Zee Entertainment Detailed Financial Analysis - Part 2

7/18/2019 Zee Entertainment Detailed Financial Analysis - Part 2

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ZEEEntertainment Enterprises

Manindra K (0181/51)Nikhil Gupta (0235/51)

Prathyusha N(0217/51)

Harika N (0232/51)

Sireesha N R (0220/51)



Introduction

Name of the Company Zee Entertainment Enterprises

Name of the Chairman Subhash Chandra

Listed In BSE/ NSE

Financial Year end March 31

Employees 2075

Zee Entertainment Enterprises Limited is one of India's leading television media and entertainment

companies. Based in Mumbai, ZEE Ltd, the second-largest media and Entertainment Company in India, is a

subsidiary of the Essel Group. With rights to around 3500 movie titles & Housing over 120,000 hours of television

content makes ZEE Ltd one of the largest producers and aggregators of Hindi programming in the world. Its

presence is not only limited to India, it entertains over 700+ million viewers across 169 countries.

ZEE Ltd currently operates the following TV channels Zee TV, Zee Cinema, Zindagi, Zee Premier, Zee

Action, Zee Classic, &Pictures, Zee Anmol, Zee Smile, 9X, Zee Cafe, Zee Studio, Zee Jagran, Zee Salaam, Zing, ETC

Music, Zee Khana Khazana and Zee Q. The company also has a strong presence in the domain of regional language

with channels such as Zee Marathi, Zee Bangla, Zee Telugu, Zee Kannada etc.

Industry OverviewThe Indian media and entertainment industry is full of potential and has a huge imp act on India’s economy.

This industry reaches 161 million households, according to FICCI-KPMG documents. The estimated television

industry of Rs 41,720 crore (2013) is projected to increase at a CAGR of 16.2 % to reach Rs 88,500 crore by 2018.

The industry is expected to benefit from the rapidly growing young population and heavy usage of 3G and

portable devices. Broadcasting industry is to witness a paradigm shift in its business model. With the

implementation of digitization, subscription revenues will increase, while the reliance of broadcasters on

advertising will come down. Subscription revenues for the industry are likely to increase. Govt. has implemented

digitization of cable distribution to improve profitability and ease of institutional finance. It also increased FDI limit

from 49% to 74% in cable and DTH satellite services.

Today India is 3rd largest television market in the world. As of 2012 823 satellite Television channels

broadcast in India including Doordarshan, Zee ltd, Sun Network, TV18 broadcast, Sony Entertainment TV, Star TV.Company Name Turnover (crores)

Zee Entertainment Enterprises Ltd 3075.70

Sun TV Network Ltd 1817.62

TV18 Broadcast Ltd 541.55

With strong advertising growth and implementation of digitization, we expect Zee’s top-line to increase

and EBITDA margins are likely to increase resulting in increase in PAT. RoE and RoA are likely to increase. With

strong earnings growth, debt-free b/s, limited capex, improvement in return ratios will enable ZEE to invest in niche

content after digitization.

Impact of market on ZEE LtdDue to the implementation of digitization, subscription revenue growth is likely to be modest. Also ZEE ltd

breaking its JV with Star (Medipro) will now be approaching cable operators and other distribution platforms; it is

likely to have impact on collections until customer level billing improves

As advertising revenue increased, movie and music channels improved distribution. Market shares of ZEE channels

improved, leading to ZEE ltd outperforming industry. Until customer payments begin to rise, expected revenue

growth may be upto 12%. After closing Medipro, Zee is forced to launch ZEE zindagi impacting profitability



Financial Statements1) Abridged Balance Sheet

2) Abridged Income Statement

3) Cash Flow Statement & its Horizontal Analysis



Select Accounting Principles

The financial statements are prepared and presented under the going concern and historical cost

convention on accrual basis of accounting in accordance with the Generally Accepted Accounting Principles

(Indian GAAP) in India. The adopted policies are consistent with those of previous year. Some of the key

accounting practices for the firm are:

Tangible fixed assets are stated at cost, less accumulated depreciation and impairment loss if any.

Capital work in progress comprises cost of fixed assets and related expenses that are not yet ready

for their intended use at the reporting date.

