]
0.19
+[VALUE] +[VALUE]
-[VALUE] -[VALUE]
FY
16
Ad
ve
rtis
ing
In
c
Su
bscri
ptio
n in
c
Oth
er
Inco
me
Raw
ma
t co
sts
Em
plo
ye
e C
ost
Op
era
tin
g E
xp
Mo
vie
Am
ort
Exp
Dep
recia
tio
n
Oth
er
Inco
me
Oth
ers
FY
18
Page 62
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Advertisement income to grow ~14% CAGR over FY16-FY18
Advertisement growth to be led by continuing strong patronage in… …Tamil market and improving traction in Kannada and Telugu
Contribution from General Entertainment Channels should increase National FMCG & Regional retailers to lead advertisement growth
Sun TV should continue enjoying favorable growth drivers in Tamil markets, recent initiatives undertaken in the Kannada and Telugu market to
improve advertisement revenue growth.
Tamil 64%
Telugu 17%
Kannada 15%
Malyalam 4%
GEC 60%
Movies 20%
Songs 15%
Others 5%
National FMCG 50%
Regional 30%
Others 20%
7.89
9.70 9.45 10.50 10.67
11.36 12.11
13.82
15.81 23.0%
-2.6%
11.0%
1.7%
6.5% 6.6%
14.1% 14.4%
-5%
0%
5%
10%
15%
20%
25%
6
8
10
12
14
16
18
FY10 FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E
Rs. B
n
Advertisement Revenues (Rs.bn) Growth %
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 63
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Advertising revenues– Enviable Moat in Tamil
The fact that several Local Cable Operators were forced to provide Sun TV signal using alternate DTH as tiff with Arasu Cable continued for
providing analog signals in 2013, indicates the CONSUMER PULL power that Sun TV commands in the market.
ADVERTISEMENT AGENCIES
CONSUMER
PRODUCTION HOUSE
1. Long term liaison
2. Offers the best Return on Investment
3. Strong connect with audience
4. Familiar known artists who gain better
acceptance
5. Sun provides best-in class technology in terms
of telecasting
1. Synonymous with Cable TV
in Tamil Nadu
2. Pioneer in fiction shows in
Tamil Nadu
3. Lack of alternate
entertainment platforms
4. Competitive intensity largely
limited to urban markets
5. Higher number of original
content in a day
6. Women-centric/Rural based
stories that easily connects
with the viewers
7. Higher number of fiction
8. Advantageous channel
placement
1. Most effective way to
reach mass audience
2. Regional advertisers
continue to strongly rely
on Sun TV given its reach
and the effectiveness.
3. Assurance of eye balls
4. Only mass communication
platform to reach to rural
populace in Tamil Nadu
5. Strong movie library
Page 64
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Advertising revenues– Enviable Moat in Tamil
Sun TV, pioneer of Cable TV in Tamil Nadu has time and again enthralled viewers with superior content which has enabled them to dominate the
market.
Being the pioneer, Sun TV has been synonymous with Cable in Tamil Despite the entry of several other players, Sun retains its leadership
Sun TV’s dominance strongly built on its fiction content… …which have built a strong connect with its viewers
Includes Fiction+ Reality shows, Source Industry & Spark capital research:
1993 1994 1999 2000 2010 2014 2007 64.0
0
10
20
30
40
50
60
70
Sun TV Vijay TV Zee Tv Jaya TV Polimer TV
No
. o
f o
rig
inal
Ho
urs
(w
eekly
)
13%
88%
0%
20%
40%
60%
80%
100%
Sun TV Vijay TV Zee Tv Jaya TV Polimer TV
Reality Fiction
Less than 100 episodes
100-500 episodes
500-1000 episodes
More than 1000 episodes
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 65
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Advertising revenues– Enviable Moat in Tamil
Sun TV commands a viewership premium to rest of the channels enabling them to command a strong premium in its advertisement rates too.
Sun TV continues to dominate viewership share…
Thereby commanding a deserved premium in its Advertisement rates Sun TV top 5 shows indicate its target audience: Rural Women
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000 W
k 1
Wk 2
Wk 3
Wk 4
Wk 5
Wk 6
Wk 7
Wk 8
Wk 9
Wk 1
0
Wk 1
1
Wk 1
2
Wk 1
3
Wk 1
4
Wk 1
5
Wk 1
6
Wk 1
7
Wk 1
8
Wk 1
9
Wk 2
0
Wk 2
1
Wk 2
2
Wk 2
3
Wk 2
4
Sun TV KTV Star Vijay Polimer Zee Tamil
0
5
10
15
20
25 Sun TV Advertisement rate premium to other channels 7:30:00 PM Kula Deivam
A couple stay together with their children and
grand children and facing the problems from
their close knit family
Epi 341
8:00:00 PM Deivamagal Story of working women Epi 957
8:30:00 PM Vamsam A girl from the relative comes as a maid to unite
both families Epi 903
9:00:00 PM Priyamanaval
A kind women leads a satisfying life and her
friend envies her financial status-drats a evil
plan
Epi 433
9:30:00 PM Vani Rani A story of two sisters who are diffrent from each
other Epi 985
Source: Industry Sources & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: BARC & Spark Capital Research
Page 66
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Advertising revenues– Enviable Moat in Tamil
Business challenges prevail – Sun TV well equipped to change game plan to suit changing needs
DUBBED Serial
Sun TV have for the first time since its inception has launch dubbed
serials in the flagship channel - Naagini (Weekday at 10pm) and Jai
Hanuman (Sunday at 10am)
We understand from industry sources that management is currently on a
test mode, wanting to understand viewership acceptance for dubbed
serials.
Superior technology, richer content and properties and differentiated
offerings have led to the success of dubbed content in Tamil
On the cost part we understand that Dubbed serials cost Rs.20-30
thousand per episode against original content that costs up to ~150-200
thousand per episode. Though cost metrics work in favor we would be
closely monitoring the impacts it has on the brand image of Sun TV.
POLITICAL IMPACT
Though Sun TV for sure is set to enjoy favorable political courtship if
DMK is in power, we note that the business has managed to sustain and
grow even in adverse political climates.
With ADMK government revitalizing the once defunct Arasu cable, Sun
TV subscription revenues have been impacted. We understand that Sun
TV has sacrificed its subscription revenues to protest its viewership
share thereby advertising income.
We observed that several LCO’s despite being linked with the State run
MSO, Arasu Cable had set up individual dish to obtain and provide Sun
TV signals at their expense as consumers demanded Sun TV.
Though not apolitical and aligned towards DMK, Sun TV has exhibited
its resilience even during adverse political environments.
BARC
Though ratings largely stabilized over time, we understand from industry
participants that larger rural population in the sample survey and
reclassification of SEC standards has benefitted Sun TV viewership
share
Sun TV along with its movie channel KTV continues to command market
dominating leadership in BARC ratings ever since its inception.
BARC ratings currently has 1.94bn gross impressions in Tamil Nadu
with GEC commanding ~1.4bn impressions, Movies -0.36bn
impressions and news -0.06bn impressions.
Of the total market, rural commands ~47% share while Metro markets
command ~20% share.
Of the total Tamil viewership, 7% comes from outside Tamil nadu
12 MINUTE AD CAP RULE
Despite the 12 minute Advertisement capping rule imposed by TRAI IN
2013, we notice that Sun TV has been a repeated offender of breaching
that rule every quarter ever since.
Though Effective Rate (ER) was increased to counter the loss in
volumes, we understand that incessant rate hike is impossible beyond
the prevailing inflation rates, especially given that consumption economy
remains subdued.
Recent events, including comments from I&B minister has though led to
better sentiment with the management and believes the Delhi high court
ruling would be in their favor.
Sun TV as per TRAI report for quarter ending March 31st, Sun TV on an
average runs ~17 minutes of advertisement per hour.
Page 67
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY
Fiction 90%
Reality Shows 10%
Telugu GEC 69%
Telugu Movies
19%
Telugu News 6%
Others 6%
Advertising revenues– Improving traction in Telugu
Gemini TV through its experimenting process has lost the initiative to other national broadcasters, who also have good Hindi content that are
being used as fillers. Gemini TV too has begun telecasting dubbed serials.
Gemini TV viewership on the rising trend led by its recent initiatives
Telugu predominantly a 4 player market…
100,000
200,000
300,000
400,000
500,000
Wk 1
Wk 2
Wk 3
Wk 4
Wk 5
Wk 6
Wk 7
Wk 8
Wk 9
Wk 1
0
Wk 1
1
Wk 1
2
Wk 1
3
Wk 1
4
Wk 1
5
Wk 1
6
Wk 1
7
Wk 1
8
Wk 1
9
Wk 2
0
Wk 2
1
Wk 2
2
Wk 2
3
Wk 2
4
ETV Telugu Maa TV Zee Telugu Gemini TV Gemini Movies
…where viewership is aligned towards fictional GEC content
Zee Telugu, 21.7%
ETV Telugu, 20.7%
Maa TV, 18.4%
Gemini TV, 17.8%
Gemini Movies,
9.6%
Others, 11.9%
Source: BARC & Spark Capital Research
Source: BARC & Spark Capital Research
Page 68
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Advertising revenues– Improving traction in Telugu
Right steps have been taken in Telugu which we understand has led to GRP increase, paramount to stabilize ratings before the commencement
of festive season
Primetime catalogue
As indicated by the management, Commission based model on the
higher proportion… …led by launch of several new serials over the past 6 months
Slot Based Model 20%
Dubbed 20%
Commissioned 60%
Less than 100 episodes
46%
100-400 episodes
36%
More than 800 episodes
18%
Gemini TV Maa Zee Telugu Etv Telugu
6:00:00 PM Dubbed Fiction Dubbed Fiction Fiction Reality Show
6:30:00 PM April 2016 Launch Fiction Fiction Fiction
7:00:00 PM April 2016 Launch Dubbed Fiction Fiction Fiction
7:30:00 PM Episode Number: 274 Fiction Top 5 rated Fiction Top 5 rated Fiction
8:00:00 PM Episode Number: 1000 Fiction Fiction Top 5 rated Fiction
8:30:00 PM Episode Number: 802 Fiction Fiction Top 5 rated Fiction
9:00:00 PM Naagini - Episode 1 Fiction Fiction News
9:30:00 PM Episode Number: 157 Dubbed Fiction Top 5 rated Fiction Reality Show
10:00:00 PM Repeated Dubbed Fiction Crime Show Fiction Reality Show
We analyse from the
prime time pattern that
Sun TV has decided to
create leadership in new
time zones rather than
take on existing top
performing shows of
competition given that
fictional viewership is
fairly sticky and new
investments in those slots
could turn out to be tricky
Source: Company filings & Spark Capital Research Source: Company filings & Spark Capital Research
Source: Company filings & Spark Capital Research
Page 69
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Advertising revenues– Improving traction in Kannada
Along with colors, we see in viewership data that numbers for Udaya TV has also significantly improved over the past 3 weeks, sustainability of the ratings
to be a key monitorable
Colors Kannada from Network 18 through its differentiated content is breaking away as the clear market leader…
Source: BARC & Spark Capital Research
100,000
150,000
200,000
250,000
300,000
350,000
Wk 1
Wk 2
Wk 3
Wk 4
Wk 5
Wk 6
Wk 7
Wk 8
Wk 9
Wk 1
0
Wk 1
1
Wk 1
2
Wk 1
3
Wk 1
4
Wk 1
5
Wk 1
6
Wk 1
7
Wk 1
8
Wk 1
9
Wk 2
0
Wk 2
1
Wk 2
2
Wk 2
3
Wk 2
4
Colors Kannada Udaya TV Suvarna Udaya Movies Zee Kannada
Colors Kannada
28.8%
Udaya Movies 17.5%
Zee Kannada
16.6%
Udaya TV 15.9%
Suvarna 11.6%
Kannada has the presence of the 4 major
players… …in a market which is a bit more diversified away from GEC content.
Kannada GEC 63%
Kannada Movies
21%
Kannada News 6%
Others 11%
Fiction 90%
Reality/ Movies
10%
Source: BARC & Spark Capital Research
Page 70
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Advertising revenues– Improving traction in Kannada
We understand from our interactions with Industry participants, that Udaya TV has hired a good wet of professionals to manage at the helm who
are turning around the fortunes for Udaya TV.
More than 2/3rds of the serials have been launched over the past 6
months… …and in commission model basis only
Primetime catalogue
Source:
Less than 100 episodes
69%
100-200 episodes
23%
More than 200 episodes
8%
Udaya TV Suvarna Zee Kannada Colors Kannada
6:00:00 PM Devotional Fiction Fiction Devotional Fiction Fiction
6:30:00 PM Comey Fiction Fiction Fiction Fiction
7:00:00 PM Fiction - Episode 424 Devotional Fiction Fiction Top 5 rated Fiction
7:30:00 PM April 2016 Launch Reality Show Fiction Top 5 rated Fiction
8:00:00 PM April 2016 Launch Reality Show Fiction Top 5 rated Fiction
8:30:00 PM Fiction - Episode 201 Fiction Fiction Top 5 rated Fiction
9:00:00 PM Fiction - Episode 121 Fiction Fiction Fiction
9:30:00 PM Show Top 5 rated Fiction Fiction Fiction
10:00:00 PM March 2016 Launch Fiction Fiction Fiction
10:30:00 PM May 2016 Launch Fiction Fiction Fiction
Kannada is the only
market where dubbed
serials are morally
banned and we see that
every player adheres to
those norms. Sun TV
launches have been in
the primetime taking
Colors Kannada directly.
