Annual Report Analysis : Zee Entertainment Enterprises Ltd.


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Annual Report Analysis : Zee Entertainment Enterprises Ltd.

  1. 1. PROJECT REPORT OnZEE Entertainment Enterprises Limited (ZEE) (BSE Code: 505537, NSE Code: ZEEL.EQ) AND Annual Report Analysis (Assignment of Financial Accounting) Submitted To, Prof. Hardik Gandhi By, Mridul Dohutia SEC B, Roll No. 31 2012-2014
  2. 2.  Company overview 3 Board of Directors 6 Products 8 Director’s Report 9 Management discussions & analysis 14 Financial Statement Analysis 18 Corporate governance 20 Corporate social responsibility 20 Conclusion 21 Annexure 2
  3. 3. 1. Company overview:Zee Entertainment Enterprises Limited (ZEE) (BSE Code: 505537, NSE Code: ZEEL.EQ) is oneof India’s largest vertically integrated media and entertainment company. ZEE was the firstcompany to launch a satellite channel in India and from being a single channel for a singlegeography today operates multiple channels across multiple geographies in different languagesand genres. The Company’s programming reaching out to over 500 million viewers across 167countries. It was established in 1992. Founded by Mr. Subash Chandra and he is the currentCMD of ZEE. This enterprise was to act as the chief content provider for Zee TV - Indias firstHindi satellite channel. Zee Telefilms Limited (ZTL) is now known as Zee EntertainmentEnterprises Limited (ZEE).Very early in the aftermath of launching ZTL, Subhash Chandra entered into a joint venture withthe STAR group of companies. This pact was to augment television broadcasting in India anddeliver higher quality of programming content. In another development around the same time,media mogul, Rupert Murdochs News Corp Limited acquired the rights to distribute STARssatellite TV content. This made News Corp a de facto partner of ZEE. To strengthen theirnetwork further, ZEE and News Corp co-founded Siticable, a leading cable MSO. In March 2000however, ZEE bought News Corps stake in both the broadcasting business and Siticable.ZEE, over the years has built a diverse portfolio of leading businesses and has driven initiativesthat increase efficiency at every juncture of development. ZEE has established a very strongconsumer connect and is governed by a set of values that holds them in good stead in the face ofchanging viewer environments.1.1. Key Milestones:2012 Launches Ditto TV - Indias first and only OTT (Over-The-Top TV) Distribution Platform Launches Ten Golf – Indias first and exclusive 24 hour Golf channel Launches ZeeQ - Indias first Kids Edutainment Channel 3
  4. 4. 2011 ZEEs 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. Announces share buyback for an aggregate expendable amount not exceeding 7,000 million.2010 Launches Zee Khana Khazana – Indias first 24-hour food channel. Launches Zee Salaam - Indias first Urdu infotainment satellite television channel Acquires stake in Ten Sports. Launches Ten Cricket - a dedicated 24-hour Cricket Channel. Launches Ten Action+ - sports channel showcasing the best football action from around the world. Launches - Joint Venture between Zee Entertainment Enterprises Ltd. and Media Corporation2007 Zee Entertainment Enterprises Limited (ZEE) gets listed as an independent company.2006 De-merger of Zee Telefilms Limited.2003 Launches 5 new channels for the DTH market viz. Action cinema, Classic cinema, MX, Premier cinema and Smile TV. Enters into a distribution tie-up with Rajshri Pictures for theatrical distribution of films in India. Launches Trendz - A premium fashion and style channel, targeted at the fashion conscious Indian consumer.2002 Acquires controlling stakes in ETC Networks Limited and Padmalaya Telefilms Limited.2001 Introduces Zee TV and Zee News as pay television offerings. 4
  5. 5. Gadar - Ek Prem Katha became highest grossing box office movie.2000 Launches Internet over Cable services - Becomes first cable company in India to do so. Enters into content distribution joint ventures with MGM and Viacom. Launches pay bouquet of channels in the Asian region.1999 Acquires News Corps 50% stake in joint ventures of their television broadcasting business tie-up. Launches regional channels.1998 Launches Zee TV in the US. Institutes a prime award in the film segment called Zee Cine Awards.1997 Launches Zee Music (originally called Music Asia).1996 Starts first cable channel in India - Siti Channel. Launches Zee TV, Africa.1995 Commences Siticable operations Joint Venture with News Corp. Launches Zee News and Zee Cinema. Zee TV goes global - launches Zee TV, UK1992 Launches Zee TV. Initial Public Offering (IPO) of Zee Telefilms Limited. 5