The recoverable amount of assets is estimated in order to determine the extent of impairment loss.

Depreciation on tangible fixed assets is provided on straight line method, except Aircraft on which

depreciation is provided based on estimated useful life of 15 years.

Current investments are held for not more than 1 year. They are stated at lower of cost and fair

market value. Investment properties are stated at cost

Foreign currency transactions are accounted at the exchange rate prevailing on the date of such

transactions. Non-monetary foreign currency items are carried at cost.

Advertisement revenue is recognized when the related advertisement appears before the public.

Subscription revenue is recognized on time basis on the provision of television broadcasting service

to subscribers. Interest income is recognized on a time proportion basis. Dividend income is

recognized when the Company’s right to receive dividend is established.

Costs comprises acquisition /direct production cost, where the realizable value on the basis of its

estimated useful economic life is less than its carrying amount, the difference is expensed as

impairment. Film rights are amortized on a straight-line basis over the licensed period or 60 months

from the commencement of rights, whichever is shorter.

Cost is allocated to each right based on management estimate of revenue. 90% of the cost is

allocated and amortized as per theatrical and satellite rights, and 10% of the cost is allocated to

Intellectual Property Rights (IPR) and amortized over subsequent five years. For raw stock, cost is

taken on weighted average basis.

Actuarial gains and losses are charged to the Statement of Profit and Loss.

INTERPRETATION OF FINANCIAL STATEMENTS

Balance Sheet

The Shareholders’ Equity stands at Rs 2113 crores of which 96 crores are public shareholding. Zee

issued 20,169,423,120 non-convertible Bonus Preference Shares of Rs 1 each on March 6 2014 and

hence the tremendous increase in the shared capital in the FY2014. There isn’t any significant

increase in the equity share-capital of FY14 compared to FY11.

The firm’s long-term borrowings stand at Rs 2 crores in FY14 compared to Rs 119 crores in FY10,

whereas the short-term liabilities increased from Rs 21 crores in FY11 to Rs 219 crores in FY14. This

shows that firm is moving away from long term borrowings to short term liabilities.

Firm’s total assets valued at Rs 4717 crores in FY14. The Inventories, valued at Rs 1120 crores in

FY14 show an increase of 247% over FY10.

There is 50% increase in fixed assets from FY13 to FY14, and an overall increase of 132% from FY11.

The corresponding effect is shown in the decrease in C&CE from FY13 to FY14, showing the firm

has invested in fixed assets.

Income Statement

During the FY10, the firm received the refund of taxes paid in earlier years amounting to excess

provision for tax, Rs 28.4 crores. The provision was made under minimum alternate tax. This is the

reason for high profit for the same year.



Zee Entertainment has shown a growth in net revenues having grown at a CAGR of ~10% (FY11-14)

to attain a value of Rs 3076 crores in FY14.

There has been a general increase in PAT, except for the FY12. This is because of the operational

costs were high, while the Sales increased only slightly.

Cash Flow Statement

Cash Flow From Operating Activities

o

The cash flow from operating activities increased from Rs 181 crores in FY09 to Rs 443crores in FY14. This can be attributed to increase in revenue.

o The Net Cash Flow from Operating activities is decreasing from FY13 to FY14, even though

the Net Operating Profit is increasing because of the increase in interest and other

extraordinary item adjustments.

Cash Flow from Investing Activities

o There is significant increase in expenditure on investing activities in FY14 compared to

FY09, FY10, wherein the company has got cash inflow from many investment activities

o The firm is not focusing on purchase of fixed assets but are more focused on purchase and

sale of investments as can be seen from the graph above

Cash Flow from Financing Activities

o

We see that the firm is consistently paying the increasing dividend to the shareholders,leading to increase in cash outflow from financing activities

o

However, from FY13 to FY14, the company has a cash inflow of Rs 77.8 crores from issue of

