1) The annual report analyzes ZEE Enterprise Limited's performance in FY09, which saw growth in the first half but a slowdown in the second half due to declining advertising revenues. 2) Key steps taken by management to address competitive pressures included safeguarding its leadership position, focusing on digital pay platforms, rationalizing costs, and expanding internationally. 3) While costs increased due to higher programming costs and carriage fees, net margins improved due to a large tax refund, decreasing from 23.5% despite the rise in operating expenses. 4) Subscription revenues, which grew due to a 93% increase in DTH revenues, became a larger contributor to total revenues, increasing to 41.

1. ZEE Enterprise Limited
ANNUAL REPORT ANALYSIS
Management Discussion & Analysis
Market Data 21th,August 2009 Management has classified FY09 into two distinct parts: the first half from April to
CMP (Rs.) 195 September and the second half from October to March. While the first half was
Shares outs (Cr) 30.1 fueled by growth and an enhanced competitive environment, the second half saw
Equity Cap (Rs. Cr) 43.4 a slowdown in advertising revenues.
Mkt Cap (Rs. Cr) 8,463 Key steps taken by the management into competitive environment were (i) To
Face Value (Rs) 1.0 take appropriate steps to safeguard its leadership position in a fiercely
Bloomberg Code Z.IN competitive environment (ii) To concentrate on additional revenues from digital
pay platforms (iii) Rationalize on costs across different heads, especially towards
Analyst :
the latter half of the year (iv) Fortify its expansion in the international markets.
Going forward, management estimates that the economic slowdown will be
Rohit Maheshwari
rohit.maheshwari@krchoksey.com overcome by the second half of the fiscal 2010 and that an upward trend will
℡ 91-22-6696 5206 follow with regard to spends by the advertisers. We expect company’s to post a
muted growth in advertising space and growth will be driven from direct to home
(DTH) because currently, in India there are ~120 million homes and ~80 million
these homes have cable and satellite connection of which about 12 million homes
are on DTH as on March 2009. The DTH homes have increased to 14 million as of
June 2009.
Significant Event
The Company started movie production business under Zee Motion Pictures. The
Company has discontinued the studio model and working to de-risk the business.
The Company released 15 movies and incurred a loss of Rs 11 crore. The Company
has few movies to be released.
Operating income grew at a CAGR
The Company has entered into an agreement with a Charitable Trust/Society to
of 10.1% from FY05 to FY09
acquire exclusive rights for providing educational infrastructure, content,
advisory and other related services for a period of 30 years for Rs 75 crore and
advance of Rs 45.3 crore has been paid for acquiring the rights.
The Company has bid for a plot in Bandra-Kurla Complex to set up a school. The
Company is targeting to have 1 million students in KidZee and Zee High School by
2012-13. This business would be under ETC Network, wherein the Company holds
50.18% stake.
The Company has no plans to hive off Zee Sports. It would do a re-structuring of
sports business once Ten Sports is acquired completely.
The case against Prasar Bharati is pending. The Company has put a claim for
about Rs 123 crore which includes Rs 50 crore deposited with the apex court and
interest of Rs 72.24 crore.
Ten Sports has acquired telecast rights to 5 cricket boards: Sri Lanka, Pakistan,
South Africa, West Indies and Zimbabwe giving it over 100 days of cricket every
year for next 4 years.
Financial Scan – Income Statement
In FY09, the first half saw advertising revenues growth was 30% and second half it
register a muted growth on the back of economy slowdown. Advertising revenues
DTH revenues grew 93% grew 14%, contributing 49% of revenues and subscription revenues grew 22%
contributing 5% of revenues contributing 41% of the revenues.