  6. 6. 2. Board of Directors: • Non-Executive • Director and Strategic • Started his career with Chairman of the Board Marketing Advisor to Dish ITC Ltd., in 1972, rising to and promoter of Essel TV and Playwin the position of Marketing Group of Companies • He is also a Founder Controller in its Hotels • His industry leading Partner of Hanmer & division businesses include Partners, one of India’s top- • An MBA from Delhi television networks and three Public Relations University and a Cambridge film entertainment, cable agencies, Flora2000, one of Graduate from Bishop systems, satellite the leading global online School communications, theme flower distribution services, parks, flexible packaging, as well as Remindo, an family entertainment Intranet 2.0 Office centers and infrastructure Communication Network • He also works as a special advisor to the US$7 billion Publicis Group 6
  7. 7. • An • Has been the • Professor of • Managing Directoraccomplished Chairman of Finance and andentrepreneur, J&K Bank and Control at the IIM, Chief Executivewho founded Director on the Bangalore and UTI Officer of ZEEBombay Halwa Board of Bharat Chair Professor in • Participated inLimited, a Hotels, as well as the area of Capital various intensive Advisor for Markets ManagementCompany Berenson & • Fellow Member Education Programsengaged in the Company, New in Management likebusiness of York (Doctorate) from Young Managersmanufacturing • Doctorate of the IIM, Kolkata Program at INSEAD,Indian Philosophy in • Masters from the France and a programconfectionery, Business Indian Statistical on “Birthing of Giants”Indian savories Management(PHD) Institute and hosted by Youngand from Burkes graduate from Entrepreneurs’aviation catering University in UK Loyola College, Organization and MIT • Science graduate Chennai Enterprise Forum, Inc., from the Boston, USA University of Kashmir. 7
  8. 8. 3. Products:Hindi Entertainment Zee TV, Zee Smile, 9xHindi Movies Zee Cinema, Zee Cinema HD, Zee Premier, Zee Actions, Zee ClassicRegional Languages Zee Marathi, Zee Bangla, Zee Talkies, Zee Telegu, Zee Kannada,Entertainment Zee Tamil, ETC Channel PunjabiSports Ten Sports, Ten Action, Ten Cricket, Ten Golf, Ten HDEnglish Entertainment Zee Studio, Zee Studio HD, Zee Café, Zee TrendzNiche Offerings Zee KhanaKhazanaMusic Zing, Zee ETCAlternate Lifestyle Zee Jagaran, Zee SalamEdutainment ZeeQ 8
  9. 9. 4. Director’s Report:The Directors Report is a document produced by the board of directors, which details the state ofthe company and its compliance with a set of financial, accounting and corporate socialresponsibility standards. The duty of directors to produce a Directors Report once a year underthe section 415 of the Companies Act, 1956. Under section 416, the contents must include thedirectors names and the companys principal activities.From the analysis of annual reports of Zee Entertainment Enterprises Limited, we came to knowthat Director’s had been starting the reports by declaring the following Responsibility Statementin accordance with the provisions of Section 217 (2AA) of the Companies Act, 1956, in relationto the Annual Financial Statements: a) The Financial Statements have been prepared on a going concern and on the accrual basis and in the preparation of these Financial Statements, applicable accounting standards have been followed and there are no material departures; b) Accounting policies selected were applied consistently and the judgements and estimates related to the financial statements have been made on a prudent and reasonable basis, so as to give a true and fair view of the state of affairs of the Company as at March 31, 2011 and of the profit of the Company for the year ended on that date; and c) Proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. 9
