Zee Entertainment - FY13 annual report highlights - JM Financial

The AR reiterates management's focus on scaling subscription revenues on the back of DAS implementation and improving shareholders return due to strong B/S. Besides, ZEEL's strategy to invest in content/channels, expand international markets, focus on cost rationalization and concentrate on additional revenue streams have garnered strong results with revenue, EBITDA, net profit growth of 22%/29%/21% YoY respectively in FY13, a year which witnessed economic slowdown. We maintain BUY with Mar'14 TP of Rs. 285, based on 28x FY15E earnings.

- Healthy revenue growth due to focus on content investment: ZEEL's strategy to scale content across genres helped it garner higher channel share and post 24% ad revenue YoY growth in FY13 vs high single digit growth in overall television ad spends. FY13 being a defining year for TV industry with DAS implementation kickoff, ZEEL managed healthy 23% YoY growth in subscription revenues and eyes strong revenue uptick from this revenue stream going forward.

- OCF grew c.14% YoY in FY13 due to strong EBITDA growth despite rise in in WC requirements: OCF grew c.14% to Rs. 5.1bn with FCF at Rs. 4.2bn (up 45% YoY) primarily due to 29% YoY growth in EBITDA on the back of strong revenue growth and margin expansion. This is despite rise in WC requirements to Rs. 2.5bn in FY13 vs Rs. 1.5bn in FY12 owing to increase in inventory mainly due to acquisition of film rights. While the age of net debtors witnessed improvement to 98 days in FY13 from 104 days in FY12, inventory days reduced marginally to 86 from 88 in FY12. The 42% YoY rise in loans & advances to Rs. 7.8bn is mainly attributable to trade advances paid for acquisition of sports rights. Going forward, with increase in operating profit through improved revenue growth and EBITDA margin we expect FCF to remain healthy with c.38% CAGR (FY13-15E) to Rs. 6.0bn/Rs. 7.7bn in FY14/15E.

- Focus on shareholders return backed by strong B/S with cash equivalents of Rs. 12.6bn in FY13: ZEEL would be utilizing its strong cash chest of Rs. 12.6bn (FY13) to scale its business through maintenance capex, invest in new content offerings (including movie acquisitions), launch niche channels and further enhance content accessibility to different distribution platforms. It has enhanced its focus on shareholders return by declaring 200% dividend in FY13 and approving bonus issue (1:21) of 8-yr redeemable preference shares of Rs. 20bn at 6% interest p.a.

Source : Equity Bulls

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