1. 4 Zee Entertainment Enterprises Limited
RESEARCH
EQUITY RESEARCH May 14, 2009
RESULTS REVIEW Zee Entertainment Enterprises Limited Hold
Share Data Near-term weakness in advertisement revenue
Market Cap Rs. 60.46 bn Zee Entertainment Enterprises Ltd. (Zee) reported a disappointing Q4’09
Price Rs. 139.15 result as its revenue fell 2.3% yoy and 5.8% qoq to Rs. 5.14 bn. The fall was
BSE Sensex 11,872.91
primarily due to a poor performance by advertisement segment, which
Reuters ZEE.BO
slipped 7.4% yoy and 14.9% qoq to Rs. 2.3 bn. However, subscription
Bloomberg Z IN
Avg. Volume (52 Week) 0.41 mn revenue grew at 13.3% yoy and 3.1% qoq to Rs. 2.35 bn. EBITDA margin
52-Week High/Low Rs. 251.80 / 88.10 dipped by 1.4% pts yoy to 23.4% due to higher staff and programming cost.
Shares Outstanding 434.52 mn Our DCF based valuation gives a fair price of Rs. 138, a downside of 1%
from the CMP of Rs. 139.15. Thus, we maintain our Hold rating on the stock.
Valuation Ratios (Consolidated)
Year to 30 March 2010E 2011E
A likely decline in advertisement revenue in FY10; but revival seen in
EPS (Rs.) 10.5 13.8 FY11: We expect advertisement revenue to decline by 8.5% in FY10
+/- (%) (12.6%) 31.6% impacted by current economic weakness. Besides, loss of viewership to IPL
PER (x) 13.3x 10.1x telecast and Colors is likely to pose a serious challenge to Zee TV as it has
EV/ Sales (x) 2.8x 2.5x
constantly lost market share with a drop in GRP from 273 in Q4’08 to 208 in
EV/ EBITDA (x) 11.8x 9.2x
Q4’09. However, post FY10 we expect the advertisement revenue to improve
Shareholding Pattern (%)
as the economic condition improves and corporate start spending more
Promoters 42 aggressively on advertisement to remain competitive. Besides, Zee TV’s
FIIs 30
GRP is likely to improve on back of launches of new programs.
Institutions 21
Public & Others 8
Subsequently, we expect a 4.4% growth in advertisement revenue in FY11.
Subscription revenue to maintain momentum: We expect subscription
Relative Performance revenue to grow at a CAGR of 20% during FY09-FY11E on the back of
300 robust growth from the DTH and with expansion of subscriber base both
225
domestically and internationally. Subsequently, subscription is expected to
150
overtake advertisement in contribution to overall revenue at 47% in FY10.
75
0 Key Figures (Consolidated)
May-08
May-09
Aug-08
Nov-08
Apr-09
Sep-08
Dec-08
Jun-08
Jul-08
Oct-08
Jan-09
Feb-09
Mar-09
Quarterly Data Q4'08 Q3'09 Q4'09 YoY% QoQ% FY08 FY09 YoY%
(Figures in Rs. mn, except per share data)
ZEE Rebased BSE Index Net Sales 5,260 5,455 5,137 (2.3%) (5.8%) 18,354 21,730 18.4%
EBITDA 1,303 1,200 1,202 (7.8%) 0.1% 5,423 5,332 -1.7%
Net Profit 950 825 965 1.5% 17.0% 3,858 5,194 34.6%
Margins (%)
EBITDA 24.8% 22.0% 23.4% 29.5% 24.5%
NPM 18.1% 15.1% 18.8% 21.0% 23.9%
Per Share Data (Rs.)
EPS 2.3 1.9 2.2 (1.8%) 16.5% 8.9 12.0 34.8%
Please see the end of the report for disclaimer and disclosures. -1-