  10. 10. 4.1. Financial Results:The Financial Performance of your Company for the year ended March 31, 2011 is summarizedbelow: In Rs. Cr.Particulars 31 31 31 March March March 2011 2010 2009Sales & Service 2169.94 1278.74 1210.24Other Income 64.31 106.18 105.09Total Income 2234.25 1384.92 1315.33Total Expenses 1409.70 776.58 939.19Profit before Tax & Exceptional Items 824.54 608.34 376.19Less Exception item–Provision for Diminution in value of 19.68 - 2.58InvestmentProvision for Taxation (net) 267.81 49.50 69.03Profit After Tax 576.42 558.84 309.74Add: Balance brought forward 1111.18 889.34 720.94Amount available for appropriations 1687.59 1448.19 1030.69AppropriationsDividend 195.63 194.68 86.80Tax on dividend 31.74 32.33 14.54General Reserve 300.00 110.00 40.00Balance carried forward 1160.23 1111.18 889.354.2. Business overview:During the year 2011, rebounding from the recession, Zee continued to focus on high quality andinnovative content in a highly competitive market providing compelling value for trade partnersthereby yielding rich returns. 10
  11. 11. Zee has been at the forefront in leveraging the digital delivery opportunity. a range ofopportunity. A range of initiatives were undertaken including developing new offerings, reachingout to new viewers, portfolio expansion, premium content offerings which have helped generatesubscription revenues for the portfolio, in addition to expanding their viewers base.4.3. Corporate Re-Branding:As part of the journey towards building a globally recognized brand, increasing viewerrelevance, achieving industry leadership and taking forward the progressive outlook, Zee hadrecently unveiled rebranding and repositioning of the Corporate and Channel logos, which theybelieves would enhance the mindshare and viewer loyalties towards the product offerings of Zee.The entire rebranding exercise was conceptualized, designed and executed internally.4.4. Corporate Restructuring:During the year under review, in order to concentrate on growth efforts of the Cricketbroadcasting business in a focused manner and enable rationalization of the holding structure,Board had approved a Scheme of Amalgamation for merger of 2(two) overseas subsidiaries ofthe Company, viz. ZES Holdings Ltd, Mauritius and Zee Multimedia Worldwide Limited, BVIwith the Company from February 1, 2011. Upon appropriate approvals, the said Scheme becameeffective from June 20, 2011 and the financial impact of the Scheme has been given effect to inthese Annual Financial Statements.4.5. Share Capital:During the year, the following changes were effected to the Share Capital of the Company:140,844 fully paid-up Equity Shares of Rs. 1 each were issued and allotted to the shareholders of9X Media Private Ltd, pursuant to the Scheme of Arrangement with 9X Media approved byHon’ble Bombay High Court on September 9, 2010. 489,038,065 fully paid-up Equity Shares ofRs. 1 each were issued and allotted as Bonus Shares in ratio of 1 Bonus Equity Share for 1Equity Share held on November 12, 2010, being the Record Date fixed for the purpose.Subsequent to the financial year-end, 66,800 fully paid-up Equity Shares of Rs. 1 each wereissued and allotted upon exercise of stock options under the Company’s Employees Stock OptionScheme. Consequent to these allotments, the paid-up Share Capital of the Company as on the 11
  12. 12. date of this Report stood at Rs. 978,142,930 comprising of 978,142,930 Equity Shares of Rs. 1each (March 31, 2011 - 978,076,130 Equity Shares).4.6. Buy Back:Special Resolution approving Buy-back of up to 25% of Company’s paid-up Equity ShareCapital at a price not exceeding Rs. 126 per Equity Share subject to the condition that theaggregate amount to be expended by the Company for the said Buy-back shall not exceed Rs.700 Crores, was passed by the Members through the Postal Ballot process on March 25, 2011.Upon coming in to effect of the Scheme of Amalgamation of foreign subsidiaries, the Companyhas initiated further process on the proposed buy-back of equity shares.4.7. Employees stock option scheme:The Company had not granted any stock options during the year. The Statutory Auditors of theCompany M/s. MGB & Co., Chartered Accountants have certified that the Company’s StockOption Scheme has been implemented in accordance with SEBI Guidelines and the resolutionpassed by the shareholders.4.8. Public deposits:During the year, the Company has not accepted any Deposits under Section 58A and Section58AA of the Companies Act, 1956, read with Companies (Acceptance of Deposits) Rules, 1975.4.9. Directors:During the year under review Mr. Laxmi N Goel, one of the Promoter Director of the Company,resigned with effect from the close of September 30, 2010. Further, in line with the retirementpolicy for Independent Directors approved by the Board based on the suggestions in theCorporate Governance Voluntary Guidelines issued by the Ministry of Corporate Affairs, Mr. NC Jain and Mr. B K Syngal, Independent Directors resigned from the Directorship of theCompany with effect from the close of business on March 31, 2011. Mr Ashok Kurien and LordGulam Noon, Directors, retire by rotation at the ensuing Annual General Meeting and, beingeligible, offer themselves for re-appointment. The Board has recommended their re-appointment. 12
