Zee News (ZNL) – regional play

Description
Zee News (ZNL) has an attractive bouquet of 10 channels in news and regional entertainment genres.ZNL has built a successful pay model on the strength of its programming and distribution network. ZNL currently has eight pay channels. With the increasing share of DTH/CAS connections, addressability will increase. The packaging of the ZNL channels with Zee TV, the flagship channel of the Zeegroup (owns distribution businesses of WWIL and Dish TV), allows ZNL to garner higher pay revenues.

Institutional Equity
Research
Key data 13 June 2008
Sect or
Media
Market Cap
Rs12bn/US$0.2bn
52 Wk H/ L ( Rs)
92.5/38.05
Avg. dai l y vol . (6 mont h)
1,332,939

BSE Code
532794
NSE Code
ZEENEWS
Bl oomberg
ZEEN IN
Reut ers
ZEEN.BO

Sensex
15,228
Nifty
4,519
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90
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Zee News Sensex

Shareholding pattern (%)
31-Dec-07 31-Mar-08
FIIs 13.5 13.7
MFs and institutions 18.4 19.5
Promoters 54.1 54.1
Others 14.0 12.7

Absolute returns (%)
1mth 3mth 12mth
Zee News Ltd (9.7) 10.2 16.7
Sensex (9.3) (5.8) 7.8

Abneesh Roy
abneesh. roy@rel i gare. i n
+91 22 6655 0176
Zee News (ZNL) – regional play
Accumulate Current Price: Rs 50 Target price: Rs 67

We are positive on ZNL’s growth prospects because of an attractive
bouquet, improving program ratings, the upside from subscription
revenues due to increasing viewership and increasing addressability,
and improving margins. We expect a CAGR of 23% and 36% in
revenues and profits respectively over FY08-11. Valuations are now
near the lower end of its trading range. Hence our Accumulate rating.

Attractive bouquet and improving viewership to drive ad revenues
Zee News (ZNL) has an attractive bouquet of 10 channels in news and
regional entertainment genres. Both these genres are witnessing an increasing
viewership share and will grow faster than the industry rate of 20%. These
genres form 44% of the entire TV viewership and 37% of the total ad pie. Zee
Marathi and Zee Bangla have made substantial gains in viewership and have a
dominant position. The new businesses have gained good market shares - Zee
Telugu (up by 72% YoY) and Zee Kannada (up by 109% YoY). The revamped
content will reverse the recent decline in the share of Zee News, and increase
the share of ‘Zee business’ further (up by 22% in the past 2 quarters). As
viewership gains convert into higher ad rates, ZNL’s revenues will grow at a
CAGR of 23% over FY08-11.

Increasing viewership and DTH/CAS to drive subscription revenues
ZNL has built a successful pay model on the strength of its programming and
distribution network. ZNL currently has eight pay channels. With the
increasing share of DTH/CAS connections, addressability will increase. The
packaging of the ZNL channels with Zee TV, the flagship channel of the Zee
group (owns distribution businesses of WWIL and Dish TV), allows ZNL to
garner higher pay revenues.

Margins to improve over FY08-11 in spite of new launches
Its ‘new businesses’- Zee Telugu and Zee Kannada will break even in FY09. In
spite of startup losses in Zee Tamil and Zee Malayalam, we expect EBITDA
margins to improve by 520 bps over FY08-11.

Valuations offer good upside
ZNL currently trades at 20x 1-year forward earnings and on EV/EBITDA
multiple of 12.2x FY09E and 8.6x FY10E. We have valued ZNL at 19x 2-year
forward earnings which give a target price of Rs 67.

Figure 1: Financials
Year to 31 March FY06 FY07 FY08 FY09E FY10E FY11E
Net Revenues (Rs mn)
359 2,405 3,671 4,744 5,795 6,831
EBITDA (Rs mn)
41 77 704 1,002 1,372 1,665
PAT adj (Rs mn.)
14 75 395 582 812 995
EPS adj (Rs.)
0.03 0.2 1.6 2.4 3.4 4.2
EPS diluted (Rs.)
0.03 0.2 1.6 2.4 3.4 4.2
EPS growth (%)
583.5 625.6 47.2 39.6 22.5
P/E (x)
1,504.57 220.1 30.3 20.6 14.8 12.0
Div. yield (%)
- - - - - -
RoE (%)
0.8 4.1 19.3 22.9 25.1 24.1
Price/BV (x)
11.4 8.9 5.3 4.2 3.3 2.6
EV/EBITDA (x)
524.3 154.1 16.5 11.7 8.2 6.3
EV/Sales (x)
59.4 4.9 3.2 2.5 1.9 1.5
Source: Company, Religare Institutional Equity Research