Slot Based Model 20%
Commissioned 80%
Source: Company filings & Spark Capital Research Source: Company filings & Spark Capital Research
Source: Company filings & Spark Capital Research
Page 71
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Advertising revenues– Revenues from Malayalam market to remain a drag
Surya TV ratings have been on a constant decline which were further impacted with the advent of Flowers TV
Asianet has been dominating market share in this market…
0
60,000
120,000
180,000
240,000
300,000
360,000
420,000
Wk 1
Wk 2
Wk 3
Wk 4
Wk 5
Wk 6
Wk 7
Wk 8
Wk 9
Wk 1
0
Wk 1
1
Wk 1
2
Wk 1
3
Wk 1
4
Wk 1
5
Wk 1
6
Wk 1
7
Wk 1
8
Wk 1
9
Wk 2
0
Wk 2
1
Wk 2
2
Wk 2
3
Wk 2
4
Asianet Mazhavil Manorama Flowers TV Surya TV Asianet Movies
Asianet 53%
Mazhavil Manorama
17%
Flowers TV 10%
Surya TV 12%
Asianet Movies 8%
Malayalam GEC 73%
Malayalam Movies
14%
Malayalam News 8%
Others 5%
…where Surya TV of Sun Network is at a distant 4th position Reality shows in GEC have a higher viewership in Malayalam
Source: BARC & Spark Capital Research
Source: BARC & Spark Capital Research Source: BARC & Spark Capital Research
Page 72
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Movie buying cost to significantly come down
We understand that cable & satellite costs of movies have significantly dropped with broadcasters realizing that movie cost breakeven
economics.
With only 10 major holidays requiring blockbuster movies… …we believe Sun TV is well covered in movies
Number of movies released continue on the uptrend… …and Sun TV has resumed in purchasing big ticket movies
50.0% 55.0%
30.0% 20.0%
60.0%
0%
10%
20%
30%
40%
50%
60%
70%
2011 2012 2013 2014 2015
Sun TV C&S share in top 20 blockbusters of the year
131 145 151
201 192
0
50
100
150
200
250
2011 2012 2013 2014 2015
English New Year
Pongal
Uzhavar Thirunaal
Tamil New Year
Ramzan
Vinayakar Chathurthi
Ayutha Pooja
Vijaya Dasami
Deepavali
Christmas
15.0 18.4
22.2 26.4
30.2 31.6 35.1
39.6
3.9 3.6 2.9 3.7 5.1 4.1 4.6 4.8
0
5
10
15
20
25
30
35
40
45
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
Intangibles Amortization for the year
Source: Industry & Spark Capital Research Source: Industry & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Industry & Spark Capital Research
Page 73
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Movie buying cost to significantly come down
We firmly believe that Sun TV has enough movie titles running without having to splurge in excess except for the big occasion days movies, 6
days of fiction further reduces the need for movies
Total Number of Movies in
a year (~200)
Super Hits
(~18-20%)
Other movies
(~160-180 movies)
Break-evens
(~30-40 movies)
Big hero movies and offbeat low
budget movies which exceed
market expectations. Average Cost
– Rs.40-70mn
Given the cheaper cost of
conversion into digital, several small
time producers have emerged
banking on movie story. Average
Cost – Rs.0.5mn – 2mn
These movies are generally bought
out post their performance in box-
office. Average Cost – Rs.10-15mn
Sun TV continues to buy ~50-60%
of these super hits relying on star
value and box office performance
Several producers try selling out
movies at sunk cost given that Sun
TV telecast gives the movie some
kind second viewership.
Sun TV through its marketing
muscle buyout a few of these
movies to keep its movie database
running.
Source: Industry & Spark Capital Research
Page 74
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Subscription income to increase exponentially
With ~20mn consumers from 3 states poised to be converted into digital, subscription revenue growth should easily be in mid-teens
Malayalam
Households 8.1
C&S households 7.1
Digital Consumers ~2mn
Analog Consumers ~5mn
Tamil
Households 17.7
C&S households 15.9
Digital Consumers ~2mn
Analog Consumers ~14mn
Telugu
Households 20.9
C&S households 14.8
Digital Consumers ~6mn
Analog Consumers ~9mn
Kannada
Households 13.5
C&S households 9.9
Digital Consumers ~4.5mn
Analog Consumers ~5.5mn
Source: Industry & Spark Capital Research
Page 75
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Subscription income to increase exponentially
Any positive solution over Tamil Nadu C&S market digitization could lead to non-linearity in subscription revenues
…however analog revenues to prevail because of the situation in
Tamil Nadu
Subscription growth to be fueled by digitization in 3 states other than
in Tamil Nadu… Domestic subscription contribution to increase…
Arasu Cable & Rest
With Arasu cable becoming active as an Multi System operator (MSO)
since 2011, Sun TV cable subscription revenues have been severely
majorly on account of political vendetta.
We understand that Sun currently gets only Rs.~300mn annually from
Arasu cable as subscription revenues.
Arasu cable continues to operate as an analogue network, as permission
for a state run operator to become an MSO in the Digitally Addressable
System (DAS) is prohibited.
The AIADMK government as part of its 2016 state election manifesto
had indicated to provide set-top box free for every home, however
ambiguity prevails over its ability to obtain digital license.
4.0
5.8 5.9 6.2
7.7 8.8
9.6
10.9
12.5
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY16P FY17E FY18E
Domestic Subscription
Income 85%
International Subscription
Income 15%
Analog Cable 28%
Digital Cable 72%
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 76
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Sun TV – Other Business – Radio & IPL
Radio business to grow ~14% CAGR, Indian Premier League (IPL) continues to be a loss making proposition until hefty franchisee fee payment regime
ends in FY18. Even on winning the 2016 edition, the franchisee is expected to post Rs.~200mn loss
Number of radio channels have exceeded 50 channels with license…
IPL to remain a bleeding proposition at least for another year
…for 8 new channels obtained in latest auctions
As cost metrics are unfavorable until year 10 of the event
1,055 1,002 963
1,220
1,421 1,585 1,532 1,550
-365
-583 -569
-330
(700)
(600)
(500)
(400)
(300)
(200)
(100)
0
0
200
400
600
800
1000
1200
1400
1600
1800
FY14 FY15 FY16 FY17
Revenues Cost Profits
Sun TV Network Ltd
(Broadcasting, Production, Entertainment)
KAL Radio Ltd (Radio) South Asia FM Ltd (Radio)
Strategic alliance with RED FM
(Radio) 48.9% beneficial
interest
23 FM Radio licenses
Focused on Northern, Eastern &
Western parts of the country
18 FM Radio licenses
Focused on Southern cities
97.78 subsidiary 59.44 subsidiary
Rs.mn 2012 2013 2014 2015
Revenue
KAL radio 461.2 576.4 684.0 810.5
South Asia FM 437.4 551.1 669.3 841.1
Profit After
Tax
KAL radio 14 -126 192 260
South Asia FM -134 -25 89 195
Central Media Rights 57%
Sale of Properties
29%
Other reciepts
14%
Franchisee Fees 57%
Player cost 35%
Operational Expenses
8%
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 77
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Sun TV – Risks & Concerns
Network 18 venturing
into Tamil Nadu
Delay in digitization in
Tamil Nadu
Star Network increasing
its focus in Tamil
Performance in Telugu
and Kannada GEC
remaining weak
Radio business license
being revoked
Financials in IPL are expected to improve post FY17 when franchisee fee payment ceases and collection receipts
improve, any adverse change in regulation could further impact profitability
Continued financial
bleeding in IPL
franchisee
CBI cases against Mr.
Kalanidhi Maran
With Enforcement Directorate cases against Mr.Kalanidhi Maran pending, any adverse ruling could see near term
impact on stock prices.
Though industry sources do indicate that viewership in Kannada and Telugu markets have improved significantly
for SUN, intense competitive scenario could once again pressurise viewership share
Though Sun has manged to get ruling in its favour with regards to participation in Radio auctions, any adverse
ruling could impact Radio business revenues and profitability.
Tamil Nadu (TN) continues to be the only state where digitization has not at all progressed given the state
government network’s inability to get DAS license, We have not factored for income from digitization in TN
Star Vijay has been indicating for quite sometime regarding launching a flanking channel to cater to the rural
audience in TN. Though no announcement is yet made, it could impact SUN viewership share
With industry sources indicating that Network18 is looking to enter into Tamil GEC market, competitive intensity
might increase given that Network18 has cracked the Telugu and Kannada market successfully.
Page 78
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY
Well diversified board presence and committee’s as per SEBI guidelines
Source: Company Filings, Spark Capital Research
Management tenets – Pay scale and holdings
BOD Remuneration as a % of PAT
Source: Company Filings, Spark Capital Research;
Average dividend payout to be ~15-20 % over next few years
Source: Company Filings, Spark Capital Research
Mrs.Kavery Kalanidhi Mr.K.Vijaya Kumar J. Ravindran M.K. Harinarayanan Nicholas Martin Paul R. Ravivenkatesh
Audit Committee - - CHAIRMAN MEMBER MEMBER MEMBER
Remuneration
Committee - - CHAIRMAN MEMBER MEMBER MEMBER
Stakeholders
Committee - - MEMBER CHAIRMAN MEMBER MEMBER
CSR Committee MEMBER CHAIRMAN - - MEMBER -
Rs.mn % of PAT
Mr. Kalanithi Maran 613 7.8%
Mrs. Kavery Kalanithi 613 7.8%
Mr. K. Vijaykumar 9 0.1%
Mr. J. Ravindran 0 0.0%
Mr. M.K. Harinarayanan 0 0.0%
Mr. Nicholas Martin Paul 0 0.0%
Mr. Ravivenkatesh 0 0.0%
Mr. Selvam 0 0.0%
Mr.R. Ravi 2 0.0%
Mr.V.C.Unnikrishnan 7 0.1%
7.5 8.7 9.5 9.5 9.5
11.3
15.5
56.8%
44.8%
54.0% 52.8%
50.1% 56.7%
66.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
2
4
6
8
10
12
14
16
18
2010 2011 2012 2013 2014 2015 2016
Dividend Per Share (Rs.) Payout
Page 79
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY
Board of Directors
Contingent
Liabilities
Political Alliance
Cases against
management/
Company
2011 2012 2013 2014 2015
Total No. of Directors 7 8 8 8 8
No. of Independent Directors 4 4 4 4 4
No. of changes in directors over last year 1 - - - -
Being a grand nephew of the Dravida Munetra Kazhagam (DMK) patriarch Mr.Karunanidhi, Sun TV had enjoyed several
favourable business practices when the DMK government has been in power over the state. Though the party was seen as a
political mouthpiece to the DMK party, Sun TV since a family feud in 2013 has began portraying itself as a political neutral
channel. Promoter’s brother, Mr.Dayanidhi Maran was an elected Member Of Parliament (MP) under the DMK party ticket and
served as telecommunication minister from 2004-2007 and then served as a textile minister from 2009-11.
Aircel: Maxis Case – Enforcement Directorate (ED) – Summons have been issued against the Promoter, Mr. Kalanithi Maran.
BSNL Exchange case - FIR lodged in 2013 against Dayanidhi Maran for allegedly installing more than 300 BSNL telephone
lines, which were used commercially for his family-run Sun TV network, at his residence.
Corporate Governance
Auditor change
(In Rs.Mn) 2014 2015
Contingent Liabilities outstanding as on March 31st 3404.9 4230.3
Contingent Liabilities as a % of Networth ~10.2% ~11.9%
The Auditors have remained constant for the past 5 years.