  13. 13. 4.10. Auditors:The Statutory Auditors M/s MGB & Co., Chartered Accountants, Mumbai, having FirmRegistration No 101169W, hold office until the conclusion of the ensuing Annual GeneralMeeting and are eligible for reappointment. The Company has received confirmation from theAuditors to the effect that their reappointment, if made would be within the limits prescribedunder Section 224(1B) of the Companies Act, 1956 and that they are not disqualified forreappointment within the meaning of Section 226 of the said Act.4.11. Particulars of Employees:The Company had 1,757 employees as of March 31, 2011. In terms of the provisions of Section17(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules,1975, as amended, the names and other particulars of the employees, who were in receipt ofremuneration of Rs. 60 lakhs or more per annum.The board of Directors are:Punit Goenka, Managing Director & CEOM Y Khan, Director 13
  14. 14. 5. Management Discussions and Analysis:5.1. Key highlights during the year include:  In Malaysia, Zee has been consistently ranked amongst the top two International channels among Malay Viewers.  In Middle East, Zee Aflam garnered an all-time high viewership of around 39 GRPs in the Arab market.  In Singapore, Zee TV Asia Pacific became the first and only Hindi General Entertainment Channel to get rated on Kantar Media Rating System as its viewership crossed the minimum threshold defined by the local rating agency, TNS.  As per Nielsen, Zee TV gets the highest viewership share among South Asian channels in the USA.5.2. Business Strategy:The key elements of Zee’s strategy during the year were i. To take appropriate steps to safeguard its leadership position in a fiercely competitive environment ii. To concentrate on additional revenues from digital pay platforms iii. Rationalize on costs across different heads iv. Fortify its expansion in the international markets v. Maintain consistently high standards of corporate governance.5.3. Other Company Information: i. Internal Control Systems: The Company has in place adequate internal control systems, commensurate with its size and nature of operations so as to ensure smoothness of operations and compliance with applicable legislation. The Company has a well-defined system of management reporting and periodic review of businesses to ensure timely decision-making. It has an internal audit team with professionally qualified financial personnel, which conducts periodic audits of all businesses to maintain a proper system of checks and control. The management information system (MIS) forms an integral part of the Company’s are monitored and controlled. Any material change in the business 14
  15. 15. outlook is reported to the Board. Material deviations from the annual planning and budgeting, if any, are reported to the Board on quarterly basis. An effective budgetary control on all capital expenditure ensures that actual spending is in fine with the Capital Budget. ii. Human Resources: The Company seeks, respects and values the diverse qualities and backgrounds that its people bring to it and is committed to utilizing the richness of knowledge, ideas and experience that this diversity provides. The work environment is stimulating and development of core competencies through format training, job rotation and hands on training is an ongoing activity.5.4. Risk Factors:Competition from other players:The Company operates in highly competitive environment that is subject to innovations, changesand varying levels of resources available to each player in each segment of business.Ever changing trends in Media sector:It may not be possible to consistently predict changing audience tastes. People’s tastes vary quiterapidly along with the trends and environment they live in. This makes it virtually impossible topredict whether a particular show or serial would do well or not. With the kind of investmentsmade in ventures, repeated failures would have an adverse impact on the bottom line of thecompany.Cost of programming mix might affect its bottom line:The urge to compete and provide the best content to viewers, Zee would have to incur highexpenditure to provide an impetus on its programming front from time to time. The increase incosts might not necessarily perk up its revenues in the same proportion.Investments in new channels:The Company may from time to time launch new channels. Content for these channels isobtained from its existing library as well as from programmes acquired in the normal course ofits business. The success of any new channel depends on various factors, including the quality of 15
