1.
Zee Entertainment Enterprises
Good quarter; near‐term outlook weak
May 21, 2014
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Q4FY14 Result Update
Balwindar Singh
balwindarsingh@plindia.com
+91‐22‐66322239
Rating BUY
Price Rs294
Target Price Rs330
Implied Upside 12.2%
Sensex 24,298
Nifty 7,253
(Prices as on May 21, 2014)
Trading data
Market Cap. (Rs bn) 281.9
Shares o/s (m) 960.0
3M Avg. Daily value (Rs m) 1638.4
Major shareholders
Promoters 43.07%
Foreign 47.94%
Domestic Inst. 3.43%
Public & Other 5.56%
Stock Performance
(%) 1M 6M 12M
Absolute 12.5 15.9 21.6
Relative 5.8 (4.2) 0.8
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2015 10.5 10.6 ‐1.2
2016 12.6 12.9 ‐2.0
Price Performance (RIC: ZEE.BO, BB: Z IN)
Source: Bloomberg
0
50
100
150
200
250
300
350
May‐13
Jul‐13
Sep‐13
Nov‐13
Jan‐14
Mar‐14
May‐14
(Rs)
Zee reported Q4FY14 earnings ahead of estimates driven by higher top‐line and
margins. Ad revenues grew by 21.5% YoY outpacing ad industry growth by wide
margin. PAT stood at Rs2.2bn, 21% YoY (PLe: Rs1.8bn). Going forward, Zee expects
industry ad revenues to grow in double digits in FY15E (we model for Zee ad
growth of 15% YoY). On the subscription side, domestic subscription revenue grew
by 13.2% YoY in FY14. However, growth in FY15E is likely to be muted as Phase‐
III/IV digitization continues to be delayed. Implementation of gross billing in Phase‐
I/II remains the major trigger. On the costs side, programming costs are likely to
increase by 15‐20% YoY due to increase in original programming hours and higher
content costs. Further, launch of new channels will result in increased costs. We
have trimmed our estimates by 6%/4% to factor in lower domestic subscription
revenues and higher content costs. However, we maintain BUY as digitization
remains a cash cow for Zee, the benefit of which is likely to be realised over next
few years. We estimate EPS CAGR of 17% over FY14‐16E. With consistent earnings
growth, debt‐free balance sheet, limited capex, robust FCFF generation and
improvement in return ratios, we expect Zee to continue to trade at premium
valuations.
 Ad growth of 22% YoY and higher syndication revenues drives topline growth;
PAT above expectations: Zee reported consolidated revenues of Rs11.6bn, 20%
YoY (PLe: Rs10.7bn) supported by strong ad growth of 21.5% YoY and higher
syndication revenues. Ad revenues stood at Rs5.8bn, 21.5% YoY (PLe: Rs5.5bn).
Syndication revenues were helped by sports properties. Total subscription
revenues were marginally lower at Rs4.6bn, 2.0% YoY against estimates of
Rs4.8bn. Domestic subscription revenues stood at Rs3.3bn, flat YoY, while
international subscription revenues stood at Rs1.3bn, 10% YoY. EBITDA stood at
Rs3.1bn, 29% YoY (PLe: Rs2.4bn) with margins of 26.9% (180bps YoY/240bps
QoQ). Excluding sports, EBITDA margins declined by 430bps YoY/1,090bps QoQ
to 28.7%. PAT stood at Rs2.2bn, 21% YoY (PLe: Rs1.8bn).
Contd…2
Key financials (Y/e March) 2013 2014 2015E 2016E
Revenues (Rs m) 36,996 44,217 49,926 57,676
Growth (%) 21.7 19.5 12.9 15.5
EBITDA (Rs m) 9,543 12,043 13,404 16,436
PAT (Rs m) 7,196 8,921 10,070 12,115
EPS (Rs) 7.5 9.3 10.5 12.6
Growth (%) 22.8 23.1 12.9 20.3
Net DPS (Rs) 2.0 2.0 2.4 2.7
Profitability & Valuation 2013 2014 2015E 2016E
EBITDA margin (%) 25.8 27.2 26.8 28.5
RoE (%) 19.6 20.6 20.0 21.1
RoCE (%) 24.9 26.4 25.2 27.3
EV / sales (x) 7.4 6.2 5.4 4.6
EV / EBITDA (x) 28.8 22.9 20.1 16.2
PE (x) 38.9 31.6 28.0 23.3
P / BV (x) 7.2 6.0 5.3 4.6
Net dividend yield (%) 0.7 0.7 0.8 0.9
Source: Company Data; PL Research

2.