Source: Company filings & Spark Capital Research
Page 80
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Corporate Governance – RTP mapping
Income head Related Party Rs.mn % of sales
Subscription Income Sun Distribution Services Private Ltd 2114.7 8.8%
Subscription Income Sun Direct TV Private Limited 2099.3 8.8%
Advertising Income SpiceJet Limited 7.1 0.0%
Advertising Income Kal Publications Private Limited 3.8 0.0%
Income from IPL SpiceJet Limited 80.3 0.3%
Income from IPL Sun Direct TV Private Limited 40 0.2%
Business Support Income Sun Direct TV Private Limited 18.8 0.1%
Business Support Income Kal Publications Private Limited 15.9 0.1%
Subscription Income Others 10.1 0.0%
Movie Content Income Sun Direct TV Pvt Ltd 104.5 0.4%
Income from IPL : Digital Radio (Delhi) Broadcasting 15 0.1%
Income from IPL : Digital Radio (Mumbai) Broadcasting 10 0.0%
Income from IPL : Kal Radio Limited 15 0.1%
Business Support Income Kal Radio Limited 5.9 0.0%
Business Support Income South Asia FM Limited 2.3 0.0%
Income head Related Party Rs.mn % of sales
Program production expenses Kal Publications Private Limited 43.8 0.6%
Pay channel service charges Sun Distribution Services Pvt ltd 212.6 3.0%
Rent Expenses Kal Publications Private Limited 23.6 0.3%
Expenditure on CSR Sun Foundation 11.2 0.2%
Advertisement Exps Kal Publications Private Limited 0.5 0.0%
Recovery of shared services Kal Publications Private Limited 2.7 0.0%
Travelling Expenses SpiceJet Ltd 16.6 0.2%
Channel Placement Fee Sun Direct TV Private Limited 45.7 0.6%
Among the digital advertisement avenues, video’s seem to be the Among the digital advertisement avenues, video’s seem to be the
Income head Related Party Rs.mn % of sales
Accounts Reveivable Sun Direct TV Private Limited 1242.1 16.4%
Accounts Reveivable Sun Distribution Services Pvt Ltd 915.1 12.1%
Accounts Reveivable Others 6.8 0.1%
Other Receivable Kal Publications Private Limited 55.1 0.7%
Other Receivable Sun Direct TV Private Limited 7 0.1%
Other Receivable Sun Business Solutions Pvt Ltd 0.3 0.0%
Other Deposits Kal Publications Private Limited 0.6 0.0%
Other Receivable : Digital Radio (Delhi) Broadcasting Ltd 1.3 0.0%
Other Receivable : Kal Radio Limited 0.6 0.0%
Other Receivable : South Asia FM Limited 0.1 0.0%
Among the digital advertisement avenues, video’s seem to be the
Income head Related Party Rs.mn % of sales
Other Current Liabilities Kal Publications Private Limited 0.1 0.0%
Other Current Liabilities Sun Direct TV Private Limited 0.2 0.0%
Other Current Liabilities Others 6.2 0.3%
Accounts Payable Sun Distribution Services Pvt Limited 102.9 4.6%
Accounts Payable Kal Publications Private Limited 3.9 0.2%
Other Current Liabilities : Kal Radio Limited 1.3 0.1%
Among the digital advertisement avenues, video’s seem to be the
Source: Company Filings & Spark Capital Research
Page 81
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Financials – With debt being settled, Balance sheet stronger than ever
Revenues to grow ~13% CAGR over the next two years… …led by improved traction in advertising and subscription income
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Employee cost to be on the rising trend… …however content cost to significantly drop over the next two years
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
20.1 18.5 19.2
22.2 24.0
25.7
29.0
32.8 39%
-8%
4%
16%
8% 7% 13% 13%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
5
10
15
20
25
30
35
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
In R
s.b
n
Net Sales (Rs.bn) growth (%)
59% 58% 60% 54% 54% 54% 54% 55%
32% 33% 32% 35% 37% 37% 38% 38%
9% 9% 7% 6% 5% 4% 4% 3%
0%
20%
40%
60%
80%
100%
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
Advertising Income Subscription Income
Broadcast fees Income from content trading
Income from Indian Premier League Others
1.2 1.4 1.3
1.8
3.0 2.9 3.0
3.3 3.7
8.4%
6.8% 7.2%
9.6%
13.5%
12.0% 11.7% 11.5% 11.2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
Cost of reveneus % of sales
1.3
1.9 1.9 2.0 2.2
2.4
2.7
3.1
3.6
9.2%
9.5%
10.1%
10.4%
9.8% 9.8%
10.6% 10.8%
10.9%
8%
9%
9%
10%
10%
11%
11%
12%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
Employee Cost % of sales
Page 82
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Financials – Working Capital consistency + Robust internal cash accrual on cards
EBITDA margins post amortization to improve… …on the back of lower other expenses and…
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
…contained amortization… …which should lead to improvement in profitability
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
8.6 11.8 10.5 10.7 11.2 11.5
13.6 15.5
18.0
59.1% 58.8%
57.0% 55.5%
50.5% 48.1%
53.0%
53.5% 55.0%
0%
10%
20%
30%
40%
50%
60%
70%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
EBITDA post amortization % of sales
1.1 1.1 1.1 1.3
2.0 2.0
2.2 2.5
2.8
7.2%
5.3%
6.1% 6.8%
8.8% 8.2%
8.6%
8.5% 8.4%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
Other Expenses % of sales
2.3
3.9 3.6 3.4
3.9
5.3
4.1 4.6 4.8
16.0%
19.6% 19.6% 17.7%
17.3%
22.0%
16.0% 15.8%
14.5%
0%
5%
10%
15%
20%
25%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
Amortization % of sales
5.2
7.7 6.9 7.1 7.5 7.8
9.0
10.6
12.2
35.8%
38.2%
37.5% 36.9%
33.6%
32.6%
34.8%
36.5% 37.1%
29%
30%
31%
32%
33%
34%
35%
36%
37%
38%
39%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
Normalised PAT post MI % of sales
Page 83
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Financials – Working Capital consistency + Robust internal cash accrual on cards
Improving profitability to lead to better capital efficiency… …while working capital days remain fairly constant
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Operating cash flow yield to increase as margins improve… …which is expected to lead to improvements in FCF yields too
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
29.0%
37.2%
29.1%
26.8% 25.4%
24.3%
26.0%
29.0%
31.2%
26.0%
34.1%
26.9% 25.2%
24.1% 23.1%
24.6%
26.7%
28.9%
20%
25%
30%
35%
40%
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
ROE (%) ROCE (%)
83 78
101 111
103 115 117
110 110
1 0 0 0 0 0 0 0 0 10 10 9 9 9 11 12 12 12
74 68
92 102
94 105 106
98 98
0
20
40
60
80
100
120
140
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
Days
Debtor Days Inventory Days Creditor Days Net Working Capital Days
7.5
11.5 8.8 8.7
11.9 11.6 10.3
17.1 15.8
51.4% 57.0%
47.4% 45.2%
53.7% 48.5%
40.1%
59.1%
48.2%
0%
10%
20%
30%
40%
50%
60%
70%
0
2
4
6
8
10
12
14
16
18
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
Rs.b
n
Operating Cash Flow (Rs.bn) % of sales
1.6
6.7
1.6 2.8
5.5 5.8
8.4 9.9 9.5 11.3%
33.1%
8.8%
14.3%
24.6% 24.3%
32.7% 34.3%
29.0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
2
4
6
8
10
12
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16P FY 17E FY 18E
Rs.b
n
Free Cash Flow (Rs.bn) % of sales
Page 84
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Valuation
…indicating the near term opportunity in the stock
Source: Bloomberg, Spark Capital Research
In comparison to Zee, the stock trades below its historical average
Source: Bloomberg, Spark Capital Research
Sun TV at current prices trading close to -1SD levels…
Source: Bloomberg, Spark Capital Research
Sun TV trading well below its average PE of 16x
Source: Bloomberg, Spark Capital Research
9x
12x
15x
18x
21x
24x
100
300
500
700
Jun-1
1
Sep
-11
Dec-1
1
Mar-
12
Jun-1
2
Sep
-12
Dec-1
2
Mar-
13
Jun-1
3
Sep
-13
Dec-1
3
Mar-
14
Jun-1
4
Sep
-14
Dec-1
4
Mar-
15
Jun-1
5
Sep
-15
Dec-1
5
Mar-
16
Jun-1
6
CM
P (
Rs.)
P/E Multiple range No. of days
traded
% of of no. of
days
Cumulative
traded no. of
days
%of
Cumulative no.
of days
11 - 12x 66 4% 75 4%
12 - 13x 128 7% 203 11%
13 - 14x 267 14% 470 25%
14 - 15x 283 15% 753 41%
15 - 16x 263 14% 1016 55%
16 - 17x 218 12% 1234 67%
17 - 18x 202 11% 1436 78%
18 - 19x 167 9% 1603 87%
19 - 20x 124 7% 1727 93%
Above 20x 121 7% 1848 100%
Average PE, 15.9
+1 SD, 18.4
+2 SD, 20.9
-1SD, 13.4
-2 SD, 10.9 10.0
15.0
20.0
25.0
Jun/1
1
Sep/1
1
Dec/1
1
Mar/
12
Jun/1
2
Sep/1
2
Dec/1
2
Mar/
13
Jun/1
3
Sep/1
3
Dec/1
3
Mar/
14
Jun/1
4
Sep/1
4
Dec/1
4
Mar/
15
Jun/1
5
Sep/1
5
Dec/1
5
Mar/
16
Jun/1
6
-80.0%
-70.0%
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
Jun/1
1
Sep/1
1
Dec/1
1
Mar/
12
Jun/1
2
Sep/1
2
Dec/1
2
Mar/
13
Jun/1
3
Sep/1
3
Dec/1
3
Mar/
14
Jun/1
4
Sep/1
4
Dec/1
4
Mar/
15
Jun/1
5
Sep/1
5
Dec/1
5
Mar/
16
Jun/1
6
Sun TV Vs ZEEL Average +1SD
-1SD +2SD -2SD
Page 85
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Crystal Ball Gazing
We believe Sun
TV would be able
deliver a total
return of ~1.8x BY
2020 driven by
strong revenue
growth and margin
expansion
Assuming a revenue
and PAT CAGR of ~16%
each respectively over
the next four years
Entry = Rs.367@
14x FY17E
Cumulative Dividends of Rs.79
EPS CAGR of ~16%,
exit implied multiple of 14x FY20E
TOTAL RETURN OF 1.8x
FY11 FY15 FY16P FY17E FY18E FY19E FY20E
Revenue 18,472 23,954 25,698 28,966 32,823 37,272 42,452
EBITDA 10,529 11,511 13,633 15,483 18,046 20,519 23,488
Margins 57% 48% 53% 53% 55% 55% 55%
PAT 6,929 7,820 8,953 10,567 12,193 13,805 16,010
EPS 17.6 19.8 22.7 26.8 30.9 35.0 40.6
With overall movie buying
cost also expected to
come down, amortization
expenses expected to go
down
Though corporate
governance overhang
fairly limits the fair multiple
for Sun TV, we believe
even at current multiple
the stock should deliver
1.8x
FY11 FY15 FY16P FY17E FY18E FY19E FY20E
RoE 29% 24% 26% 29% 31% 32% 34%
ROCE 27% 23% 25% 27% 29% 30% 32%
Net Block 4,346 11,810 8,674 10,330 10,802 11,520 12,012
Dividend per
share 10 11 16 18 19 21 22
P/E multiple FY20E EPS Price target
14 Rs.40.6 Rs.569
15 Rs.40.6 Rs.609
Trading History – % of times stock traded
PE
range
<13x 13 - 15x 15 - 17x 17 - 19x 19 - 21x >21x
11% 30% 26% 20% 11% 2%
Page 86
Sun TV CMP
Rs. 367
Target
Rs.433
Rating
BUY Financial Summary
Abridged Financial Statements
Rs. mn FY15 FY16P FY17E FY18E FY15 FY16P FY17E FY18E
Profit & Loss Growth Ratios (%)
Revenue 23,954 25,698 28,966 32,823 Revenues 7.7% 7.3% 12.7% 13.3%
EBIDTA 16,772 17,742 20,051 22,804 EBIDTA Post Amortization 2.5% 18.4% 13.6% 16.6%
Amortization 5,261 4,109 4,569 4,757 PAT 4.5% 14.5% 18.0% 15.4%
EBITDA post Amortization 11,511 13,633 15,483 18,046 Margins (%)
Depreciation 892 940 975 1,071 Gross Margin 70.0% 88.3% 88.5% 88.8%
Other Income 989 1,106 1,171 1,112 EBITDA less Amortization 50.5% 48.1% 53.0% 53.5%
Interest 23 22 25 25 PAT 33.6% 32.6% 34.8% 36.5%
Tax 3,760 4,755 5,166 5,961 Return Ratios (%)
Normalised PAT 7,820 8,953 10,567 12,193 RoCE 24.1% 23.1% 24.6% 26.7%
EPS (Rs.) 19.8 22.7 26.8 30.9 RoE 25.4% 24.3% 26.0% 29.0%
Balance Sheet Total Asset Turnover (x) 0.7 0.7 0.7 0.8
Net Worth 33,481 35,263 37,524 40,699 Leverage Ratios (x)
Other Long term Liabilities 977 996 996 996 Debt to Equity 0.00 0.00 0.00 0.00
Deffered Tax Liabilities 226 188 188 188 Current Ratio 7.77 8.94 8.75 9.30
Minority Interest 547 1,756 1,677 1,586 Working Capital Ratios
Sources of Funds 35,231 38,203 40,385 43,469 Debtor Days 115 117 110 110
Gross Block 44,440 46,343 53,543 59,843 Inventory days 0 0 0 0
Net Block 11,810 8,674 10,330 10,802 Creditor Days 11 12 12 12
Investments 8,406 8,055 8,055 8,055 Per Share
Other Long Term Assets 0 12 12 12 Face Value 9.0 10.0 11.0 12.0
Total Current Assets 17,234 24,165 24,826 27,565 Dividend 11.3 15.5 17.5 19.0
Total Current Liabilities 2,219 2,704 2,838 2,965 Valuation Metrics
Net Current Assets 15,015 21,462 21,988 24,600 Shares Outstanding (mn) 394 394 394 394
Application of Funds 35,231 38,203 40,385 43,469 Market Cap. (Rs. mn) 1,44,629 1,44,627 1,44,629 1,44,629
Cash Flow Enterprise Value (Rs. mn) 1,29,607 1,26,216 1,23,450 1,21,875
Cash Flow from Operation 11,623 10,299 17,127 15,806 EV /Sales (x) 5.4 4.9 4.3 3.7
Capex -4,400 -1,903 -7,200 -6,300 Price/Earnings (x) 18.5 16.2 13.7 11.9
Cash Flow from Investments -5,183 763 -6,029 -5,188 Price/Book (x) 4.3 4.1 3.9 3.6
Free Cash Flow 5,812 8,396 9,927 9,506 EV/EBIDTA (x) 7.7 7.1 6.2 5.3
Cash Flow from Financing -6,350 -7,303 -8,331 -9,043 FCF Yield (%) 4.5% 6.7% 8.0% 7.8%
Closing Cash Balance 7,593 11,352 14,119 15,695 Dividend Yield 3.1% 4.2% 4.8% 5.2%
Page 87
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY High Definition leverage play
Stock performance (%)
1m 3m 12m
DISH TV 10% 15% -8%
Sensex 1% 7% -3%
NSE Media 3% 13% 18%
Financial summary
Year Revenues (Rs. mn) EBITDA margin PAT (Rs. mn) EPS (Rs.) P/E(x) ROE (%)
FY15 26,880 27% 31 0.0 NA 9%
FY16E 30,599 33% 2,564 2.4 38.2 31%
FY17E 34,829 35% 3,304 3.1 29.7 27%
FY18E 38,666 35% 4,260 4.0 23.0 27%
Date 1st July 2016
Market Data
Bloomberg DITV IN
Shares o/s 1,066mn
Market Cap Rs. 104bn
52-wk High-Low Rs. 122-65
3m Avg. Daily Vol Rs. 444mn
Index member BSE 200
Latest shareholding (%)
Promoters 64.5
Institutions 25.9
Public 9.7
Initiating Coverage We initiate coverage on Dish TV with a ‘BUY’ rating on the back of revenues and earnings CAGR assumptions of ~13% and
~36% respectively from FY16 –FY18 led by (1) Increase in net subscriber base as digitization coverage extends to phase 4
cities, where Direct To Home (DTH) operators are expected to gain higher traction Vs digital cable, (2) Dish TV anticipated
to gain higher share among DTH players led by its distinguished rural presence, higher number of channels and High
Definition (HD) channels, attractive bouquet packaging and superior technology (3) Average Revenue Per User (ARPU)
increasing by ~2% led by price increases and increasing traction for HD channels, (4) Improved EBITDA margins arising out
of operating leverage that emerges out of fixed fee content costs and other operating expenses (6) Lower Interest expenses
with majority of debt being repaid over the next two years.