  16. 16. programming, price, extent of marketing, competition etc. There can be no assurance that theCompany will be as successful in launching new channels as it has been the case of its existingchannels.Macroeconomic environment:Macroeconomic environment can be a potential source of risk. The unpleasant trinity ofmoderating growth, high inflation and monetary tightening can adversely impact advertisingrevenues of the Company, which forms the largest component of the Company’s revenues.Slowdown in DTH/Digital rollout:The uptake of pay digital services by subscribers has been a very encouraging sign for allbroadcasters. Internationally most broadcasters derive a greater share of their revenues from thesubscription revenues whereas in India the under-declaration in the analogue cable system hasled to broadcasters being more dependent on advertising revenues, which tend to cyclical innature and more affected by the macro economic factors. The industry expects pay digitalservices to grow at over 25% CAGR in the next three years and Zee is likely to benefit heavilyfrom this rapid growth. A slowdown in growth of digital services may lead to incremental profitmargins being impacted.Increased competitive environment in the Hindi General Entertainment Space:The Hindi GEC genre is amongst the key genres for all advertisers and hence is most lucrative toall the TV broadcasters. Any new competition in the space can have an impact on the Company’srevenues.Sluggish consumer uptake in the international markets:ZEE has been a pioneer in the international markets and has the highest market share amongst allSouth East Asian broadcasters across Europe and USA. Indian content in these markets servesthe preference of a niche audience and ZEE has strong relations with distribution platforms inthese markets giving management the confidence that the Company will retain market share inkey geographies. In the given slowdown, consumers may find it difficult to upgrade theirpackages and the value growth from these markets may get affected. 16
  17. 17. Cannibalization of analogue cable revenues due to increased digital pay revenues:The television distribution system in India is primarily analogue in nature and continues to beimpacted by the rampant underdeclaration and piracy by the last mile cable operators. With theadvent of digital pay TV services such as DTH and digital cable, a clear shift in consumerpreference has emerged with all of the expansion in the cable and satellite adoption coming onthe back of these digital services. Though analogue cable is still under-reported, this expansionof digital DTH services may lead to cannibalization of analogue cable revenues in the near term.Increase in cost of acquisition for some of the key sports properties:While a significant amount of rights have been signed on by the Company for leading sportsproperties, any future contracts may be at higher costs, which may put pressure on margins of thecompany.The Company may be exposed to foreign exchange rate fluctuations:The Company receives a significant portion of its revenues and incurs a significant portion of itsexpenses in foreign currencies, particularly US dollars and UK pounds. Accordingly, theCompany is exposed to fluctuations in the exchange rates between those currencies and theRupee, the Company’s reporting currency, which may have a substantial impact on its revenuesand expenses. 17