Of the subscription revenues, DTH revenues grew 93% contributing 5% of
revenues, domestic cable revenues grew 20% contributing 15% of revenues and
international subscription revenues grew 14% contributing 21% of revenues.
Zee Turner, subsidiary of the Company, distributing Pay TV bouquet, had
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2. ZEE Enterprise Limited
revenues of Rs 197.88 crore with loss at PAT level of Rs 15.54 crore and
No further forex losses to be accumulated losses of Rs 52.48 crore. The bad debt writes off has come down
incurred in FY10. from 30% of revenues to 3% of revenues. The Company is facing problems of
collection from cable operators.
The Company incurred forex loss of Rs 88.9 crore for FY2009. This includes forex
loss on derivatives. The Company does not have any derivative contracts as of
Operating costs for the year are March 31, 2009.
up by 26% on the back of a 68% Operating costs for the year are up by 26% on the back of a 68% increase in selling
increase in selling and distribution and distribution costs and 41% increase in personnel costs. This is primarily on
costs and 41% increase in account of the increased competition in the Hindi GEC space as also higher
personnel costs carriage fees paid during the year.
In addition, on the personnel costs front, higher bonuses were paid during the
year for the performance in the previous year.
In addition, other expenditure is lower by 48% on account of lower bad debt
provisioning and write off (Rs551m in FY09 against Rs1.07bn in FY08).
Financial Scan – Balance Sheet
Secured loan- The total Loan funds of the Company increased from Rs 386.6 crore
as on March 31, 2008 to Rs 575.7 crore on March 31, 2009. This increase is mainly
on account of fixed term borrowing for Taj TV Ltd. at the time for bidding major
sporting events telecasting rights and by Asia Today Ltd. for acquiring Media
assets.
Fixed Assets: During the year, the Company’s Gross Fixed Assets block increased
by Rs. 270.6 crore. This increase is mainly on account of Goodwill arising out of
acquisition of balance 40% shareholding in Asia Business Broadcasting Limited.
There has been addition to New Building premises, additional studio, production
equipment and up-linking facility at NOIDA and at TAJ TV Dubai. The Net Block
increased by Rs. 243.7 crore from Rs. 1498.6.1 crore as on March 31, 2008 to Rs.
1742.3 crore as on March 31, 2009. This increase is on account of increase of
Gross Fixed Assets.
Capital Work in progress- Capital Work-in Progress of Rs 66.9 crore includes Rs.
45.0 crore towards rights for managing School for an Education Business and Rs.
15 crore for Building under constructions.
Investment: The Investments of the Company were valued at Rs. 127.1 crore on
March 31, 2009 as compared to Rs 251.5 crore on March 31, 2008, a decrease of
Rs. 1,24.4 crore over 2008. During the year, Company’s Subsidiary Asia Today
Limited had divested its 100% holding in Pan Asia Infrastructure Limited and
48.44% holding in Broadcast South Asia Limited.
Sundry Debtors: After netting off provision for Doubtful Debts and Bad Debts
In FY09, the Net Debtors is written off, Net Debtors as on March 31, 2009 stood at Rs 643.6 crore. This was at
improved by 10 days to 107 days. Rs 590.7 crore as on March 31, 2008. This increase is commensurate to the
increase in scale of operations. The Net Debtors is improved to 107 days of sales
in 2009 as against 117 days of sales in 2008.
Loan and Advances: The total of loans, advances and deposits has increased by
Rs 261.2 crore from Rs 1147.5 crore on March 31, 2008 to Rs 1,408.7 crore on
March 31, 2009. Advances to Dish TV has decreased by Rs 74.7 crore to Rs 243
crore, in case of WWIL it has increased by Rs 48 crore to Rs 155 crore and
promoters & group companies has increased by Rs 115 crore to Rs 843 crore.
Corporate Guarantees: In addition, ZEEL has given corporate guarantees to the
tune of Rs 450 crore in FY09 for group companies. This includes Rs 330 crore for
Dish TV and Rs 92.1 crore for WWIL.
2 KRC Equity Research