Dish TV, a pioneer of DTH industry in India like every other successful media company has constantly innovated in terms of
product offerings and pricing which has enabled them to maintain their market leadership despite entry of several other
strong players in the DTH market. Operational achievements were also visible on financial performance, as the company
went on to become the first DTH player to become FCF positive in FY12. Exhibition of consistent financial performance in
the few years along with management’s confidence in being able to wipe out all the accumulated losses over the next two
years, makes us believe that it is the right time to enter into Dish TV to make the most out of the digitization drive. We value
the stock on a DCF basis with a TP: Rs. 113 (Implied PE of 25x FY18E EPS)
Dish TV best positioned to tap into Phase 4 digitization: Fragmented markets, capital intensity and lack of large Multi
System Operators (MSOs) in phase 4 towns to act in favour of DTH players. Dish TV further to be the significant player in
these markets given their Value For Money (VFM) packs and positioning and their technical superiority. ARPU growth
however to be ~2% only as increasing number of consumers in phase 4 expected to adversely impact product mix,
increase in LED television screens (if an indicator) should propel growth of HD set top boxes.
Operating leverage and financial de-leveraging to improve profitability: With revenues expected to grow ~13% over the
next two years, fixed content costs, technical costs and marketing expenses to enable EBITDA margins expanding
~170bps to ~35.2% by FY18E. Further a debt settlement of ~7.5bn over the next two years expected to halve the current
interest outgo. Depreciation charged over the Consumer Premises Equipment (CPE) also to marginally reduce as prices
of CPE are on a downward trend.
Risks & Concerns: Given that boxes are imported and there is buyer’s credit being offered in USD, Dish TV is exposed to
currency risks and hedging costs. Advent of Reliance Jio, its plans and impacts on Distribution Platform Operators (DPOs)
to be a key near term monitorable. Delay in phase 4 implementation and Dish TV losing share are other risks
GNANASUNDAR S gnanasundar@sparkcapital.in
+91 44 4344 0062
Page 88
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY Factsheet
Company Background
Dish TV, pioneer of DTH services in India began operations in 2003 and has emerged to be the largest DTH player
in Asia Pacific. Dish TV is a part of Zee group, which is one of the largest media conglomerates in India. Being the
market leader of DTH industry, Dish TV has come a long way since its inception with incessant technological
innovations and impactful marketing campaigns to ensure consumer addition and retention.
Key Revenue Drivers (FY16) Subscription income constitutes to ~92% of overall revenues. Others include lease rental, bandwidth charges,
advertising income and sale of customer premises equipment.
Management depth
Mr. Jawahar Lal Goel – Chairman and Managing Director. He has been the managing Director since 2007. Mr.
Arun Kapoor – CEO since 2015, a seasoned Media executive having led Zee Turner, Big TV DTH, Media Pro and
Taj TV for around 9 years. Mr. Gaurav Goel - President – Business Development and Strategy (with Dish TV since
2011). Mr. Rajeev K. Dalmia, CFO (with Dish TV since 2007). Mr. Veerender Kumar Gupta – COO (with Dish TV
since 2009) and Mr. Ranjit Singh - Sr. Vice President Legal & Company Secretary (with Dish TV since 2004)
Reach Dish TV as on June 2016, had a net subscriber base of ~12.9mn.
Market Share Dish TV is the market leader with ~27% market share. Tata Sky (~20% share), Videocon D2h (~16% share), Airtel
Digital (~19% share), Sun Direct (~12% share) and Big TV (~6% share)
Reach Dish TV has a distribution network of over 1,685 distributors & over 2,01,300 dealers that span across 8,929 towns
in the country
Genre Split
Dish TV uses MPEG-2 digital compression technology, transmitting using NSS-6 Satellite at 95.0E and SES 8
satellite at 95.0E. Dish TV has started to use MPEG 4 DVB S2 digital compression technology using Asiasat 5 at
100.5 E using its dish tru hd + STB.
Corporate Bankers ICICI Bank, Standard Chartered Bank, State Bank of India, Yes Bank, IDBI Bank, Kotak Mahindra Bank and Axis
Bank
IPO bankers Enam Securities Private Limited
IPO money raised Rs.~5bn
Corporate Auditors Walker Chandiok & Co. LLP - Statutory Auditors, Pro Advisory India LLP - Internal Auditor, Mr. Jayant Gupta -
Secretarial Auditor
Source: Company Filings & Spark Capital Research
Page 89
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY Timeline – A brief history over the years
Though established in 1997, scaling up activities picked up in last 3 years
Source: Company Filings & Spark Capital Research
Plant Location
Source: Company Filings & Spark Capital Research
2015
2014
2013
2012
2012
2010
2009
2007
2003
2015
2009
First DTH in India
Launches Live TV for moving vehicles
Rights Issue of 100:121 at a premium of Rs.21/- per share
First to negotiate content on a fixed fee basis
First to launch High Definition
First to offer unlimited recording
First to be FCF positive in the Indian DTH industry
First to launch online TV for DTH viewers – “Dish Online”
First to launch a sub brand targeting regional language markets –
“Zing”
First to be PAT Positive in the Indian DTH Industry
First to launch Home Video System - DishFlix
Plant Location
Source: Company Filings & Spark Capital Research
Zing Digital
7
13
Zonal Offices
Regional Offices
Page 90
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY Timeline – Production Facility
Revenues to grow at ~13% CAGR over the next two years… …Driven by increase in subscription revenues
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Margins to improve on operating leverage… …leading to PAT margins of ~11% in FY18
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
14.4
19.6 21.7
25.1 26.9
30.6
34.8 38.7 32.4%
36.3%
10.7%
15.8%
7.1%
13.8% 13.8% 11.0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
5
10
15
20
25
30
35
40
45
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs. B
n
Revenue (Rs.bn) % growth YoY
45.3% 48.9% 48.5%
46.8% 47.9% 51.7% 52.9% 53.2%
16.6%
25.4% 26.7% 24.9%
27.3%
33.5% 34.9% 35.1%
10%
20%
30%
40%
50%
60%
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Gross Margin EBITDA Margin
Subscription revenue
92%
Bandwidth charges
4%
Others 4%
2.56 3.30
4.26
8%
9%
11%
0%
2%
4%
6%
8%
10%
12%
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
FY16 FY17e FY18e
PAT (Rs.bn) PAT margin (%)
Page 91
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY Earnings to increase ~29% led by revenue growth momentum and operating leverage
2.4
4.01
1.0
0.4
0.1
0.5
-[VALUE]
0.7
-[VALUE]
FY16 EPS
Revenue growth
Cost of revenues
Operating expenses
Depreciation
Other Income
Interest Expenses
Tax Expenses
FY18 EPS
Net subscriber addition of ~3.0mn in two years (~10% growth) * 2%
ARPU CAGR over 2 years
Programming costs to come down by 100bps +
Other fixed fees down by ~50bps
Fixed expenses in other operating income and a tad lower
marketing outlay to lead to ~30bps cost savings
Lower cost of the hardware equipment (both SD & HD) to bring
down depreciation expenses
With net debt expected to go down from current ~4.7bn to ~(1.01)
bn in 2 years, other income to reduce
Interest Expenses expected to lower as we factor in ~7.5bn gross
debt repayment over the next two years
With tax loss credits exhausted in FY16, FY17 & FY18 to have an
effective tax of ~33%
Page 92
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY #1 Subscription income growth
Subscription income to grow at a CAGR of ~13% over the 2 years… …led by ~3mn subscriber additions over two years…
…and an ARPU growth of ~1.6% Key Risks to our thesis
Given that there are ~50-60mn consumers to be digitized in Phase 4, Dish TV should be easily able to achieve the ~3mn subscriber additions
11.9
16.6 19.2
22.7 25.4
28.3
32.4 36.1
42.8% 39.5%
15.6% 18.0%
12.1% 11.2% 14.5%
11.4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0
5
10
15
20
25
30
35
40
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs. B
n
Subscription Revenue (Rs.bn) % growth YoY
3.5
2.5 2.3
1.5
2.7
3.3 3.3 3.4
2.9
1.7
1.1 0.8
1.5 1.6 1.5 1.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Mn
Gross Subscribers addition (mn) Net Subscribers addition (mn)
150 151
157
163
172 174
177 180
135
140
145
150
155
160
165
170
175
180
185
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Delay in Phase 4 implementation of digitization
Digital cable continuing to indulge in massive CAPEX in Phase 4
Other DTH players undercutting price to gain market share
Higher churn due to aggressive marketing by other players
ARPU growth lower than anticipated ~2% CAGR on account of
minimal HD offtakes
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 93
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY #1 Subscription income growth
Opportunity for Dish TV is humongous considering a ~7-8% in crease in C&S households increase in India
SUBSCRIBER
ADDITION
OPPORTUNITY
Source: Company Filings & Spark Capital Research
Page 94
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY
Phase 1
Phase 2
Phase 3
Phase 4
As per industry estimates, we understand that ~50-60mn homes are to be digitized in Phase 4
13.6
24.6
40.6
81
1.2
1.2
1
47.9
Jun-12
Mar-13
Dec-15
Dec-16
Non-digitised subs
No of Paid C&S Subs
Despite litigations and delays, Digitization in India is progressing steady, Phase 4 deadline can be extended to March 2018 realistically
Number of C&S households on the rise… …so have been the digital subscribers especially in the past 3 years
Source: Company Filings & Spark Capital Research
>90% (100% exclusive Chennai)
>95%
>80%
~45%
119 130 139 149
160 170 179 186 192 197
76.0%
79.2% 80.7%
82.2% 83.4%
82.0% 83.0% 85.0% 86.0% 87.0%
60%
64%
68%
72%
76%
80%
84%
88%
0
50
100
150
200
250
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Mn
Number of C&S households (mn) Paid C&S households(%)
74 69 68 70 65 41
5 5 5 5
6 19 25 29 37 55
80 84 87 90
31 34 37 40 44 55 74 76 78 79
8 9 9
10 15 19
20 21 22 22
0
50
100
150
200
2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
Analogue Digital Pay DTH Free DTH
#1 Subscription income growth
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 95
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY
Given the fragmented markets in Phase 4, Lack of large MSOs and lack of funds with major MSO’s to expand should work in favor of DTH
players
DTH also boasts of higher ARPU… …and promises greater convenience
DTH to be a bigger beneficiary in phase 3 and Phase 4 markets… …and why we believe so
0%
20%
40%
60%
80%
100%
Phase 1 Phase 2 Phase 3 Phase 4
Digital DTH
Fragmented Locations
Smaller & Regional MSO's
Larger MSO's will have to burn substantial CAPEX to enter Phase 3
areas
DTH players as Dish TV have better rural foothold
Convenience in installation
160 170 175 196
248 258
160 166
200 220 214 219
0
50
100
150
200
250
300
2011 2012 2013 2014 2015 2016P
Rs. P
er
Mo
nth
DTH Digital cable
Broadcaster Consumer
Better Consumer data Convenience in choosing packs
Few DTH players to negotiate Transferrable Pan India
Higher ARPU Hassle free payments
No player with significant market share Higher number of HD channels
Contributes ~60% to broadcaster's
domestic subscription Reliable service help desk
HD channels Not reliant on a single LCO
No Carrige fees Options of portability
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Spark Capital Research
Source: Spark Capital Research
#1 Subscription income growth
Page 96
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY
Dish TV, market leader in the DTH industry continues to have best technology and offers maximum number of channels
Dish operates on MPEG -4 and MPEG 2 with 16 transponders Dish TV offers the maximum number of channels providing an edge
Dish TV continues to be the market leader among DTH players… Players have actually meaning fully contributed to the industry
Dish TV Enhanced consumer understanding of DTH
Airtel Digital Enabled last mile connectivity for offline recharge cards
Videocon D2h Links up several 'after sale' service agents
Tata Sky Enabled premiumization
Sun Direct Assisted in Regional penetration
30% 29% 28% 27% 27% 27%
18% 19% 19% 20% 23% 21%
16% 14% 13% 13% 8% 11%
9% 8% 7% 7% 2% 5%
18% 19% 19% 19% 20% 20%
9% 12% 14% 14% 20% 16%
0%
20%
40%
60%
80%
100%
2011 2012 2013 2014 2015 2016
Dish TV Tata Sky Sun Direct Big TV Airtel Digital Videocon D2H
S.No DTH Operator Compression
standard Capacity
No of
Transponders
1 Dish TV MPEG-2 & MPEG-4 720 MHz 16
2 Tata Sky MPEG-2 432 MHz 12
3 Sun Direct TV MPEG-4 180 MHz 5
4 Reliance BIG TV MPEG-4 324 MHz 9
5 Airtel Digital TV MPEG-4 396 MHz 11
6 Videocon d2h MPEG-4 540 MHz 10
415
336
220
276
378 389
0
50
100
150
200
250
300
350
400
450
Dish TV TATA Sky Sun Direct Reliance Digital
Airtel Digital Videocon D2H
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
#1 Subscription income growth
Page 97
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY
Key reasons why we believe Dish TV has an edge over other DTH operators
…low value recharge packs… …competitive box prices…
Locational advantage being the pioneer… …higher number of HD channels…
Price (Rs.) No of
Channels Price (Rs.)