shares, leading to a decrease in cash outflow from financing activities



Ratio Analysis

Financial Ratios

Type Name FY 14 FY 13 FY 12 FY 11 FY 10

Profitability

Gross Profit Margin 0.57 0.58 0.54 0.59 0.67

Operating Profit Margin 0.32 0.33 0.27 0.35 0.41

Profit Margin 0.25 0.25 0.22 0.27 0.44

Return on Assets 0.18 0.17 0.14 0.16 0.16

Return on Equity 0.70 6.70 5.06 7.86 11.43

LiquidityCurrent Ratio 4.01 4.36 5.20 4.22 2.83

Quick Ratio 2.45 2.84 3.26 2.53 2.10

Efficiency

Inventory Turnover 1.26 1.10 0.97 1.13 0.94

Asset Turnover 0.70 0.68 0.62 0.61 0.36

Receivables Turnover 4.06 3.72 3.44 4.01 2.76

Current Asset Turnover 1.09 0.95 0.82 0.96 0.73

Working Capital Turnover 1.43 1.20 1.04 1.34 1.12

No. of Inventory Days 289.57 332.76 377.09 322.21 388.55

No. of Receivable Days 89.90 98.12 106.11 91.04 132.27

Cycles Operating Cycle 379.47 430.87 483.20 413.25 520.81

Solvency RatioInterest Coverage 164.19 733.23 1468.60 249.29 35.70

Liability to Equity Ratio 0.64 6.18 6.16 9.59 15.14

Cash Flow Ratio

Cash Flow Yield 0.57 1.05 0.73 0.81 0.29

Cash Flow to Assets 0.10 0.18 0.10 0.13 0.05

Cash Flow to Net Sales 0.14 0.26 0.16 0.21 0.13



Leverage FLM 3.95 39.36 36.62 48.65 72.92

Risk to Income

Degree of Operating Risk 1.49 1.57 1.62 1.52 1.36

Degree of Financial Risk 1.01 1.00 1.00 1.00 1.03

Total Risk 1.50 1.57 1.62 1.53 1.40

Profitability –

Even though the sales have been increasing significantly from FY10 to FY14, we see that the Gross

Profit Margin has more or less remained the same, showing that the firm is not focusing on

reducing the Operational Costs. In fact, the decrease in Operating Profit Margin in FY12 is due to a

huge increase in the Operating Costs.

The decrease in ROE from FY13 to FY14 is due to the issuance of shares by the firm.

Efficiency –

There’s a decrease in both Inventory Days and Receivable Days from FY10 to FY14, resulting in

improvement in cash flow and reflecting a healthy stream of sales.

The increase in Working Capital Turnover is due to the increase in revenue, because the difference

between Current Assets and Current Liabilities remain almost the same.Solvency Ratio –

The increase in Interest Coverage from FY10 to FY12 can be attributed to the fact that the firm was

reducing its dependency on long-term borrowings (and hence interest expense reduced), whereas

the gradual decrease in Interest Coverage from FY12 to FY14 is due to the increasing dependency

on short term borrowings

Leverage –

There’s a sharp decrease in FLM from FY13 to FY14 because of the previously mentioned fact of the

firm’s issue of Shares, resulting in a huge increase in Equity.

Note – The rest of the financial ratios remain more or less the same.

Trend Analysis

Analysing the balance sheet of FY2010 to FY2014, we can see a 32% increase in the size of the

balance sheet largely due to the increase in revenues

FY14 FY13 FY12 FY11 FY10

TOTAL-EQUITY AND LIABILITIES 132 112 99 100 100

Net Revenue has grown by 240% in the last 5 years at a CAGR of 19%. The 40% increase in Revenue

from FY13 to FY14 is largely due to 21% increase in Advertisement Revenue and 11% increase in

Subscription Revenue.

FY 14 FY 13 FY 12 FY 11 FY 10

Net Revenue 240.53 200.66 172.36 169.70 100.00



The 1000% increase in Other Current Liabilities is due to the firm’s gradual shift from the long term

borrowings to short term payables.

The sharp drop in firm’s Reserves Surplus from 117% in FY13 to 67% in FY14 is because the firm paid

24.09% share of profits as Equity dividend and dividend distribution tax.



The operational cost has increased 50% (as compared to base year FY10) from FY13 to FY14

because of the higher programming costs on account of big sporting events during the year, which

can be seen across the industry.

The C&CE decreased considerably from FY13 to FY14 because of the loans given to others.