  18. 18. 6. Financial Statement Analysis:Performance Ratios:Particulars 2011 2010 2009LIQUIDITY RATIOSCurrent Ratio 2.94 3.08 4.57Quick Ratio 2.26 2.49 3.80PROFITABILITY RATIOSGross Profit Margin Ratio 29.61 30.62 24.93Net Profit Margin Ratio 20.74 28.03 23.98Return on Investment 29.10 18.01 14.79Return on Equity 20.20 16.12 15.36EFFICIENCY RATIOSInventory Turnover Ratio 2.66 2.01 1.52Inventory Holding Period 137 181 240Debtor’s Turnover Ratio 3.37 2.94 3.38Average Collection Period 108 124 108Creditor’s Turnover RatioAverage Payment PeriodAsset Turnover Ratio 0.97 0.55 0.53COVERAGE RATIOInterest Coverage Ratio 102.16 19.61 13.02Equity Dividend Coverage Ratio 3.20 3.16 6.02Fixed Charges Coverage RatioLEVERAGE RATIOLong-Term Debt to Equity Ratio 0.00 0.03 0.17Total Debt to Equity Ratio 0.76 0.68 0.97 18
  19. 19. 6.1. Analysis:After preparing the performance ratio of Zee for the year ended 31st March 2011 and previoustwo years i.e. 2010 and 2009, we are now able to evaluate the company’s survival and growth.Evaluating Zee in 2011 relative to the previous two years, it becoming slightly less liquid thanprevious two years as both the current and quick ratio are decreasing. The average collectionperiod is same as compared to 2009, but in 2011 it was increased. The company has to evaluateits credit policies to maintain a good favorable collection period. The Asset Turnover Ratio ofthe company is increasing in the last three years. Therefore we can say that the assetsmanagement of the company is running properly to generate sales. The long term debt to Equityratio has become nil. Therefore we can say that the financial risk of the company is decreasingbut the Total Debt to equity ratio is fluctuating at a less changes. The company is becoming moreleveraged than last year. The efficiency ratios are increasing during the period under review.That’s why Zee is improving its efficiency towards the current competitive industry scenario. 19
  20. 20. 7. Corporate Governance:Zee has been reassessing and benchmarking itself with well-established Corporate Governancepractices besides strictly complying with the requirements of Clause 49 of the ListingAgreement. The Company has documented internal governance policies and put in place aformalized system of Corporate Governance which sets outs the structure, processes andpractices of governance within the Company and its subsidiaries. Given the emerging pivotalrole of Independent Directors in bringing about good governance, the Company continues itsefforts in seeking optimum utilization of their expertise and involving them in all criticaldecision making processes. The Board has adopted several provisions of the ‘CorporateGovernance Voluntary Guidelines 2009’ issued by the Ministry of Corporate Affairs inDecember 2009 including constitution of a ‘Nominations Committee’ and strict implementationof the tenure of Independent Directors in the Company.8. Corporate Social Responsibility (CSR):As part of the Essel Group of Companies, the Company has at a unified and centralized level, putin place a Corporate Social Responsibility (CSR) policy which is based on a belief that aBusiness cannot succeed in a society that fails and therefore it is imperative for business houses,to invest in the future by taking part in social-building activities. During the year under review,the social activities initiatives undertaken include  Adoption of school(s)/village(s) in tribal areas through Ekal Vidyalaya Foundation, an NGO that works to bring about basic literacy and health awareness amongst the tribal and rural population of India;  Supporting the Global Vipassana Foundation which helps propagate Vipassana, the non- sectarian rational process of self-purification with the aim of bringing about peace both within the individual and the society in general; and  Supporting the Global Foundation for Civilizational Harmony, a body which aims to create a peaceful and harmonious society. 20
  21. 21. 9. ConclusionThis analysis may help someone who wants to invest Zee Entertainment Enterprises Limited. Asper this study investing in Zee is not so risk involved. As their efficiency and liquidity positionsare favorable. Several explanations are possible to analyze in this paper. By comparing the ratioswith the Media and entertainment industry’s ratio we will be able to analyze a perfect picture ofZee. But the unavailable information and limited data the researcher is trying to analyze thefinancial statements and the performance ratios with analysis of Annual reports, to get conceptsof how to analyze. 21
  22. 22. 10. Annexure: i. Consolidated Balance Sheet for the years 2011, 2010, 2009. ii. Consolidated Profit and Loss A/C for the years 2011, 2010, 2009.References:Annual Report – 2011Annual Report – 2010Annual Report – 2009 22