Initiating coverage

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

Contents

Attractive bouquet and improving viewership will drive ad revenues ...........................3
Increasing viewership and DTH/CAS will drive subscription revenues ........................ 13
Margins to improve over FY08-11 in spite of new launches ..................................... 17
Strong financials-low debt, high free cash flows ..................................................... 18
Valuations and Recommendation ......................................................................... 19
Triggers ........................................................................................................... 22
Risks to our call ................................................................................................ 23
Annexure 1 – SWOT Analysis of ZNL..................................................................... 24
Annexure 2 – Five Forces Analysis - ZNL............................................................... 25
Annexure 3 – Company Background..................................................................... 26
Annexure 4 – Media industry continues to be buoyant............................................. 27
Annexure 5 – Alternate distribution platforms ........................................................ 28
Stock performance ............................................................................................ 29
12 month forward rolling band charts ................................................................... 30
Financials ......................................................................................................... 31
Technical View .................................................................................................. 32

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

Attractive bouquet and improving
viewership to drive ad revenues

Zee News (ZNL) has an attractive bouquet of 10 channels in news and
regional entertainment genres. Both these genres are witnessing an
increasing viewership share and will grow faster than the industry
rate of 20%. These genres form 44% of the entire TV viewership and
37% of the total ad pie. Zee Marathi and Zee Bangla have made
substantial gains in viewership and have a dominant position in their
respective markets. The new businesses have gained good market
shares - Zee Telugu (up by 72% YoY) and Zee Kannada (up by 109%
YoY). The revamped content will reverse the recent decline in the
share of Zee News, and increase the share of ‘Zee business’ further
(up by 22% in the past 2 quarters). As viewership gains convert into
higher ad rates, ZNL’s revenues will grow at a CAGR of 23% over
FY08-11.

Ad revenues for ZNL will grow at a 23.6% CAGR during FY08-11. The increase
in ad revenues will be due to the following reasons:

Figure 2: Revenues to grow at 23% CAGR during FY08-11
Revenues (Rs mn) FY07 FY08 FY09E FY10E FY11E 3 year CAGR FY08-11
Ad revenues 1706 2837 3688 4537 5353 23.6
% Change YoY 66 30 23 18
Source: Religare Institutional Equity Research

Figure 3: Ad revenues have grown consistently – Standalone basis
FY07 FY08
(Rs mn) 4Q 1Q 2Q 3Q 4Q
Ad 467 592 608 777 860
% Change QoQ 27 3 28 11
Source: Religare Institutional Equity Research

Attractive bouquet – Growing share of News & Regional channels
The two business segments that ZNL operates in – news and regional
entertainment – are among the fastest growing segments in the TV
broadcasting business. News and regional channels account for the largest
share of viewership (44%) and second largest share of revenues (37%). News
and regional channels are seeing a rising viewership share. Both news and
regional channels are growing faster than the GEC space. ZNL is an important
player in the news space (Hindi news genre) and few of the regional markets
(Marathi, Bangla, Kannada, Telugu, Gujarati and Punjabi). Zee News is a
leading regional and news network with four news and six regional channels.
The regional news fulfills the need of local culture, public awareness and social
causes due to India’s diversity. For the south market which is currently
dominated by SUN TV, ZNL has the Zee Kannada and Zee Telugu channels.
Zee News was India’s first Hindi news channel and the first pay channel in its
genre.

News and regional
entertainment are among
the fastest growing
segments in the TV
broadcasting business

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

Figure 4: Rising share of news and regional in TV viewership and ad revenues
(%) CY01 CY 02 CY 03 CY 04 CY 05

Share of
viewership
Share of
revenues
Share of
viewership
Share of
revenues
Share of
viewership
Share of
revenues
Share of
viewership
Share of
revenues
Share of
viewership
Share of
revenues
Mass
entertainment
54 59 46 57 36 47 40 52 39 42
Regional
language
35 15 39 17 40 18 37 20 37 25
News
channels
1 10 2 11 3 10 5 10 7 12
Hindi film
channels
3 5 4 5 4 5 8 4 8 6
English
entertainment
2 4 2 4 2 4 2 4 2 4
Sports 2 3 4 3 10 13 4 6 5 7
Infotainments/
kids
2 2 2 2 3 2 3 2 2 3
Music
channels
1 2 1 1 2 1 1 2 1 2
Total 100 100 100 100 100 100 100 100 100 100
Source: TAM Adex, Religare Institutional Equity Research