No of
Channels
Dish TV 99 135 535 352
TATA Sky 99 184 591.667 415
Sun Direct 199 132 379 212
Airtel Digital 190 177 603 334
Videocon D2H 99 139 500 352
Zing Digital 99 155 369 290
SD With Recorder HD+ With Recorder
Dish TV 1600 1700
TATA Sky 1600 1800
Sun Direct 1690 1990
Airtel Digital 1640 2095
Videocon D2H 1520 1920
2003 2004 2005 2006 2007 2008 2009 2010
#1 Subscription income growth
50 46
12 12
35 38
0
10
20
30
40
50
60
Dish TV TATA Sky Sun Direct Reliance Digital
Airtel Digital Videocon D2H
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 98
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY
ARPU INCREASE = Price Increases (competition limits the base unit pack pricing) + Change in Mix (does not normally happen) + increase in HD
subscriber (Best possible case for ARPU increase)
…and inflationary pricing actions
ARPU to increase ~1.6% over the next two years Led by increase in number of High Definition subscribers…
150 151 157
163
172 174 177 180
8.7%
0.7% 3.9%
4.2%
5.2%
1.2% 1.9%
1.4%
0%
2%
4%
6%
8%
10%
130
140
150
160
170
180
190
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs.
ARPU (Rs.) ARPU growth (%)
HD channel Contribution
10%
Basic SD pack 65%
Other SD pack 25%
200 255
380
220 280
400
220
300
421
230 275
320
440
240 285
335
460
250 295
345
475
260 305
355
485
270 315
365
475
0
100
200
300
400
500
600
Super Family Maxi Sports # All Sports Platinum Sports
Rs.
Previous Price Revised Price (w.e.f. Apr'13) Revised Price (w.e.f. Jun'14) Revised Price (w.e.f. Aug'14)
Revised Price (w.e.f. Feb'15) Revised Price (w.e.f. Aug'15) DAS Ph I&II cities (w.e.f. Aug'15) New Pricing
#1 Subscription income growth
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 99
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY #2 Cost of revenues to be contained
Dish TV has proposed a Fixed Fee model to TRAI consultation paper for agreeing on price with broadcasters, we understand that currently ~45% of
content is on fixed fee basis.
License fees to remain at current levels… …Intrduction of GST could lower enetertianment tax
Cost of revenues to decline ~150bps… …led by 100bps decline in content costs
7.9
10.0 11.2
13.4 14.0 14.8 16.4
18.1 54.7%
51.1%
51.5%
53.2% 52.1%
48.3% 47.1% 46.8%
42%
44%
46%
48%
50%
52%
54%
56%
0
5
10
15
20
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs.
Cost of Revenue (Rs.bn) % of sales
5.0 6.1 6.5
7.8 8.0 8.6
9.6 10.4 35.1%
31.0% 30.1% 31.0%
29.8% 28.0% 27.5%
27.0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
2
4
6
8
10
12
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs.
Content Costs (Rs.bn) % of sales
1.5
2.0 2.3
2.6 2.9
2.2 2.5
2.7
10.4% 10.2%
10.4% 10.4%
10.7%
7.1% 7.1% 7.1%
0%
2%
4%
6%
8%
10%
12%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs.
License Fees (Rs.bn) % of sales
0.5 0.7
1.1
1.3 1.5
1.7 1.9
2.1
3.6% 3.5% 4.9%
5.3%
5.5% 5.4% 5.4%
5.4%
0%
1%
2%
3%
4%
5%
6%
0.0
0.5
1.0
1.5
2.0
2.5
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e R
s.
Entertainment Tax (Rs.bn) % of sales
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 100
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY #3 Operating leverage to lead to EBITDA margin expasnion
Overall SAC expected to trend lower in near to medium term as hardware subsidy and acquisition related marketing spends decline
Subscriber Acquisition Cost also on the lower trend (Rs.) As hardware subsidy and marketing costs decline..
Other Expenses cost expected to be down by ~30bps… …led by lower business promotion expenses
3.4 3.9 3.9
4.6 4.5 4.3 4.8
5.4 23.4%
19.7%
18.0% 18.3%
16.8% 14.2% 13.9% 13.9%
0%
5%
10%
15%
20%
25%
0
1
2
3
4
5
6
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs.
Other expenses (Rs.bn) % of sales
Customer support services
19%
Advertisement and publicity
expenses 12%
Commission 55%
Business promotion expenses
9%
Others 5%
1,828 1,849 1,889 1,800 1,800
1,650 1,725 1,725 1,750 1,725 1,550
1,450
Hardware
Subsidy Marketing Costs Commission
Rs.~1153 as on
March 2016
80% of the cost
assumed to be
on New
acquisition
Appropriate
commission
applicable during
seeding of the
box and filing
KYC forms
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 101
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY
Depreciation to be lower in the next two years as gross block addition is lower than gross subscriber addition over the next two years
Depreciation to be line with historical levels… …however increase in gross subscriber growth to outpace capex
Hardware subsidy costs have been on the downtrend Rs.~15bn to be added as gross block for CPE in next 2 years
18.4%
22.7%
14.8%
17.7%
20.1%
12.7% 12.1%
23.6%
17.9%
9.6%
16.1% 17.0%
14.4% 13.3%
5%
10%
15%
20%
25%
FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Gross Block growth (%) Gross Subscriber growth (%)
1,933
1,465
1,153
0
500
1000
1500
2000
2500
FY14 FY15 FY16
Rs.
3.8
5.1
6.2 5.9 6.1
5.9 6.0 6.1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Source: Company Filings & Spark Capital Research
#4 CAPEX growth to be lower
24.0 28.5 34.9 40.1
47.2 56.7
63.9 71.6
6.6 4.4
6.5 5.2
7.1
9.5 7.2
7.7
0
20
40
60
80
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs. B
n
Gross Block (Rs.bn) Gross Block Addition (Rs.bn)
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 102
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY
With financial de-leveraging, interest cost benefits are expected to reflect in PAT.
Debt/Equity in FY18 to be as low as 0.4x Net debt too expected to turn negative from FY18
Gross Debt repayment of Rs.7.5bn to be done over next two years… …which should bring down sizeable foreign currency debt
8.5
13.9
10.3 9.4
15.0
12.2
8.2
4.7
3.1
2.4
0.9 0.8 1.1 1.9
-1.2
-10.3
-12
-10
-8
-6
-4
-2
0
2
4
0
2
4
6
8
10
12
14
16
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs. B
n
Gross Debt (Rs.bn) Increase/Decrease
Foreign currency Loan 66%
Rupee Loan 34%
23.1
-14.9
-6.6 -3.0
-4.8
3.2 1.2 0.4
-20
-15
-10
-5
0
5
10
15
20
25
30
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
2.8
8.1
3.1 3.0
7.7
4.8
2.5
-0.8 -2
0
2
4
6
8
10
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
#5 Reduction in debt to bring down interest cost
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 103
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY Dish TV – Risks & Concerns
Delay in digitization
Intensifying
competition
Reliance JIO MSO
operations
Increasing cost of
Consumer Premises
Equipment
Rupee Weakening
We understand that Dish TV has recommended Fixed fee to be the basis for finalising deal between DPOs
and Broadcasters to Telecom Regulatory Authority Of India (TRAI), any adverse ruling could result in rise
in content cost.
Adverse ruling from
TRAI on tariff
regulations
Higher License fee
outgo ruling
Dish TV is currently providing for ~7% of its sales as license fees on the ruling stipulated by the courts,
any increase could impact license fee outgo.
Though prices have been on the declining trend, Dish TV relies majorly on single vendor in Handan
Broadinfocom Co of South Korea for majority of its supplies, any adverse pricing action could pressurise
cash flow
Given that set top boxes are imported and often a buyers credit is being provided to supplier to ensure
continuous supply of set top boxes, weakening of Rupee could result in significant forex loss despite
hedging.
Given the DTH market players have become fairly mature, we anticipate minimal disruptive competitive
intensity from the incumbent players.
With Reliance having obtained license to operate as a digital cable operator, pressure from Reliance JIO
in the form digital cable is expected to intensify, success of achieving last mile connectivity to be litmus
test for JIO
Though we have anticipated a one year delay in the implementation of digitization in phase 4 cities,
further than anticipated delay for on ground implementation could result in subscriber addition being
lower
Source: Company Filings & Spark Capital Research
Page 104
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY Financials (1/2)
Led by revenue growth and savings in depreciation and interest costs, PAT to grow at ~29% CAGR over FY16-18
Lower interest cost to further boost… …PAT to Rs.4.7bn
Revenues to increase at ~13% CAGR… …leading to margins expanding ~170bps in two years
14.4
19.6 21.7
25.1 26.9 30.6
34.8 38.7 32.4%
36.3%
10.7%
15.8% 7.1%
13.8% 13.8% 11.0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
5
10
15
20
25
30
35
40
45
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs.
Revenues (Rs.bn) % growth
2.4
5.0 5.8 6.2
7.3
10.2
12.2 13.6
16.6%
25.4%
26.7% 24.9%
27.3%
33.5% 34.9% 35.1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
2
4
6
8
10
12
14
16
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs.
EBITDA (Rs.bn) EBITDA margin (%)
-1.92 -1.31 -1.25
-0.41
0.03
2.56
3.30
4.26
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs. B
n 1.5
2.0
1.3 1.3
1.8
2.1
1.5
1.0
0
1
1
2
2
3
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs.
Interest expenses (Rs.bn)
Interest expenses (Rs.bn)
Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research
Page 105
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY
Dish TV should continue its free cash flow growth path, which is expected to fund the due repayment over the next two years
Working capital days very much in control Capital efficiency to improve on improving proitability
Operating Cash Flow growth to be robust… Leading to strong Free Cash Flow
6 5 5 6 9 9 9 9 1 1 1 1 1 1 1 1
63
24 36
20 17 27 27 27
-57
-17 -29
-13 -7 -17 -17 -17
-80
-60
-40
-20
0
20
40
60
80
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
No
. o
f D
ays
Debtor Days Inventory Days Creditor Days Working Capital Days
Financials (2/2)
3.9 4.1
6.1 7.1 7.7
13.9
10.7 11.7
27.5%
21.0%
28.1% 28.1% 28.6%
45.4%
30.8% 30.2%
0%
10%
20%
30%
40%
50%
0
2
4
6
8
10
12
14
16
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs. B
n
OCF (Rs.bn) OCF/sales
-6.1
-1.9 -0.9
4.1
0.6
3.3 3.5 3.9
-42.5%
-9.8% -4.1%
16.2%
2.3% 10.8%
10.1% 10.2%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
-8
-6
-4
-2
0
2
4
6
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
Rs. B
n
FCF FCF/sales
-4%
6% 0%
12% 9%
31% 27% 27%
-10%
0%
10%
20%
30%
40%
FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e
ROCE (%)
ROCE (%)
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 106
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY Relative Valuation
EV/EBITDA band Trading days
Source: Bloomberg, Spark Capital Research:
0.0
5.0
10.0
15.0
20.0
Jun-1
1
Oct-
11
Fe
b-1
2
Jun-1
2
Oct-
12
Fe
b-1
3
Jun-1
3
Oct-
13
Fe
b-1
4
Jun-1
4
Oct-
14
Fe
b-1
5
Jun-1
5
Oct-
15
Fe
b-1
6
Jun-1
6
EV/EBITDA Average
P/E Multiple range No. of days
traded
% of of no. of
days
Cumulative
traded no. of
days
%of
Cumulative no.
of days
6 - 8x 98 5% 98 5%
8 - 10x 779 43% 877 48%
10 - 12x 648 35% 1525 83%
12 - 14x 229 13% 1754 96%
14 - 16x 49 3% 1803 99%
16 - 18x 25 1% 1828 100%
Source: Bloomberg, Spark Capital Research:
Page 107
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY Corporate Governance
Wealth Creation
Group Holdings
0
100
200
300
400
500
600
700
800
900
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16
Dish TV Zee Entertainment Zee Media Corp Siti Cable
ESSEL GROUP | Founder: Dr. Subhash Chandra | Market Cap: Rs. 578.8 bn
Media Other Businesses
Packaging (Essel Propack)
Market Cap: Rs. 31.7 bn
Theme Parks: Essel World and Water Kingdom
Playwin: India’s first and largest online gaming company
Cornership: Animation studio
Cyquator Technologies: IT Infrastructure outsourcing
Infrastructure
Education
Precious Metals
Health Lifestyle & Wellness
Launched in 1992
One of India’s largest
media and general
TV entertainment
network
Market Cap: Rs.