May 21, 2014 2
Zee Entertainment Enterprises
 Ad growth supported by market share improvement, new channel launches;
FY15 industry ad growth likely to be in double digits: While TV ad industry grew
by 11% YoY during Q4, Zee recorded superior ad growth of 21.5% YoY driven by
strengthening of content, increase in relative market share, increase in ad rates
offsetting decrease in ad minutes and new channel launches. For FY14, ad
growth stood at 21% YoY. Management expects FY15 industry ad growth to
remain in double digits
 Domestic subscription revenues growth likely to be muted in FY15E: Domestic
subscription revenues have been flat from last three quarters as delay in
implementation of gross billing continues. Adoption of gross billing in Phase‐I/II
remains the next trigger. As per management, growth in domestic subscription
revenues is likely to be muted in FY15E due to delay in seeding of boxes in
Phase‐III/IV. Zee expects domestic subscription growth trajectory to pick up in
FY16E as Phase‐III/IV digitization picks up then.
 Trim estimates by 6%/4% to factor in lower domestic subscription revenues
and higher content costs...: We are trimming our estimates for FY15E/16E to
account for lower subscription revenues and higher content costs. Revised EPS
stands at Rs10.5/12.6 for FY15E/16E respectively.
 ...However, we maintain ‘BUY’ with target price of Rs330: Digitization remains
a cash cow for Zee, the benefit of which is likely to be realised over next few
years. With consistent earnings growth, debt‐free balance sheet, limited capex,
robust FCFF generation and improvement in return ratios, Zee presents an
attractive investment opportunity.
Exhibit 1: Change in Estimates
FY15E FY16E
Old
Estimates
New
Estimates
%
Change
Old
Estimates
New
Estimates
%
Change
Net sales (Rs m) 50,342 49,926 ‐0.8% 57,559 57,676 0.2%
EBITDA (Rs m) 14,170 13,404 ‐5.4% 16,916 16,436 ‐2.8%
Margin (%) 28.1% 26.8% ‐130 29.4% 28.5% ‐89
PAT (Rs m) 10,597 10,070 ‐5.0% 12,490 12,115 ‐3.0%
EPS (Rs)s 11.1 10.5 ‐5.5% 13.1 12.6 ‐3.7%
Source: PL Research

3.
May 21, 2014 3
Zee Entertainment Enterprises
Exhibit 2: Q4FY14 Result Overview ‐ Consolidated (Rs m)
Y/e March Q4FY14 Q4FY13 YoY gr. (%) Q3FY14 FY14 FY13 YoY gr. (%)
Net Sales 11,588 9,643 20.2 11,884 44,217 36,996 19.5
Expenditure
Prog. & Operating Cost 5,444 4,669 16.6 6,095 20,688 17,401 18.9
% of Net sales 47.0 48.4 51.3 46.8 47.0
Personnel 998 835 19.6 959 3,905 3,591 8.7
% of Net sales 8.6 8.7 8.1 8.8 9.7
SGA Expenses 2,030 1,716 18.3 1,923 7,581 6,461 17.3
% of Net sales 17.5 17.8 16.2 17.1 17.5
Total Expenditure 8,472 7,220 17.3 8,976 32,174 27,453 17.2
EBITDA 3,116 2,423 28.6 2,907 12,043 9,543 26.2
Margin (%) 26.9 25.1 24.5 27.2 25.8
Depreciation 189 115 65.1 135 501 399 25.7
EBIT 2,927 2,308 26.8 2,773 11,541 9,144 26.2
Interest 70 28 147.2 32 158 85 85.6
Other Income 155 538 (71.1) 380 1,807 1,460 23.8
PBT 3,012 2,818 6.9 3,121 13,190 10,519 25.4
Tax 853 1,014 (15.9) 985 4,291 3,338 28.5
Tax Rate (%) 28.3 36.0 31.6 32.5 31.7
Adjusted PAT before minority 2,159 1,803 19.7 2,136 8,900 7,181 23.9
Minority interest (13) (2) ‐ (21) (24) (12.7)
Adjusted PAT after minority 2,172 1,806 20.3 2,136 8,800 7,205 22.1
Extraordinary Income — — — 120 — NA
Reported PAT 2,172 1,806 20.3 2,136 8,920 7,205 23.8
Adjusted EPS 2.3 1.9 20.4 2.2 9.2 7.5 21.6
Source: Company Data, PL Research

4.