Figure 5: Attractive bouquet
Channel Launch Date Competition Position Market Share %

Regional Channels
Zee Marathi Aug-99 ETV Marathi, Mi Marathi, DD Marathi 1 53.5
Zee Gujarati Mar-00 ETV Gujarati, DD Gujarati 2 28.6
Zee Punjabi Oct-99 ETC(Group Company),MH1,DD Punjabi 3 13.4
Zee Bangla Sep-99 ETV Bangla, Aakash Bangla, DD7 Bangla 1 47.9
Zee Telugu May-05 Gemini TV,Eenadu TV,Maa Telugu,Teja TV, DD8 Telugu,TV9 Telugu 5 11.4
Zee Kannada June-06 Udaya TV, ETV Kannada, Udaya Varthegalu,U2, DD Chandana 3 10.9

Regional News Channels
24 Ghanta April-06 Star Ananda,Tara Newz,Kolkata TV 2 37.6
24 Taas Feb-07 Star Majha 2 35.7

News Channels
Zee News 1995 Aaj Tak, NDTV India, IBN 7, India TV, Live India, Samay, DD News 4 10.1
Zee Business 2004 CNBC TV18, Awaaz, NDTV Profit 4 16.2
Source: Company, Religare Institutional Equity Research

Increasing share of news channels – viewership
The viewership of news channels has increased over the last few years
because of increasing penetration and reach. News based channels have
increased the viewership rate from 3% in FY04 to 7% in FY07. The key
reasons for increasing viewership and revenues of news channels are:

• Focus on sensationalism
News channels carry a lot of sensational news which manages to catch the
fantasy of the viewers. News channels focus on sensational news like
‘Aarushi murder case’, floods in Mumbai, petrol price hikes etc.
• Positioned on Infotainment
News channels are clubbing news content with entertainment like comedy,
reality shows, sports events, astrology, Yoga etc. This has led to an
increase in the viewership of news genre based channels at the expense of
GECs and sports channels.

The viewership of news
channels has increased
because of increasing
penetration and reach

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

• Cheaper ad rates
The cost of airtime in news genre is least across all genres of TV. Ten
seconds airtime on a GEC costs around Rs 0.2 - 0.3 mn (peak time) while
ad rates on news channel are Rs 5000- 9000 for a 10 sec slot. Hence, the
growing viewership and lower ad rates makes news channels attractive to
the advertisers.
• City based news channels
Although currently only a few channels exist in this genre, their share will
increase sharply as they give local content.
• Attractive format of presentation
News channels are focusing on attractive delivery of content. Several
factors such as animations, graphics, extensive newsgathering networks,
effective editing and production systems are facilitating the rapid and
interesting dissemination of news content to viewers. News broadcasters
are also focusing on the on-air look of news channels.
• Increased Economic Awareness
India’s increasing importance in the global business and political arena,
improving literacy rates and economic conditions have resulted in an
increase in the need for news and information across audience segments.

Figure 6: Increasing share of news channels
Year Market share %
FY04 3.0
FY05 4.4
FY06 5.0
FY07 5.8
FY08 7.0
Source: TAM Adex, Religare Institutional Equity Research

Figure 7: Increasing viewership of news channels
News Genre Viewership (mn)
Year Number of viewers
FY02 18
FY03 27
FY04 30
FY05 48
FY06 50
FY07 54
FY08 86
Source: TAM Adex, Religare Institutional Equity Research

Figure 8: Growing number of news channels
Year - Number of Channels Hindi English Business
FY03 2 3 1
FY05 6 4 4
FY07 9 6 4
Source: Industry, Religare Institutional Equity Research

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

Increasing viewership to drive ad revenues

Most of the channels of ZNL have improved their viewership and will thus now
have a bigger market share.

Dominant share in Marathi and Bangla GEC
Zee Marathi and Zee Bangla have made tremendous gains in viewership to
achieve a dominant position in their respective markets.

Zee Marathi
Marathi TV market has an estimated ad market size of Rs 2 bn. ZNL launched
its first regional channel, Zee Marathi, in August 1999. Zee Marathi is the only
pay channel in Marathi. Marathi is the fourth most spoken language in India.
Zee Marathi has become the number one channel in Maharashtra due to its
strong programming and marketing and has displaced its closest competitor
ETV Marathi. Zee Marathi is the premium Marathi channel in Maharashtra with
its different genre of programs like daily soaps, game shows, talk shows,
cookery, travel shows, news, films, etc. It has many significant initiatives to its
credit like Zee Gaurav Awards and the Zee Marathi Awards.