420.2 bn
Launched in 1992
Strong presence in
national and regional
news genre
Market Cap: Rs. 8.6
bn
Launched in 2005
Asia’s largest DTH
service provider
Market Cap: Rs.
89.0 bn
Launched in 2006
One of India’s
largest MSO,
presence across 54
cities
Market Cap: Rs.
29.3 bn
Launched in 2005
English broadcast
daily with presence
across Mumbai,
Bangalore, Pune,
Ahmedabad, Jaipur
and Indore
CONTENT DISTRIBUTION
Source: Bloomberg, Spark Capital Research:
Source: Bloomberg, Spark Capital Research:
Page 108
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY Crystal Ball Gazing
We believe Dish
TV would be able
deliver a total
return of ~1.8x BY
2020 driven by
robust subscriber
additions and
operating leverage
Assuming a revenue
and PAT CAGR of 13%
and ~28%
respectively over
the next four years
Entry = Rs.92@
30x FY17E
We have assumed Nil
dividends
EPS CAGR of ~28%,
exit implied multiple of 25x FY20E
FY11 FY15 FY16P FY17E FY18E FY19E FY20E
Revenue 19,579 26,880 30,599 34,829 38,666 44,466 49,122
EBITDA 4,978 7,331 10,249 12,171 13,588 16,185 18,197
Margins 25% 27% 33% 35% 35% 36% 37%
PAT -1,314 31 2,564 3,304 4,260 5,772 6,983
EPS -1.2 0.0 2.4 3.1 4.0 5.4 6.6
With cost of procurement
of Consumer Premises
Equipment set to increase
at a lower rate,
depreciation to be lower
Dish TV expected to be
one of the foremost
beneficiary of the
Digitization remaining
phases should see strong
operating leverage play
FY11 FY15 FY16P FY17E FY18E FY19E FY20E
RoE 6% 9% 31% 27% 27% 28% 29%
Net Debt 10333 10821 4767 2476 -1017 -6558 -13876
Net Block 18,088 19,510 24,201 25,392 26,337 26,839 26,721
FCF -1,927 617 3,290 3,500 3,946 5,543 6,709
P/E multiple FY20E EPS Price target
20 Rs.7.1 Rs.131
25 Rs.7.1 Rs.164
TOTAL RETURN OF 1.8x
Page 109
Dish TV CMP
Rs.92
Target
Rs.122
Rating
BUY Financial Summary
Abridged Financial Statements
Rs. mn FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E
Profit & Loss Growth Ratios (%)
Revenue 26,880 30,599 34,829 38,666 Revenues 7.1% 13.8% 13.8% 11.0%
EBIDTA 7,331 10,249 12,171 13,588 EBIDTA 17.5% 39.8% 18.8% 11.6%
Depreciation & Amortization 6,138 5,907 6,030 6,777 PAT NA NA 28.9% 28.9%
EBIT 1,193 4,342 6,141 6,811 Margins (%)
Other Income 635 640 320 515 EBITDA 27.3% 33.5% 34.9% 35.1%
Interest 1,754 2,087 1,530 967 EBIT 4.4% 14.2% 17.6% 17.6%
PBT 74 2,895 4,932 6,359 PAT 0.1% 8.4% 9.5% 11.0%
Tax 42 331 1,627 2,098 Return Ratios (%)
Normalised PAT 31 2,564 3,304 4,260 RoCE -1.0% 761.8% 44.5% 29.9%
EPS (Rs.) 0.0 2.4 3.1 4.0 RoE 8.5% 31.4% 27.1% 27.5%
Balance Sheet Total Asset Turnover (x) 2.2 1.9 2.2 2.4
Net Worth -3,134 3,807 7,111 11,371 Leverage Ratios (x)
Debt 15,021 12,199 8,199 4,699 Debt to Equity -4.79 3.20 1.15 0.41
Deffered Tax Liabilities 0 0 0 0 Current Ratio 0.46 0.29 0.22 0.22
Other Long term liabilities 66 173 173 173 Working Capital Ratios
Sources of Funds 11,953 16,179 15,483 16,243 Debtor Days 9 9 9 9
Gross Block 48,160 57,629 64,850 72,572 Inventory days 1 1 1 1
Net Block 19,510 24,201 25,392 26,337 Creditor Days 17 27 27 27
Investments 3,006 4,040 4,040 4,040 Per Share
Other Long Term Assets 0 4,360 4,360 4,360 Face Value 1.0 1.0 1.0 1.0
Total Current Assets 9,147 6,793 5,185 5,283 Dividend NA NA NA NA
Total Current Liabilities 19,709 23,215 23,493 23,777 Valuation Metrics
Net Current Assets -10,563 -16,422 -18,309 -18,494 Shares Outstanding (mn) 1,065 1,065 1,066 1,066
Application of Funds 11,953 16,179 15,483 16,243 Market Cap. (Rs. mn) 97,996 97,996 98,035 98,035
Cash Flow Enterprise Value (Rs. mn) 1,08,817 1,02,763 1,00,511 97,018
Cash Flow from Operation 7,675 13,887 10,721 11,668 EV /Sales (x) 4.0 3.4 2.9 2.5
Capex -7,057 -10,597 -7,221 -7,722 Price/Earnings (x) 3,120.6 38.2 29.7 23.0
Cash Flow from Investments -6,699 -10,884 -6,901 -7,207 Price/Book (x) -31.3 25.7 13.8 8.6
Free Cash Flow 617 3,290 3,500 3,946 EV/EBIDTA (x) 14.8 10.0 8.3 7.1
Cash Flow from Financing -362 -3,898 -5,530 -4,467 FCF Yield (%) 0.6% 3.2% 3.5% 4.1%
Closing Cash Balance 1,195 3,392 1,682 1,676
Page 110
Zee Entertainment Enterprise Limited (ZEEL) CMP
Rs.445
Target
Rs.510
Rating
BUY #1 – Impact due to emergence of digital platform to be limited in near to medium term
Google India revenues have increased 5x as digital markets… …gain prominence by dominating offerings across platforms
Google’s focus on India increasing with the following projects Fair share of controversies given that digital laws in India are evolving
Google by dominating offerings across platforms has emerged as a strong contender to take advantage of India’s digital evolution, financial
muscle and constant innovations to act as supporting pillars to google India growth ambitions.
Project
‘LOON’
Streamlin-
-ed search
Free Wi-Fi
at railway
stations
Offline
mapping
Asus
Chromebit
Tap to
translate
Training
2mn
Android
developer
s
Campus
in Hydera-
-bad
CCI files a complaint on google rigging search
Controversy over comments on its blogging site
Equalisation levy
Google Street view plans rejected CO
NT
RO
VE
RS
IES
Market Position
(Share): 1 (97%)
Market Position
(Share): 1 (60%)
Market Position
(Share): 1 (62%)
Market Position
(Share): 1 (52%)
Market Position
(Share): 1 (90%) 8.5
11.6
20.8
30.5
41.2
FY 11
FY 12
FY 13
FY 14
FY 15
Revenue (Rs.bn)
IT services 31%
Advertising space 68%
Enterprise products
1%
Source: Industry Sources, Spark Capital Research Source: Industry Sources, Spark Capital Research
Source: Industry Sources, Spark Capital Research Source: Industry Sources, Spark Capital Research
Page 111
Appendix
Page 112
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
Channel Number of campaign slots Slot Specification Total Reach (mn viewers)
Colors 29 Rs. 34160/10 seconds 26
Star Plus 20 Rs. 49350/10 seconds 26
Sun TV 34 Rs. 29406/10 seconds 11
Zee Marathi 163 Rs. 6130/10 seconds 4
ABP news 297 Rs. 3370/10 seconds 13
MTV 621 Rs. 1610/10 seconds 9
Times Of India - Mumbai Edition - Strip Ad - First Page 0.8 Rs. 1285350 /day 1.56
Hindustan Times - New Delhi - Strip Ad - First Page 0.7 Rs. 1452000/ day 0.64
Nai Dunia - Main - Dewas - Strip Ad - First Page 2.2 Rs. 451440/ day 1.77
Daily Thanthi- Main - Chennai - Strip Ad - First Page 2.1 Rs. 465300/ day 0.76
Half Page advertisement in India Today 1.9 Rs.540000/day 1.85
Half Page advertisement in Readers Digest 3.4 Rs.297000/day 2.12
Boarding Pass - Indigo Airlines 0.2 Rs. 5000000/1 month 0.10
Luggage Tag - Jet Airlines 0.3 Rs. 3000000/1 month 0.05
PVR Sangam, Delhi with 300 seats (10 sec Mute Slide
Rate) 181 Rs.5520/10 second slot 0.22
IRCTC catering All India - Napkin 15.6 Rs.64300/day 2.00
Newspaper inserts Bangalore 42.6 Rs.23500/day 2.13
Hotstar 20 Rs. 50000/0.0625mn views 1.3
Moneycontrol 10 Rs. 100000/0.5mn impressions 5.0
Google Ad Words 27027 Rs.37/click 4.0
Facebook Ads 100000 Rs.10/click 5.0
Linkedin Ads 6667 Rs.150/click 3.0
Digital mediums certainly seem to be scoring better on ‘efficiency’ metrics given the superior methods to reach out to targeted audience,
however television advertisements still seem to be the preferred channel over ‘effectiveness’ metric.
#1 – Impact due to emergence of digital platform to be limited in near to medium term
Source: Industry Sources, Spark Capital Research
Page 113
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#1 – Impact due to emergence of digital platform to be limited in near to medium term
Digital spends to be driven by increasing mobile spends …as number of internet users rapidly increase in India…
…especially mobile internet users… …in rural markets
Increase in mobile internet users to be a key driver for digital ad spend growth. Mobile internet users in India rising rapidly on the back of
affordability and rising aspirations
10 13 18 23 33 51 65
85 107
130 153
0 1 2 3
5 9
16
28
46
70
102
-40
10
60
110
160
210
260
2010 2011 2012 2013 2014 2015 2016 2017P 2018P 2019P 2020P
Digital Ad Spends (Excl Mobile)
Mobile Ad Spends
92 126
159 193
233
354
462
8% 10%
13% 15%
18%
27%
35%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
100
200
300
400
500
2010 2011 2012 2013 2014 2015 2016
Internet Users Penetration %
48 91 110 137 159 173 192
238 276 306
371
89
99 95
106 119
129 138
116 99
96
91
0
100
200
300
400
500
Jun-12 Jun-13 Oct-13 Jun-14 Oct-14 Dec-14 Mar-15 Jun-15 Oct-15 Dec-15 Jun-16
Mobile Internet Users Fixed Landline Users
4 21 25 27 29 32 68
109 44
70 85 103 126
153
171
262
0
50
100
150
200
250
300
350
400
Jun-12 Jun-13 Oct-13 Dec-13 Mar-14 Jun-14 Jun-15 Jun-16
Rural mobile subscribers (mn) Urban mobile subscribers (mn)
Source: IAMAI, Spark Capital Research
Source: IAMAI, Spark Capital Research
Source: IAMAI, Spark Capital Research
Source: IAMAI, Spark Capital Research
Page 114
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#2 – Content holders to be the king as OTT platforms gains acceptance
Differentiated content needed to keep younger audience glued… …newer movies certainly seem to be helping in keeping them hooked
Increase in average speed has been a key enabler for OTT services… …however threat from pirated contents remains a key challenge
OTT to help content producers, content owners and advertisers to target niche audiences.
15-24 35%
25-34 40%
35-44 16%
45-54 6%
55+ 3%
0
10
20
30
40
50
60
70
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Average number of months from theaterical release before a film is available on Electronic Sell Through
183 24
4263
2095
6565
325 40
2682
959
4005
0
1000
2000
3000
4000
5000
6000
7000
Music Gaming Television Film Total
Size of the industry ($mn) Value Loss due to piracy ($mn)
2.3% 2.6% 3.5% 4.2% 4.9%
7.2% 6.9% 7.8%
9.9% 11.0%
14.0%
17.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Q1 2012
Q2 2012
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
>4 MBPS
Source: Industry Sources, Spark Capital Research Source: Industry Sources, Spark Capital Research
Source: Industry Sources, Spark Capital Research Source: Industry Sources, Spark Capital Research
Page 115
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#2 – Content holders to be the king as OTT platforms gains acceptance
Prices of smartphones have been on the declining trend… …so has been the data cost
Increasing 3G users along with… …government digital initiatives augurs well from OTT standpoint
With handset makers and telecom service providers continuing to flood the market with new offerings and improved service levels, OTT market
growth to zoom in near to medium term.