May 21, 2014 4
Zee Entertainment Enterprises
Robust ad growth of 22% YoY outperformed industry ad growth of
11% YoY
Reported ad revenues growth of 22% YoY outperformed industry ad growth of 11%
YoY. Ad growth has been driven by three factors ‐ strengthening of network ratings,
increase in ad rates offsetting decrease in ad minutes and new channel launches. Zee
continues to consistently boast of superior ad growth than peers. For FY14, Zee’s ad
revenues grew by 21% YoY. For FY15E, management expects industry ad revenues
growth to remain in double digits
Exhibit 3: Advertisement growth remains strong
‐20.0%
‐10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
‐
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1 FY13
Q2FY13
Q3FY13
Q4FY13
Q1 FY14
Q2FY14
Q3FY14
Q4FY14
(Rs m)
Ad revenues YoY gr. (RHS)
Source: Company Data, PL Research
Network ratings continue to improve in Q4FY14
 During Q4FY14, Zee TV averaged 482TVMs with market share of 17.1%. In the
primetime band, Zee TV averaged 305TVMs implying market share of 19.3%. Zee
TV was the No. 2 channel in the GEC genre during the quarter.
 Zee Cinema continues to lead in its genre with market share of 33.3% among top
3 Hindi movie channels.
 Zee Marathi strengthened its 1st
position through improvement in market share.
It recorded 47.6% market share amongst top 3 Marathi GECs.
 Zee Bangla remained 2nd
in the Bangla GEC genre with market share of 37.2%. It
continues to lead the non‐fiction genre with 85% market share.
 Zee Telugu recorded a relative share of 21.1% and ranked 3rd
in the genre during
the quarter.
 Zee Kannada’s market share stood at 13.5%.
 Niche channel like Zee Q and Zee Khana Khazana also performed well. Zee
Khana Khazana has climbed up the ratings chart and is now established as No.1
lifestyle channel of India.

5.
May 21, 2014 5
Zee Entertainment Enterprises
Sports revenues grew by 83% YoY in Q4 helped by syndication; losses
likely to reduce in FY15E
Sports revenues stood at Rs1.9bn, 83% YoY. Sports revenues during the quarter were
helped by syndication of various sports properties including South Africa v/s
Australia cricket, West Indies v/s England etc . Sports business generated an EBITDA
of Rs351m (after several consecutive quarters of losses) helped primarily by
syndication revenues.
Sports losses are likely to reduce in FY15E as there are no cricket matches involving
India lined up. We have modelled for sports losses of Rs 0.8bn/0.6bn in FY15E/16E,
respectively.
Exhibit 4: Sports Business Financials
Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1 FY13 Q2FY13 Q3FY13 Q4FY13 Q1 FY14 Q2FY14 Q3FY14 Q4FY14
Revenues 873 881 901 1,279 992 1,818 1,078 1,072 1,159 1,558 1,915 1,959
YoY gr. 4.9% ‐26.0% ‐45.9% ‐10.2% 13.6% 106.4% 19.6% ‐16.2% 16.8% ‐14.3% 77.6% 82.7%
EBITDA (566) (226) (100) (588) (210) (169) (86) (405) (95) (191) (1,041) 351
Margin ‐64.8% ‐25.7% ‐11.1% ‐46.0% ‐21.2% ‐9.3% ‐8.0% ‐37.8% ‐8.2% ‐16.5% ‐54.4% 17.9%
Source: Company Data, PL Research
Excluding sports, margins under pressure this quarter
Excluding sports, topline for the quarter grew by 12% YoY. However, EBITDA margins
declined to 28.7% (‐430bps YoY/‐1,090bps). EBITDA margin decline was primarily on
account for higher programming costs due to increase in original programming
hours, cost inflation and acquiring content for new channels. Going forward,
management highlighted that ex‐sports margins are likely to remain under pressure
due to increase in content costs. Non sports programming costs will go up
substantially due to cost inflation, increase in number of hours of original
programming on existing channels apart from new channels. Non sports
programming cost can increase by 15‐20% YoY in FY15E. Zee plans to increase hours
of original programming on all channels by 15‐20%.