3. ZEE Enterprise Limited
Shareholding Pattern & Fund holding.
Promoter and Institution holding Shareholding Pattern
remain consistent over the years FY06 FY07 FY08 FY09
signifying their confidence in the Promoter & Promoter Group 41.5 41.5 41.5 41.5
business Mutual Funds & FII 50.1 50.1 50.1 50.1
Public and Other 8.4 8.4 8.4 8.4
Fund Holding
Amt inv
(Rs in
Date Fund House % Net Asset Cr)
Jul-09 Reliance Equity 3.71 87.12
Jul-09 Reliance Equity Inst 3.71 87.12
Jul-09 HDFC Top 200 1.85 82.80
Jul-09 HDFC Equity 1.88 81.35
Jul-09 HDFC Growth 5.87 73.42
Jul-09 Reliance Long Term Equity 3.66 70.52
Jul-09 HDFC Long-term Equity 5.34 56.90
Jul-09 Reliance Tax Saver 2.30 46.12
Jul-09 HDFC Infrastructure 2.35 34.64
Jul-09 HDFC Tax saver 1.82 31.61
Jul-09 DSPBR Top 100 Equity Reg 1.63 31.60
Jul-09 DSPBR Top 100 Equity Inst 1.63 31.60
Jul-09 HDFC Prudence 1.06 29.75
Jul-09 Fidelity Equity 1.09 27.45
Jul-09 SBI One India 1.90 22.32
Jul-09 HDFC Premier Multi-Cap 4.11 19.20
Jul-09 HDFC Mid-Cap Opportunities 1.64 18.60
Jul-09 Reliance Regular Savings Equity 1.30 18.59
Jul-09 Birla Sun Life Equity 1.63 18.18
Jul-09 Reliance Media & Entertainment 13.76 17.85
Jul-09 HDFC Core & Satellite 3.39 13.00
Jul-09 Magnum Contra 0.43 12.57
Jul-09 Fidelity Tax Advantage 1.06 10.38
Jul-09 Birla Sun Life Frontline Equity Plan A 1.11 10.22
Jul-09 Magnum MultiCap 1.42 9.49
Jul-09 HDFC LT Advantage 1.12 9.30
Jul-09 DSPBR Equity 0.69 9.25
Jul-09 Tata Pure Equity 2.21 8.80
Jul-09 Tata Equity Opportunities 1.99 8.09
Jul-09 SBI Bluechip 0.71 7.99
Source: Value Researchonline.com
3 KRC Equity Research

4. ZEE Enterprise Limited
Operational Check
Operating margin declined
significantly by 423bps to 25.2%, 2,400.0 35.0
on the back of increase in
2,200.0 29.4
Programming costs is mainly due 30.0
to newly launched Channel and 2,000.0
25.2
other key events.
25.0
1,800.0
21.1 20.9
1,600.0 23.5
18.0 20.0
Net margins improved by 260bps
15.6
to 23.5% despite of increase in 1,400.0
14.4
15.0
operating cost. The improvement
1,200.0
was mainly on the back of tax 1,477.1 1,515.9 1,835.4 2,177.3
refund of Rs 142.5 crore, which 1,000.0 10.0
led to decline in tax provision by FY06 FY07 FY08 FY09
87%. Sales EBIDTA % PAT %
Source: Company Data, KRC Research
Income Statement Analysis
100%
Raw material cost as a % of sales
91%
increased by 186% to 41.97%, on
82%
the back of new show air to retain
73%
its position in Top 3 slots of Hindi 64%
genre. 55%
46%
37%
28%
19%
10%
1%
FY06 FY07 FY08 FY09
Raw Material Costs Emloyee Exp Other Expenses Depriciation Interest Tax Profit/ Loss
Source: Company Data, KRC Research
Revenue Mix
100%
90%
Contribution of Subscription
80%
revenue to sales increased by 100 70%
bps to 41.5% because of DTH 60%
segment, register a growth of 93% 50%
y-o-y basis. 40%
30%
20%
10%
0%
FY06 FY07 FY08
Advertising revenue Subscription Revenue Other Operating Income
4 KRC Equity Research