29 28 27 27 27 26 25 24 23
0
5
10
15
20
25
30
35
Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16
Data Realization/MB (Rs.)
244 254
223
174
138
101 90
0
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015 2016
ASP of Smartphone in India ( USD)
2G 62%
3G 36%
4G 2%
Broadband
Highways
Electronics
Manufacturing – Target
NET ZERO Imports
E-Governance –
Reforming government
through Technology
Universal Access to
Phones IT for Jobs
eKranti – Electronic
delivery of services
Public Internet
Access Programme
Early Harvest
Programmes "Information for All"
Source: Industry Sources, Spark Capital Research Source: Industry Sources, Spark Capital Research
Source: Industry Sources, Spark Capital Research Source: Industry Sources, Spark Capital Research
Page 116
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#2 – Content holders to be the king as OTT platforms gains acceptance
Number of credit card users though fairly low hampering payments… …however number of debit card users on the constant rise…
…driven by government’s financial inclusion programs Payment apps have led to mobile banking users (mn) also increasing
Government’s financial inclusion programs and advent of mobile payment applications has enabled higher number of users embracing online
payment option. SECURITY THEFT fear though still prolongs, stricter regulations could help.
Source: Industry Sources, Spark Capital Research
17.8 17.7 19.5 19.2
21.1
24.5
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2011 2012 2013 2014 2015 2016
No of Credit Card (in Mil)
278 331
394
553
637
0
100
200
300
400
500
600
700
FY12 FY13 FY14 FY15 FY16
Number of Debit Card Users (mn)
36 60 100
140 170
230 257 17%
25%
30%
35%
40% 42%
45%
0%
10%
20%
30%
40%
50%
0
50
100
150
200
250
300
FY14 FY15 FY16 FY17E FY18E FY19E FY20E
Mobile Banking Users % of mobile data users
35.2%
53.1%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2011 2014
% of population having access to bank account (+15yrs old)
Source: Industry Sources, Spark Capital Research
Source: Industry Sources, Spark Capital Research Source: Industry Sources, Spark Capital Research
Page 117
Indian Media & Entertainment Sector OUTLOOK: POSITIVE
#2 – Content holders to be the king as OTT platforms gains acceptance
on OTT On YouTube
Football Match (90 mins) Movies Reality Show News GEC
Device SD HD SD (480p) HD (720p) SD (480p) HD (720p) SD (480p) HD (720p) SD
Netflix
HD
Netflix
PC / Tablet (MB) 1,140 2,880 524 1,543 58 171 87 257 358 1,536
Smartphone (MB) 480 850 450 1,080 50 120 75 180 358 1,536
Airtel Broadband
40 MBPS - 60GB @ Rs.1699
PC / Tablet (Rs.) 32 80 14 43 2 5 2 7 10 42
Smartphone (Rs.) 13 24 12 30 1 3 2 5 10 42
BSNL Broadband 4 MBPS -
30 GB @ Rs.1495
PC / Tablet (Rs.) 55 140 25 75 3 8 4 13 17 75
Smartphone (Rs.) 23 41 22 53 2 6 4 9 17 75
Airtel 3G
Rs.1500 (10 GB)
PC / Tablet (Rs.) 167 422 77 226 9 25 13 38 53 225
Smartphone (Rs.) 70 125 66 158 7 18 11 26 53 225
Idea 3G
Rs.1250 (10 GB)
PC / Tablet (Rs.) 139 352 64 188 7 21 11 31 44 188
Smartphone (Rs.) 59 104 55 132 6 15 9 22 44 188
Jio 3G Rs.400 ( 20 GB)
PC / Tablet (Rs.)
22.3 56.3 10.2 30.1 1.1 3.3 1.7 5.0 7.0 30.0
Jio 3G Rs.400 ( 40 GB) 11.1 28.1 5.1 15.1 0.6 1.7 0.9 2.5 3.5 15.0
Jio 3G Rs.400 ( 60 GB) 7.4 18.8 3.4 10.0 0.4 1.1 0.6 1.7 2.3 10.0
Jio 3G Rs.400 ( 20 GB)
Smartphone (Rs.)
9.4 16.6 8.8 21.1 1.0 2.3 1.5 3.5 7.0 30.0
Jio 3G Rs.400 ( 40 GB) 4.7 8.3 4.4 10.5 0.5 1.2 0.7 1.8 3.5 15.0
Jio 3G Rs.400 ( 60 GB) 3.1 5.5 2.9 7.0 0.3 0.8 0.5 1.2 2.3 10.0
Tata Sky
Channel name Sony Six Sony Six
HD
Zee
Cinema
Zee
Cinema HD Colors Colors HD
CNBC-TV
18
CNBC-TV
18 HD Star Plus
Star Plus
HD
A-La-carte (Rs.) 50 75 20 45 20 45 10 100 20 45
Rio rate (Rs.) 14.7 35 5.83 30 8.99 50 3.82 40 7.87 25
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD
UltraTech Cement published its FY16 annual report and we present below the key takeaways:
Grey Cement Volumes and realisations: UTCEM’s grey cement volumes grew by 7% y-o-y to 48mt, implying capacity
utilisation of 75%. Volume growth is led by capacity expansion and pick up in government infra expenditure amidst tepid
real estate market. Realisations/t de-grew by 2% y-o-y led by sharp price fall in North and West markets in 2HFY16.
Other segments (White cement, wall putty and RMC) and Overseas operations: UTCEM’s white cement and wall putty
volume grew 7% vs 5% last year led largely by wall putty performance. UltraTech Cement Middle East subsidiary grew
profit by 24% to Rs1.1bn (contributing 5% to consol revenue) led by higher capacity utilization of more than 100% (116% in
Q4FY16) and contained cost inflation.
Cost inflation: UTCEM’s total cost/t declined 3% y-o-y vs. five year CAGR of 10% led by lower energy and freight cost.
Overall power and fuel cost/t declined 16% on account of softening in coal and petcoke prices, increase in petcoke
consumption and a reduction in energy consumption norms. Use of pet coke in kilns rose from 52% to 70% this year and
company commissioned 26 MW of WHRS, pegging the total WHRS capacity at 59 MW(Contributing around 5-6% to
company’s total power requirement).
Capex: UTCEM has ploughed Rs 20bn into the business in FY16 and added 6.2mt grinding capacity (4.5mt in Jhajjar,
Haryana and Dankuni in West Bengal and 1.6mt in Pataliputra, Bihar) , resulting into total capacity of 66.3mt in India. Also,
company has increased WHRS capacity from 26MW in FY15 to 59MW this year. Company has signed definitive agreement
with Jaiprakash Associates Limited to acquire its plants with total capacity of 21.2mt in MP, UP, Himachal Pradesh,
Uttarakhand and Andhra Pradesh, leading to total capacity of 97.5mt in India.
Cash generation and debt re-payment: UTCEM generated operating cash flows to the tune of Rs.43bn vs. Rs. 41bn in
FY15. This was due to combination of improvement in EBITDA and lower working capital requirements. Inventory as % of
sales decreased to 10% vs 12% last year on lower price of fuel/packing materials. UTCEM generated free cash flows post
interest payments to the tune of Rs. 18bn. This has resulted in debt re-payment of Rs. 16bn in FY16. Net leverage currently
stands at 0.05x vs 0.14x in FY15.
Valuation and view: We value UTCEM based on 15x FY18E EBITDA, which is ~20% premium to last three year average.
We believe UTCEM deserves premium valuations due to superior volume growth, margin expansion led by cost saving
initiatives and balance sheet strength. At CMP, the stock trades at 14x FY18E EV/EBITDA and $210/t leaving very little
comfort from risk to reward perspective. Further, the stock is up 20% on YTD basis factoring in pick up in volumes and Jaypee
deal. As a result , we would wait for a better entry point. Maintain ADD rating.
“BIG ON GROWTH” through capacity expansion and higher utilisations
Stock performance (%)
1m 3m 12m
UTCEM 6 7 17
Sensex 1 7 -3
Date July 01, 2016
Market Data
SENSEX 26999
Nifty 8287
MC IN UTCEM IN
Shares o/s 274mn
Market Cap Rs. 937bn
52-wk High-Low Rs. 3454-2579
3m Avg. Daily Vol Rs. 1500mn
Index member BSE 200
Latest shareholding (%)
Promoters 62.7
Institutions 25.9
Public 11.4
Annual Report Analysis and
Company Update
GIRISH CHOUDHARY girish@sparkcapital.in +91 44 4344 0021
GAURAV NAGORI CFA gaurav@sparkcapital.in +91 44 4344 0072
Standalone financial summary
Year Revenues EBITDA Adj. PAT EPS EV/EBITDA EV/ton (Rs/t)
FY15 229,362 41,950 20,147 73.4 22.3 15,558
FY16E 241,074 46,161 21,747 79.2 20.2 14,055
FY17E 269,360 53,897 26,761 97.5 17.0 13,823
FY18E 306,266 63,662 33,133 120.7 14.2 13,679
All figures in Rs. mn, except EPS, which is in Rs.
Page 118
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD
Year 2012 2013 2014 2015 2016
Domestic
Capacity(In mt) 48.8 50.9 54.0 60.2 66.3
Capacity
Addition (In mt) 0.0 2.2 3.1 6.2 6.2
Region NA
Commissioning of the
cement grinding Unit at
Hotgi, Maharashtra with
capacity of 1.55mt.
Upgrading of grinding
capacity at Gujarat
Cement Works by 0.60mt.
Commissioning of grinding
unit of 1.5mt capacity at
Rajashree Cement,
Karnataka.
1.6 MMTPA cement mill at
Jharsuguda
Cement Works in Odisha.
Commissioning of grinding
unit of 1.4mt capacity at
Rajashree Cement,
Karnataka.
Acquisition of the Gujarat
Units of Jaypee Cement
with 4.8mt capacity
Commissioning of grinding
unit
4.5mt in Jhajjar, Haryana
and Dankuni in West
Bengal
1.6mt in Pataliputra, Bihar
UTCEM’s evolution from 0.5mt capacity in 1983 to India’s largest cement company
1983
First cement plant.
Capacity: 0.5 mtpa
1998
Group consolidation.
Capacity: 8.5 mtpa
2004
Acquired L&T
Cement Ltd.
Capacity: 31 mtpa
2008-10
Greenfield projects, brownfield
expansions, debottlenecking.
Capacity: 48.8 mtpa
2010
Acquired Star Cement.
Capacity: 51.8 mtpa
2015
Acquisition in Gujarat.
Capacity: 63.2 mtpa
2016 Greenfield/brownfield
expansion. Capacity: 67.7
mtpa (including 3 mtpa
overseas)
Future
Acquisition of
Jaiprakash
associates
capacity of
21.2mt:
91.1mtpa(87.5
mtpa domestic)
1982 1998 2000 2002 2004 2006 2008 2010 2014 2016
Capacities additions in last 5 years
Making of a “GIANT”
Page 119
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD
Ultratech cement Capacity Snapshot
Capacity UOM Current
Grey Cement - Domestic Mtpa 66.3
- Overseas Mtpa 3.0
White Cement Mtpa 0.7
Wall Care Putty Mtpa 0.8
RMC Mn. Cub. Mtr 12.5
Captive Power Plants In MW 717.0
WHRS + Wind Mill + Solar In MW 63.0
Plants & Terminals
Grey Cement (Composite Plant) Nos. 12
Clinkerisation Plant (Overseas) Nos. 1
Grinding Units (Overseas- 4) Nos. 19
White Cement & Putty Nos. 2
RMC Plants Nos. 99
Bulk Terminals Nos. 7
Post Jaypee acquisition, UTCEM to have 91.1mt capacity
Current UT Cap. Share
in Industry
Post
Acquisition
North 19 13% 23.8
Satna Cl. - - 11.4
East 10.4 16% 11.4
West 20.4 38% 20.4
South 15.5 11% 20.5
All India 66.3 16% 87.5
Overseas 3 3.6
Total 69.3 91.1
UT Capacity Mix Post Jaypee Acquisition
North 28%
Satna Cl. 13%
East 13%
West 23%
South 23%
UTCEM Capacity at a glance
Page 120
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD
Capacity Utilisation trends
Source: Spark Capital Research
White cement and wall putty volumes grew at 7%
Source: Spark Capital Research
#1. UTCEM volume growth at 7%, higher than industry growth of 4-5%
Exports as % of total volumes remain sub 2%
Source: Spark Capital Research
Blended volume growth stood at 7% vs industry growth of 4% in FY16
Source: Spark Capital Research
40.5 41.7 41.7 42.6 46.1
49.3 3%
0%
2%
8%
7%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
30
35
40
45
50
55
FY11 FY12 FY13 FY14 FY15 FY16
Volumes in mt % growth
48.8 48.8 50.9 54.0
60.2 66.3
92%
81% 81% 78%
77% 75%
60%
65%
70%
75%
80%
85%
90%
95%
30
35
40
45
50
55
60
65
70
FY11 FY12 FY13 FY14 FY15 FY16
Capacity in mt Capacity utilisation %
0.64
0.93 1.02
1.17 1.23
1.31
44%
10% 14% 5%
7%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
FY11 FY12 FY13 FY14 FY15 FY16
White cement and wall putty volumes (mt) % growth
1.90
1.49
1.07 0.86 0.90 0.84
5%
4%
3%
2% 2% 2%
0%
1%
1%
2%
2%
3%
3%
4%
4%
5%
5%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
FY11 FY12 FY13 FY14 FY15 FY16
Exports (Clinker+Cement) in mt Exports as % of total volumes
Page 121
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD
EBITDA/t trend
Source: Spark Capital Research
….whereas Cost/t saw 3% decline due to low power and fuel cost
Source: Spark Capital Research
Blended realizations fell by 2% in FY16 on tepid demand….