Exhibit 5: Excluding Sports ‐ Financials
Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1 FY13 Q2FY13 Q3FY13 Q4FY13 Q1 FY14 Q2FY14 Q3FY14 Q4FY14
Revenues 6,110 6,247 6,535 7,412 7,438 7,717 8,311 8,571 8,574 9,455 9,969 9,629
YoY gr. 2.9% 5.4% ‐0.7% 13.1% 21.7% 23.5% 27.2% 15.6% 15.3% 22.5% 19.9% 12.3%
EBITDA 2,126 2,246 2,147 2,188 2,543 2,345 2,698 2,828 3,010 3,296 3,948 2,765
Margin 34.8% 35.9% 32.9% 29.5% 34.2% 30.4% 32.5% 33.0% 35.1% 33.4% 39.6% 28.7%
Source: Company Data, PL Research

6.
May 21, 2014 6
Zee Entertainment Enterprises
Domestic subscription growth likely to be muted in FY15E
Total subscription revenues for the quarter stood at Rs4.6bn, 2% YoY marginally
lower than our estimates of Rs4.8bn. Domestic subscription revenues stood at
Rs3.3bn, flat YoY, while international subscription revenues stood at Rs1.3bn, 10%
YoY. Domestic subscription revenues have been flat from last three quarters. As per
management, growth in domestic subscription revenues is likely to be muted in
FY15E as Phase‐III/IV digitization continues to be delayed. Zee expects domestic
subscription growth trajectory to pick up in FY16E as Phase‐III/IV digitization picks up
then.
Exhibit 6: Break‐up of Subscription Revenue
Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1 FY13 Q2FY13 Q3FY13 Q4FY13 Q1 FY14 Q2FY14 Q3FY14 Q4FY14
Domestic 2,075 1,951 2,223 2,973 2,505 2,809 2,961 3,374 3,168 3,350 3,322 3,343
YoY gr. 29.4% 11.6% 23.0% 47.0% 20.7% 43.9% 33.2% 13.5% 26.5% 19.3% 12.2% ‐0.9%
International 976 959 1,039 1,049 1,136 1,141 1,137 1,172 1,073 1,231 1,243 1,292
YoY gr. ‐3.4% ‐3.0% 2.7% ‐3.2% 16.4% 18.9% 9.5% 11.7% ‐5.6% 7.9% 9.3% 10.3%
Total 3,051 2,910 3,262 4,022 3,641 3,950 4,098 4,546 4,241 4,581 4,565 4,635
YoY gr. 16.7% 6.3% 15.7% 29.4% 19.3% 35.7% 25.6% 13.0% 16.5% 16.0% 11.4% 2.0%
Source: Company Data, PL Research
Conference Call Highlights
 New channel launch Zindagi: For Zindagi, content will be sourced from Pakistan,
Turkey, Egypt and Latin America. Pakistani content need not be
dubbed/remade. For content sourced from other countries, it needs to be
remade.
 TV advertisement industry: will continue to grow in double digits over the
medium term
 Domestic subscription revenues: are flat from last 3 quarters. Last Q4, Zee had
catchup revenues in domestic subscription. Upside in Phase‐I/II is more or less
captured. In FY15E, Zee will see muted growth in domestic subscription
revenues. Quarterly run rate will be similar to this quarter
 Ad cap: Zee has implemented ad cap across all channels from 1st Oct, 2013.
However, music and news channels have not implemented ad cap across the
industry (all GECs have now implemented the ad cap).
 Ex sports margins: will be reflecting increased investments in content in FY15E
 Losses from new channels: Rs1.5bn loss from new businesses in FY14. FY15 is
likely to see significant launches. Apart from Zindagi, two other channel
launches. Nature of investments will be significantly bigger than earlier years.
Hence, impact on margins will obviously be there.

7.
May 21, 2014 7
Zee Entertainment Enterprises
 Tax benefit from DMCL: In FY15, absolute benefit of Rs1bn in tax is likely due to
tax benefit from DMCL. Total tax benefit is Rs3bn likely to be realised over 2
years
 Cash and cash equivalents: Rs15.3bn
 Mediapro dismantling: On the costs side, Mediapro dismantling will lead to
some increase in costs
 Ad growth: On the ad side, market share gains have been more or less captured.
Growth from now in will be driven by price increases
 Movie costs: For FY14 movie costs stood at ~Rs4bn. In FY15E, it can be in similar
range

8.