2. 4 Zee Entertainment Enterprises Limited
RESEARCH
EQUITY RESEARCH May 14, 2009
Valuation
We have revised our target price to Rs. 138 from Rs. 114 on the
expectation of better operating margin due to reduced staff, SG&A (mainly
carriage cost) and programming cost; however we are cautious on
advertisement segment due to still weak economic environment. However,
we maintain our medium- to long-term positive view on the stock on the
back of its strong momentum in subscription revenue, a wide buffet of
channels and global presence.
Based on our DCF valuation (assuming a 5% terminal growth rate, and a
14.5% WACC), we have arrived at a target price of Rs. 138. Thus, we
maintain a Hold rating on the stock.
Sensitivity of Our Fair Value Estimates:
Terminal Rate (%)
Cost of Capital (%)
137.97 13.0 13.5 14.5 14.0 14.5
4.0 156 147 132 139 131
4.5 161 151 135 142 134
5.0 166 155 138 146 138
5.5 172 160 142 150 141
6.0 179 166 146 155 145
Result Highlights and Outlook
Zee posted a weak Q4’09 result as its net sales slipped 2.3% yoy and 5.8%
qoq to Rs. 5.1 bn due to a 7.4% yoy and 14.9% qoq decline in advertisement
revenue to Rs. 2.3 bn. The decline in the advertisement revenue can be
blamed to slowdown in the economy and stiff competition from the new
Advertisement revenue to remain players (Colors, 9X etc). However, subscription revenue provided some
under pressure in next two to three
cushion to the overall revenue as segment grew by 13.3% yoy and 3.1% qoq
quarter
to Rs. 2.3 bn on the back of an outstanding 104% yoy and 35% qoq jump in
the DTH revenue.
We expect the Company’s revenue to grow at a 4% in FY10E due to de-
Subscription revenue is likely to
be a stronghold for the Company growth in the advertisement segment. We believe advertisement revenue to
decline by 8.5% in FY10 due to cut in corporate advertisement spending and
a fall in the GRP. But, we expect a 4.4% growth in advertisement revenue in
FY11 as the economy revives. Moreover, a launch of new programs is likely
to support the growth in advertisement segment. On the contrary,
Please see the end of the report for disclaimer and disclosures. -2-

3. 4 Zee Entertainment Enterprises Limited
RESEARCH
EQUITY RESEARCH May 14, 2009
subscription revenue is likely to maintain growth momentum at a CAGR of
around 20% during FY09-FY11 with the help of growing traction in DTH and
increasing subscriber base.
EBITDA fell 7.8% yoy to Rs. 1.2 bn while the EBITDA margin dropped
138 bps yoy to 23.4% due to high staff and programming costs. However, on
sequential basis programming cost has come down to
Higher staff and programming cost
dragged down the EBITDA margin Rs. 2.2 bn, a slide of 16.5% as no new programmes were launched in the
last quarter.
We expect the EBITDA margins will remain flat for FY10 at around 24% but
will improve post FY10 as the carriage cost comes down. Moreover, low staff
cost would also help in margin improvement. For FY11E we expect EBITDA
margin to increase by 309 bps yoy to 27.1%.
Key Risks
The following factors can pose a risk to our rating:
• Increasing competition from the new channels
• Falling GRPs and market share
• Drop in advertisement rates
Key Figures (Consolidated)
Year to March FY06 FY07 FY08 FY09 FY10E FY11E CAGR (%)
(Figures in Rs. mn, except per share data) (FY08-11E)
Net Sales 16,544 15,159 18,354 21,730 22,604 25,499 11.6%
EBITDA 2,849 3,210 5,423 5,332 5,421 6,904 8.4%
Net Profit 2,277 2,382 3,858 5,194 4,542 5,977 15.7%
Margins(%)
EBITDA 17.2% 21.2% 29.5% 24.5% 24.0% 27.1%
NPM 13.8% 15.7% 21.0% 23.9% 20.1% 23.4%
Per Share Data
EPS (Rs.) 5.2 5.6 8.9 12.0 10.5 13.8 15.8%
PER (x) 45.5x 44.6x 27.6x 11.6x 13.3x 10.1x
Please see the end of the report for disclaimer and disclosures. -3-

4. 4 Zee Entertainment Enterprises Limited
RESEARCH
EQUITY RESEARCH May 14, 2009
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