Common Size Analysis

The Reserves Surplus, that formed the major part (~80%) of Equities and Liabilities from FY10 to

FY13, has reduced to 39.33% of Total Equities and Liabilities in FY14 because of the tremendous

increase in Shareholders Capital.

FY 14 FY13 FY 12 FY 11 FY 10

Share Capital 44.80 2.38 2.72 2.74 1.37

Reserves Total 39.33 81.26 82.32 78.57 77.87

The total Current Liabilities doesn’t show any significant change as a percentage of total Equities

and Liabilities, even though the trade payables have reduced from FY10 to FY14. This is due to the

firm’s primarily taking short term credit, which is reflected in increase in Other Current Liabilities.

FY14 FY13 FY12 FY11 FY10

Trade payables 3.72 5.65 8.72 10.92 10.75

Other current liabilities 4.63 4.10 0.99 0.60 0.00

The firm is shifting its focus from non-current investments (42.96% in FY10 to 17.13% in FY14) to

other non-current assets (0% in FY10 to 13.69% in FY14).

FY 14 FY13 FY 12 FY 11 FY 10

Non - current investments 17.1299 14.96 16.818 16.307 42.964

Inventories 23.7486 23.91 28.195 30.889 12.708

There’s also a gradual decrease in Inventories from 30.89% in FY11 to 23.75% in FY14.

Assessment of Company’s Financial and Operational Performance and Position

Zee Entertainment is enjoying the first position in Entertainment/Multimedia sector with highestrevenues and PAT.

Zee Entertainment has covered almost all age groups and all major languages, as can be seen from

the various TV channels it operates.

Analysing the company’s financial statements in comparison to its competitors, we find that ZEE

has the following strengths and weaknesses –



o The firm’s fixed assets are less compared to its competitors, which leads to lower

Depreciation costs, and hence higher Operating Profit. The less fixed assets might be due

to the firm depending on temporary or rental assets (for its production programmes).

o However, the firm has huge operational costs, when compared to its main competitor SUN

TV network. This is the reason for lower Gross Profit Margin when compared to SUN TV.

Even though the Net Sales of ZEE is 150% of that of SUN TV, the net profit is just above

100% (~107%).

Profitability in relation to sales:

profitability in relation to sales we looked at the three types of margins – gross profit margin, operating profit

margin and profit margin for all three companies.Sun network has high gross profit margin than ZEE ltd and Sun

has low operating costs compared to ZEEL .Thus ZEE has slightly lesser Operating Profit Margin and Net Profit

margin compared to Sun.We can say that Sun is more efficient than Zee limited.

Liquidity:

To assess the liquidity of the three companies we will consider two ratios – current ratio and quick ratio. We observe

that ZEE limited has lower quick ratios over the years and higher current ratio compared to Sun. This might be a

concern for ZEEL. But it has strong long term growth prospects that can help offset the effects of lower liquidityratios – the company might be able to fund its short term liabilities by borrowing on favorable terms given its long

term prospects.

0

0.2

0.4

0.6

0.81

2014 2013 2012 2011 2010

Gross profit margin

zee

sun

tv18

-0.5

0

0.5

1

2014 2013 2012 2011 2010

Operating profit

margin

zee

sun

tv18

-0.5

0

0.5

2014 2013 2012 2011 2010

Profit margin

zee

sun

tv18



Profitability in relation to investments:

we used ratios – Return on Assets(RoA) and Return on Equity(RoE) to compare the profitability with respect to

investments.We see that Sun has consistently higher RoA than Zee ltd.But zee ltd higher RoE.Thus we can say that

Sun has more profitability as observed earlier.

Efficiency:

To compare the efficiency, we looked at 2 ratios – Inventory Turnover, Receivables Turnover.We see that Sun

consistently has higher Inventory and Receivables Turnover rations where as Zee ltd has low inventory ratio but its

receivable turnover are as high as that of sun (Higher receivable and inventory turnover is good).We can observe

that zee ltd has lower efficiency than Sun.