May 21, 2014 8
Zee Entertainment Enterprises
Income Statement (Rs m)
Y/e March 2013 2014 2015E 2016E
Net Revenue 36,996 44,217 49,926 57,676
Raw Material Expenses 17,401 20,688 23,541 26,244
Gross Profit 19,595 23,529 26,385 31,432
Employee Cost 3,491 3,905 4,393 5,075
Other Expenses 6,561 7,581 8,587 9,920
EBITDA 9,543 12,043 13,404 16,436
Depr. & Amortization 399 501 503 548
Net Interest (1,375) (1,649) (1,907) (2,007)
Other Income 1,461 1,807 1,987 2,087
Profit before Tax 10,519 13,190 14,809 17,895
Total Tax 3,337 4,291 4,739 5,780
Profit after Tax 7,182 8,900 10,070 12,115
Ex‐Od items / Min. Int. (33) (17) — —
Adj. PAT 7,196 8,921 10,070 12,115
Avg. Shares O/S (m) 954.0 960.4 960.0 960.0
EPS (Rs.) 7.5 9.3 10.5 12.6
Cash Flow Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
C/F from Operations 3,873 5,337 11,262 10,280
C/F from Investing 446 (2,632) (999) (1,750)
C/F from Financing (2,287) (2,377) (4,047) (4,323)
Inc. / Dec. in Cash 2,032 328 6,216 4,207
Opening Cash 3,274 5,316 5,644 11,860
Closing Cash 5,316 5,644 11,860 16,068
FCFF 4,154 714 10,484 9,450
FCFE 4,159 714 10,484 9,450
Key Financial Metrics
Y/e March 2013 2014 2015E 2016E
Growth
Revenue (%) 21.7 19.5 12.9 15.5
EBITDA (%) 29.0 26.2 11.3 22.6
PAT (%) 22.2 24.0 12.9 20.3
EPS (%) 22.8 23.1 12.9 20.3
Profitability
EBITDA Margin (%) 25.8 27.2 26.8 28.5
PAT Margin (%) 19.5 20.2 20.2 21.0
RoCE (%) 24.9 26.4 25.2 27.3
RoE (%) 19.6 20.6 20.0 21.1
Balance Sheet
Net Debt : Equity (0.1) (0.1) (0.2) (0.3)
Net Wrkng Cap. (days) 173 203 202 203
Valuation
PER (x) 38.9 31.6 28.0 23.3
P / B (x) 7.2 6.0 5.3 4.6
EV / EBITDA (x) 28.8 22.9 20.1 16.2
EV / Sales (x) 7.4 6.2 5.4 4.6
Earnings Quality
Eff. Tax Rate 31.7 32.5 32.0 32.3
Other Inc / PBT 13.9 13.7 13.4 11.7
Eff. Depr. Rate (%) 3.2 3.4 3.3 3.4
FCFE / PAT 57.8 8.0 104.1 78.0
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
Shareholder's Funds 39,116 47,377 53,541 61,414
Total Debt 17 17 17 17
Other Liabilities 33 719 658 658
Total Liabilities 39,166 48,113 54,216 62,089
Net Fixed Assets 9,975 11,732 11,928 12,130
Goodwill — — — —
Investments 8,245 8,651 8,951 9,951
Net Current Assets 20,658 27,435 33,041 39,711
Cash & Equivalents 5,317 5,644 11,860 16,068
Other Current Assets 26,734 33,994 34,856 38,927
Current Liabilities 11,393 12,204 13,675 15,284
Other Assets 288 298 298 298
Total Assets 39,166 48,115 54,218 62,090
Quarterly Financials (Rs m)
Y/e March Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net Revenue 9,733 11,013 11,884 11,588
EBITDA 2,915 3,105 2,907 3,116
% of revenue 30.0 28.2 24.5 26.9
Depr. & Amortization 87 91 135 189
Net Interest (700) (515) (349) (85)
Other Income 722 549 380 155
Profit before Tax 3,528 3,529 3,121 3,012
Total Tax 1,289 1,166 985 850
Profit after Tax 2,246 2,363 2,136 2,175
Adj. PAT 2,246 2,363 2,136 2,175
Source: Company Data, PL Research.

9.
May 21, 2014 9
Zee Entertainment Enterprises
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage
27.2%
51.5%
21.4%
0.0%
0%
10%
20%
30%
40%
50%
60%
BUY Accumulate Reduce Sell
% of Total Coverage
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
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