Fundamental AnalysisIndia

Zee Entertainment Fundamental Analysis

Industry- Media and Entertainment 

Economy Analysis:

As per the reports and forecasts made by the government, the Indian economy has the potential for the growth of 9.8% in the fiscal year 2022. After a series of lockdowns and night curfews in June 2021, since then, the Indian economy was witnessed as the fastest growing large economy in the whole world. However, now with the advent of the Omicron virus, it is tough to assume and predict what path our economy will take. 

Industry Analysis

According to a report published by EY, the revenue from the media and entertainment Industry stood at Rs. 1.38 trillion as of 2020 and is estimated at Rs. 1.73 trillion in 2021. Further, it is projected to grow to Rs. 2.23 trillion by 2023 due to acceleration of digital adoption among users across geographies. 

In a report published by Omdia (published in 2021), the Indian OTT video subscriptions reached 62 million in 2020 from 32 million in 2019. With the advent of the pandemic Covid-19, the demand for content consumption and broadcasting saw a jump as people were confined to their homes and spent binge watching the television and content on OTT platforms. Being the second largest television market in the world, the Indian media and entertainment sector is a sunrise to the economy and will be on strides in the future.

Company Profile:

Zee Entertainment Enterprises Ltd. is home to 1.3 billion viewers and a platform for around 4800 movie titles & has spread its wings to over 190 countries all over the globe. The company is in the business of broadcasting, advertising and production. It offers content in multiple international and domestic languages with a total content of 2,60,000 hours. 

  1. Business Dimensions:

Sources of Revenue

  • Advertising
  • Subscriptions of OTT platforms 
  • Music listening (e.g Zee Music)
  • Release of Theatrical movies
  • Movie distribution and Sponsorship
  1. Financial outlook:
  • Zee has the largest market capitalization of Rs. 31,869.91 crore in the media and entertainment industry, followed by its peer Sun TV Network with Rs. 19,371.11 crore.
  • The company booked a profit after tax of Rs.270.16 crore as of 30th September 2021 as compared to Rs.94.07 crore on a YoY basis.
  • The net cash flows of the company have increased from a negative Rs.423 crore as of 31-03-2020 to Rs.501 crore as of 31-03-2021 (an increase of Rs 924 crore post covid shows that the company is recovering at a rapid pace). 

Company Vs Peers:

  1. When compared with its peers, Zee has the lowest debt-equity ratio of 0.04%.
  1. The P/E ratio of the company is 27.48 whereas the P/E ratio of the Industry is 34.54, as of 31-03-2021. The P/E of the company is below the Industrial P/E ratio, which could mean that  the company is undervalued.

What does the recent Zee-Sony merger talk about??

  1. After this merger, the company will be the second largest entertainment network in India, capturing almost 33% market share, with over 75 TV channels, two video streaming services (SonyLiv and Zee5), two film studios and a digital content studio (Studio NXT).
  2. The merger will take place through issue of right shares with an option given to the existing shareholders to subscribe for 85 shares of the merged entity for every 100 shares held in Zee, at a discounted price.
  3. Sony Pictures Network India (SPN) will hold a majority stake of 50.86%, while the Essel (known as Zee group) will hold 3.99% in the company post merger, while the rest 45.16% will be held by the public. The promoters of the company will have an option to increase their stake upto 20% in the company.
  4. Sony will infuse cash of Rs. 7,948 crore in the company with Zee promoters to get Rs. 1,000 crore as non-compete fees.
  5. Punit Goenka will still act as the MD and CEO of the company whereas most of the directors will be nominated by Sony Group.

Beyond the Numbers- Procapitas Think Tank:

  1. Zee-Sony merger will make the Zee Enterprises Entertainment Ltd. the second largest entertainment network in terms of revenue.
  1. The networth of the Zee has increased by 8% majorly due to the profit from the operations i.e broadcasting and advertising revenue.
  1. The all India television viewership has decreased from 19.7% in FY-19 to 18% in FY-21. The decrease in the TV network market share can be a threat to the company, since the company was under performing in the last few years.
  1. The company is planning to increase its reach by investing in content across all the major language markets, e.g. Bengali, Tamil, Punjabi, French, Spanish, etc.
  1. Can the company get back it’s market share??

Well, the answer seems tricky. With the ongoing Zee-Sony merger, promising talks could be found for the increase in reach to the customer and also the company’s valuation to be increased by 20%. 

However, the company has been underperforming but with the advent of OTT platforms, such as Zee5, and the success of Zee Music (which accounted for 60% increase in YoY growth) it is possible to bounce from the hinges.

Also, the merged entity is poised to gain a significant foothold and attract significant ad spend from industries due to its much broader reach. At the price of Rs. 353, the stock is trading at 22.3x of FY23E earnings which seems reasonable.

It will be interesting to see how things work out for Zee & Sony India in the future.

This research is brought to you by ProCapitas in association with Jobaaj Learnings.

Disclaimer : This is for educational purposes but not an investing suggestion.

Zee Entertainment – Technical Analysis

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