0

1

2

3

4

5

6

7

2014 2013 2012 2011 2010

Current ratio

zee

sun

tv18

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2014 2013 2012 2011 2010

Quick ratio

zee

sun

tv18

-0.2

-0.1

0

0.1

0.2

0.3

0.4

2014 2013 2012 2011 2010

ROA

Zee

sun

tv18

-5

0

5

10

15

2014 2013 2012 2011 2010

ROE

Zee

sun

tv18



Capital Expenditure

As Dividend payout for Sun is higher as Compared to Zee it wants to spur investors' interest so that

they are willing to pay out unreasonably high dividend percentages.

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INVENTORY TURNOVER

Zee Sun TV18

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RECEIVABLE

TURNOVER

Zee Sun TV18

6 1 5 . 3

3 5 7 . 7

9 1 . 5

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2 7 8 . 9 5

2 7 8 . 9 5

2 7 8 . 9 5

2 7 8 . 9 5

- 4 3 5

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6 2 4

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2 0 1 4 2 0 1 3 2 0 1 2 2 0 1 1

CAPEX

Zee Sun TV18

0 . 2 5 1 5 7 2 3 2 7

0 . 2 9 7 6 1 9 0 4 8

0 . 2 9 3 5 4 2 0 7 4

0 . 3 3 9 5 5 8 5 7 4

0 . 3 1 0 5 5 9 0 0 6

0 . 5 4 7 8 6 6 2 0 5

0 . 5 3 8 8 5 4 2 2 6

0 . 4 4 6 4 2 8 5 7 1

0 . 5 2 0 8 3 3 3 3 3

2 0 1 4 2 0 1 3 2 0 1 2 2 0 1 1 2 0 1 0

DIVIDE ND PAYOUT ZEE SUN

The Capex for Zee is higher than that of

Sun in the past two years which is

evident from the above facts as for Sundividend payout is higher which means

it does not have capital as much as Zee

has for expenditure, whereas for TV18

the Capex has been higher than Zee

and Sun in the past years except in

2014 as they have not been giving

dividends.

As Dividend payout for Sun is higher as compared

to Zee it wants to spur investors' interest so that

they are willing to pay out unreasonably high

dividend percentages.

But these dividend rates can't be sustained very

long because the company will eventually need

money for its operations and hence they mightreduce in future but a reduction in dividends paid

is looked poorly upon by investors, and the stock

price usually depreciates as investors seek other

dividend-paying stocks.

Dividend Payout



But these dividend rates can't be sustained very long because the company will eventually need money for its

operations and hence they might reduce in future but a reduction in dividends paid is looked poorly upon by

investors, and the stock price usually depreciates as investors seek other dividend-paying stocks.

Zee on the other hand has a stable dividend payout ratio which indicates a solid dividend policy by the company's

board of directors whereas that of Sun is seen fluctuating.

Note: For TV18, its earning per share was in negative and hence it has not been used for comparison with Zee

Book Value & Sales growth

Sales growth is an important indicator of a company's health and ability to sustain its business.

For Zee it is seen that the sales growth has been higher in 2011 than in the following years which implies that sales

has almost been constant in the years following 2011.

Book value gives us the measure of all company’s assets and we can see that the book value of Zee has been

increasing gradually over the past 4 years and for sun it has been constantly higher than Zee which implies Sun has

assets of higher value than Zee

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2 1 . 4 7

2 8 . 9 9

2 1 .

8 9

2 0 1 4 2 0 1 3 2 0 1 2 2 0 1 1 2 0 1 0

BOOK VALUE

zee sun TV18

0 . 1 9 8 6 8 2 7 2 3

0 . 1 6 4 2 0 1 4 5 2

0 . 0 1

5 6 6 8 2 0 3

0 .

6 9 6 9 8 2 9 6 8

0 . 1 5 3 5 8 5 4 5 8

0 . 0

3 4 2 8 4 1 8 6

- 0 . 0 8 6 4 6 8 3 3 5 0

. 3 7 8 9 9 3 6 9 9

0 . 1 5 8 3 1 6 3 1 5

0 . 2 0 5 1 7 6 4

0 . 7 4 2 2 8 8 6 8

0 . 3 4 0 8 4 5 0 7

2 0 1 4 2 0 1 3 2 0 1 2 2 0 1 1

SALES GROWTH

Zee Sun TV18

Documents

Zee Entertainment Detailed Financial Analysis - Part 2