Source: Spark Capital Research
696 9
59
1,0
84
895
910
937
-27%
38%
13%
-17%
2%
3%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
200
400
600
800
1000
1200
FY11 FY12 FY13 FY14 FY15 FY16
EBITDA/t (Rs) % growth
3,0
22
3,3
99
3,7
20
3,8
61
4,0
68
3,9
55
20%
12% 9%
4% 5% -3%
-5%
0%
5%
10%
15%
20%
25%
2000
2500
3000
3500
4000
4500
FY11 FY12 FY13 FY14 FY15 FY16
Cost/t (Rs) % growth
3,7
17
4,3
58
4,8
04
4,7
56
4,9
78
4,8
92
7%
17%
10%
-1%
5% -2%
-5%
0%
5%
10%
15%
20%
2000
2500
3000
3500
4000
4500
5000
5500
FY11 FY12 FY13 FY14 FY15 FY16
Blended realisations/t (Rs) % growth
Revenue growth came in at 5% on lower realizations
Source: Spark Capital Research
131
182 200 203
229
241
38%
10%
1%
13%
5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0
50
100
150
200
250
300
FY11 FY12 FY13 FY14 FY15 FY16
Revenue in Rs bn % growth
#2. EBITDA/t aided by lower cost inflation amidst lower realizations in FY16
Page 122
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD
Freight outward costs/t up 1% y-o-y on lower fuel prices but increase in
rail freight costs arrested overall gain
Source: Spark Capital Research
Raw material costs/t up 1% yoy
Source: Spark Capital Research
Rail and Road mix for UTCEM
Source: Spark Capital Research
Limestone cost has inched upwards due to DMF levy
Source: Spark Capital Research
511
571
670 683
712
721 8%
12%
17%
2% 4%
1%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0
100
200
300
400
500
600
700
800
FY11 FY12 FY13 FY14 FY15 FY16
RM consumed(/t) % growth
147
136
172
168 202
215
5%
-8%
26%
-2%
20%
6%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15 FY16
Limestone cost(/t) % growth
725
800
909
961
1,0
24
1,0
37
19%
10% 14%
6% 7%
1% 0%
5%
10%
15%
20%
25%
0
200
400
600
800
1000
1200
FY11 FY12 FY13 FY14 FY15 FY16
External freight cost(/t) % growth
36% 34% 34% 29% 28%
61% 63% 62% 67% 69%
3% 3% 3% 4% 3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY12 FY13 FY14 FY15 FY16
Sea Road Rail
#3. UTCEM’s freight mix inclined towards road transport in last 5 years
Page 123
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD
Power and fuels cost/t declined by 16% on back of lower fuel cost
Source: Spark Capital Research
Petcoke usage stood at 70% in FY16
Source: Spark Capital Research
Power mix- Total WHRS capacity of 59MW as of FY16. WHRS power
costs 1/6th of TPP power
Source: Spark Capital Research
78% 79% 81% 82% 82%
0% 0% 0% 2% 5%
22% 21% 19% 16% 13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY12 FY13 FY14 FY15 FY16
Others WHRS TPP
44% 35%
26% 26% 20%
26% 38% 48% 52% 70%
30% 27% 26% 22% 10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY12 FY13 FY14 FY15 FY16
Ind Coal and others Petcoke Imported coal
Power consumption per ton of cement has been declining consistently
Source: Spark Capital Research
884
1,0
33
1,0
32
970
1,0
29
861
25%
17%
0%
-6%
6%
-16%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0
200
400
600
800
1000
1200
FY11 FY12 FY13 FY14 FY15 FY16
Power and fuel cost(/t) % growth
82
81
81
81
80
78
70
72
74
76
78
80
82
84
FY11 FY12 FY13 FY14 FY15 FY16
Power consumed (Kwh per ton)
#4. UTCEM’s petcoke usage stands at 70% vs 52% in FY15
Page 124
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD
OCF to EBITDA
Source: Spark Capital Research
Consistently adding land for future brownfield expansion and
acquiring mining rights
Source: Spark Capital Research
Strong free cash flow in last 3 years
Source: Spark Capital Research
20
35 36
32
41 43
25
40
45
38
42
46
10
15
20
25
30
35
40
45
50
FY11 FY12 FY13 FY14 FY15 FY16
OCF in Rsbn EBITDA in Rsbn
Last 5 year cumulative
OCF : 187 bn
EBITDA: 210 bn
Capex of Rs 21bn in FY16 in commissioning of grinding units and
WHRS
Source: Spark Capital Research
11.9
31.4 32.7
22.3
25.8
20.5
0.1
5.1
10.1
15.1
20.1
25.1
30.1
35.1
FY11 FY12 FY13 FY14 FY15 FY16
Capex in Rsbn
8 1 1 7 10 18
60%
4% 4%
32%
47%
81%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
2
4
6
8
10
12
14
16
18
20
FY11 FY12 FY13 FY14 FY15 FY16
FCF in Rsbn FCF conversion
Last 5 year cumulative
FCF : 36 bn
Net Income: 114 bn
9 12 15 20 31 35
8%
10%
12%
13% 15%
15%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0
5
10
15
20
25
30
35
40
FY11 FY12 FY13 FY14 FY15 FY16
Total Land in Rsbn Land cost as % of total asset
#5. Strong operating and free cash flow generation in last 3 years
Page 125
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD
Strong balance sheet with negligible leverage
Source: Spark Capital Research
Usage of cash in last 4 years (FY13-FY16)
Note: All Figures in Rs.bn; Source: Spark Capital Research
Return ratio trends
Source: Spark Capital Research
18%
21%
19%
13%
11% 11%
19%
23% 24%
17%
14% 13%
5%
7%
9%
11%
13%
15%
17%
19%
21%
23%
25%
FY11 FY12 FY13 FY14 FY15 FY16
ROE% ROCE%
5 4 6 1 27 10
0.05
0.03 0.04
0.00
0.14
0.05
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
0
5
10
15
20
25
30
FY11 FY12 FY13 FY14 FY15 FY16
Net Debt in Rsbn Leverage
1.9
171.5
19.2
101.3
1.4 18.2 0.2
11.2 0.1
22.4
Cash and Eqv (2012)
EBITDA Change in WC Capex Debt raise (net repayment)
Interest paid Capital raise (net of buyback)
Dividend Misc Cash and Eqv (2016)
Operating Cash Flow
of Rs. 152bn
Free Cash Flow
of Rs. 51Bn
Free Cash Flow Post
Debt Repayment & Interest
Expense of Rs. 38bn
#6. Prudent cash management and capital allocation
Page 126
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD Corporate Governance
Non Executive directors remuneration details
Name of Director Category of Directorship
Sitting
fees
(Rs mn)
Remuneration(
Rs mn)
% increase in
remuneration
in the financial
year 2015-16
Ratio of remuneration of each
Director/ to median
remuneration of employees
# of shares % of Total
Shareholding
Kumar Mangalam Birla Chairman and Non-Executive Director 0.31 190.4 - 355.1 14,065 0.005%
Mrs. Rajashree Birla Non-Executive Director 0.1 10.6 - 19.7 41,701 0.015%
Arun Adhikari Independent Director 0.31 1.1 7.6 2.1 - -
R.C. Bhargava Independent Director 0.54 3.3 17.9 6.2 129 0.000%
G.M. Dave Independent Director 0.6 2.3 15.2 4.2 - -
Rajiv Dube Non-Executive Director 0.32 0.1 - 0.2 - -
Mrs. Sukanya Kripalu Independent Director 0.35 1.3 NA 2.3 - -
S. B. Mathur Independent Director 0.25 1.1 3.5 2.1 57 0.000%
S. Rajgopal Independent Director 0.17 0.5 NA 0.9 - -
Mrs. Renuka Ramnath Independent Director 0.18 0.9 - 1.6 - -
D.D. Rathi Non-Executive Director 0.41 0.1 - 0.2 2,515 0.001%
O. P. Puranmalka Managing Director Nil 91.3 23.1 170.3 11,832 0.004%
Dilip Gaur Deputy Managing Director Nil 35.3 NA 65.9 - -
Atul Daga Chief Financial Officer NA 14.6 NA NA NA NA
S. K. Chatterjee Company Secretary NA 8.7 14.1 NA NA NA
Comparison of Key personnel's remuneration with employees
The median remuneration of employees of the Company during the financial year was Rs. 0.54mn
Increase in the median remuneration of employees 13%
Average increase in remuneration during 2015-16 9%
Increase Company’s Profit after Tax 8%
Increase in total remuneration of Key Managerial Personnel 17.7%
Page 127
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD
Contingent Liabilities
Claims not acknowledged as debts in respect of matters in appeals 2013 2014 2015 2016
Sales-tax / VAT Matters 1400 1670 3060 3165
Excise Duty and Service Tax Matters 3740 4320 7260 8781
Royalty on Limestone/ Marl / Shale 2190 2340 2950 3141
Customs 20 1140 1220 1260
Others 2290 2540 3260 5143
Total 9650 12,010 17,740 21,490
Percentage of Net Worth 0.6% 0.7% 0.9% 1.0%
Corporate Guarantees
Purpose (Amount in Rsmn) 2013 2014 2015 2016
Bhaskarapara Coal Co. JV 40 40 40 40
UltraTech Cement Middle East Invt and its subsidiaries 24,271 31,457 30,413 16,603
Jaiprakash Associates - - - 5,000
Madanpur (North) Coal Company JV 36.5 36.5 - -
UltraTech Cement Lanka (Private) Limited
Source: Spark Capital Research
UltraTech Cement Middle East Investments Limited
Source: Spark Capital Research
164
270
231 255
0.61%
1.22% 1.10% 1.10%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
-
50
100
150
200
250
300
FY13 FY14 FY15 FY16
Rs. M
n
UTCEM's share in PAT % of consolidated profit/loss
215
504
907
1124
0.80%
2.28%
4.32% 4.90%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0
200
400
600
800
1000
1200
FY13 FY14 FY15 FY16
Rs. M
n
UTCEM's share in PAT % of consolidated profit/loss
Subsidiary details
Page 128
UltraTech Cement CMP
Rs. 3410
Target
Rs. 3600
Rating
ADD Financial Summary
Page 129
Page 130
SPARK RESEARCH
01 July 2016
Spark Disclaimer
Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and
infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker.
We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We
have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of
time.
Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered
with SEBI as Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure
advisory services.
This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.
This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should
be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of
companies referred to in this document.
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies
referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This
document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published,
copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in
any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Spark Capital
and/or its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to
a certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such applicable restrictions. This
material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal.
Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this
document. Spark Capital , its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or
deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit
investment banking or other business from, any company referred to in this report.
This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark
Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information.
Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective
directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents
or any errors or discrepancies herein or for any decisions or actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or
damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of
or reliance on this report.
Absolute
Rating
Interpretation
BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year
horizon
ADD Stock expected to provide positive returns of >5% – <15% over a 1-year
horizon SELL Stock expected to fall >10% over a 1-year horizon
Spark Disclaimer (1/2)
Page 131
SPARK RESEARCH
01 July 2016
Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency,
Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:
Disclosure of interest statement AL TPW, YES CIFC, IDFC, ICEM,
INFO, ITC, NHPC, PTC Others
Analyst financial interest in the company No Yes No No
Group/directors ownership of the subject company covered No No Yes No
Investment banking relationship with the company covered Yes No No No
Spark Capital’s ownership/any other financial interest in the company covered No No No No
Associates of Spark Capital’s ownership more than 1% in the company covered No No No No
Any other material conflict of interest at the time of publishing the research report No No No No
Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in
the last twelve months:
Managing/co-managing public offering of securities
Investment banking/merchant banking/brokerage services
products or services other than those above
in connection with research report
No No No No
Whether Research Analyst has served as an officer, director or employee of the subject company covered No No No No
Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject
Company; No No No No
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research
analyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.
Additional Disclaimer for US Institutional Investors
This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under
the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange
Act of 1934, as amended). Auerbach Grayson accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities
discussed in the research material may do so through Auerbach Grayson. All responsibility for the distribution of this report by Auerbach Grayson, LLC in the US shall be borne
by Auerbach Grayson, LLC. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you
if Spark Capital Advisors (India) Private Limited or Auerbach Grayson, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available
to you. You should satisfy yourself before reading it that Auerbach Grayson, LLC and Spark Capital Advisors (India) Private Limited are permitted to provide research material
concerning investment to you under relevant legislation and regulations;
Spark Disclaimer (2/2)