5. ZEE Enterprise Limited
Other Operating
Income, 9.9% Advertising
revenue, 48.6%
Subscription
Revenue, 41.5%
Working Capital Cycle
190.0
170.0
150.0
130.0
110.0
Net cash conversion cycle 90.0
increased by 74 days to 157 days 70.0
due to poor management of 50.0
inventory. FY06 FY07 FY08 FY09
Debtor Days Creditors Days
I nventory Days Cash Conversion Cycle
Debtor’s days decreased from
117.5 to 107.9 days, due to Source: Company Data, KRC Research
effective realization.
Sources of Funds
100%
80%
60%
40%
Portion of loan fund in sources of 20%
fund has increased significantly by
270bps to 12.4%. Debt equity ratio
0%
increased to 0.17 from 0.14. FY06 FY07 FY08 FY09
Shareholders Funds Minority Interest Loan Funds CL & Prov
Source: Company Data, KRC Research
5 KRC Equity Research

6. ZEE Enterprise Limited
Portion of investment in Application of Funds
application of fund has decreased
significantly by 360bps to 2.7%. .
During the year, Company’s 100%
Subsidiary Asia Today Limited had
80%
divested its 100% holding in Pan
Asia Infrastructure Limited and
60%
48.44% holding in Broadcast South
Asia Limited.
40%
20%
0%
FY06 FY07 FY08 FY09
Fixed Assets Investments Cash & Bank Bal Inventory
Debtors Loans and Adv Capital WIP Deferred Tax liability
Source: Company Data, KRC Research
6 KRC Equity Research

7. ZEE Enterprise Limited
Our View
As advertising is the major revenue driver (contribution of ~40-50% to topline) for any
broadcasting company, we might see pressure on this front mainly due to corporates are
cutting down their advertising spends due to slowdown in the economy. However, on the
other hand, subscription revenues (includes DTH, Cable and international revenue) would
partially offset some slowdown in the advertising segment because of the aggressive
growth strategies being employed by existing DTH players such as BHARTI, DISH TV, TATA
SKY, BIG TV.
As ZEEL’s is one of the India largest media and entertainment companies and has a
presence across genres, it would strongly benefit from a revival in the economy, as we
expecting the economy to show signs of revival from H2FY10 onwards. On the other hand
company is aggressively trying to regain its No.2 position by launching new programs such
as Chotti Bahu, Dance India Dance and Agle Janam Mohe Bitiya Hi Kijo.
We believe company is better placed than its peers to face the current economic
challenges on advertising front as well tap new opportunities. At the CMP of Rs 195, the
company’s stock is trading at 18.9x its FY10E EPS of Rs 10.3 per share.
Key Ratios
Particulars FY07 FY08 FY09
Per Share Data
EPS 2.5 3.26 3.04
Book Value 60.4 66 78.3
Equity Dividend % 200% 200% 200%
Operating Ratio %
EBIDTA % 21.1 29.4 25.2
NPM % 15.6 20.9 23.5
Interest Coverage 14.5 25.4 23.9
Debt/Equity 0.1 0.1 0.2
Return Ratios
RoE 9.1 13.4 15.1
RoCE 12.5 19.0 16.6
Dividend payout/ Networth 2.5 3.0 2.6
Valuation Ratios
P/E 78.0 59.8 64.1
P/BV 3.2 3.0 2.5
P/Cash EPS 66.4 36.4 15.0
EV/EBIDTA 40.6 21.2 9.9
M.Cap/ Sales 5.6 4.6 3.9
Source: Company Data, KRC Research
Note: FY06 not included since the data available is for 6months hence not comparable
7 KRC Equity Research

8. ZEE Enterprise Limited
Rajiv Choksey Co-Head Institutional Equities rajiv.choksey@krchoksey.com +91-22-6653 5135
Anuj Choksey Co-Head Institutional Equities anuj.choksey@krchoksey.com +91-22-6696 5500
Maulik Patel Head Research maulik.patel@krchoksey.com +91-22-6696 5574
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Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.
Registered Office:
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Phone: 91-22-6633 5000; Fax: 91-22-6633 8060.
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8 KRC Equity Research