Figure 9: Dominant position
Zee Marathi % viewership share of total market
Channel Zee Marathi ETV Marathi DD Marathi Mi Marathi
Q3 FY'07 46.9 43.1 10 0
Q4 FY'07 45.9 42.2 10.1 1.8
Q1 FY'08 47.8 31.6 11.8 8.8
Q2 FY'08 45.1 33.9 13.6 7.4
Q3 FY'08 50.7 30.8 11.5 7
Q4 FY'08 53.5 27 10.9 8.5
Source: TAM Adex, Religare Institutional Equity Research

Zee Bangla
Bengali TV market has an estimated ad market size of Rs 2.5 bn. Zee Bangla,
Zee's second regional channel, was launched in September 1999. It showcases
popular daily soaps, focused news and movies. Zee Bangla enjoys maximum
recall amongst the Bengali community in West Bengal and other regions.
Positioned as the leading GEC, it delivers popular programs across genres like
soaps, game shows, reality shows, talent hunts and stand-up comedies. It
enjoys an unparalleled market share during prime time.

Figure 10: Dominant position
Zee Bangla % viewership share of total market
Channel Zee Bangla ETV Bangla Aakaash Bangla DD7 Bangla
Q3 FY'07 28.3 53 12.4 6.3
Q4 FY'07 36.8 42.2 14.5 6.5
Q1 FY'08 37.6 42.6 13.2 6.7
Q2 FY'08 36.5 42.2 14.4 6.9
Q3 FY'08 42.4 38.5 12.9 6.1
Q4 FY'08 47.9 35.9 11.5 4.7
Source: TAM Adex, Religare Institutional Equity Research

Increasing share in Telugu and Kannada GECs
ZNL’s share is increasing in Telugu and Kannada GECs.

Zee Kannada
The Kannada language has a 40% share in the viewership in the state of
Karnataka. Kannada TV market has an estimated ad market size of Rs 2.6 bn.
The subscription market is estimated at Rs 750 mn. The Kannada ad market
rose by 30% in FY08. Zee Kannada is a 24-hour Kannada television channel
Zee Marathi and Zee Bangla
have a dominant position in
their respective markets

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

with a mix of fiction and non fiction programmes. Zee Kannada, with a market
share of 10.9%, faces a big challenge in catching up to the leader, Sun
Network’s Udaya channel, which has a 51.2% market share. However, Zee
Kannada has created a record of sorts with an overall viewership increase of
103% YoY in Q4FY08. The channel has captured the moods, sentiments and
aspirations of Kannadigas with high quality programming and production. Now
at the number 3 slot, Zee Kannada is fighting for the second slot. The older
players have been hit. Zee Kannada has been growing much faster and we
expect this to continue.

Figure 11: Sharp gain in share in the past 2 quarters
Zee Kannada % viewership share of total market
Channel Zee Kannada DD9 Chandana ETV Kannada U2 Udaya TV Udaya Varthegalu
Q4 FY'07 5.2 2.9 27.6 10.4 52.4 1.5
Q1 FY'08 6.4 3.4 26 10.6 52.3 1.3
Q2 FY'08 5.9 3.2 25.7 10.9 53.2 1.1
Q3 FY'08 6 2.8 23.5 9.6 56.9 1.2
Q4 FY'08 10.9 3.3 23.4 10.4 51.2 0.8
Source: TAM Adex, Religare Institutional Equity Research

Revamped content
For Zee Kannada, reality shows, talent hunts, and comedy for weekends has
worked well. It has now launched a fantasy serial Jim Jim Jimba which is
picking up ratings. The channel has also started a sitcom, a musical talent
program, and a late night standup show. As a part of its second anniversary
bouquet of offerings, it had a show shot in Dubai – Kannada Kaustuba (the
essence/richness of Kannada) which was telecast on anniversary day (11
th

May). The show had performances by Kannada actors Darshan, Raghavendra
Rajkumar, Diganth, Anu Prabhakar, Neetu and many others. Shooting a show
abroad on a large scale with a lot of stars is a first for any Kannada channel.
No other local channel has so far had the kind of settings and stage that ZNL
had for Kannada Kaustaba. The scene was quite different at the end of CY07.
At the end of CY07, Zee Kannada had to battle with sagging viewership even
as last year's newcomers Asianet Suvarana and Kasturi edged ahead. Zee
Kannada was not able to get its programming right till then. The Kannada
version of Sa Re Ga Ma Pa's 'Little Champs' has turned the tables for the
channel. The channel has started to build on its weekend strengths and is
trying to emulate that success during the weekdays also. It has increased the
number of daily news slots from one to three. Its primetime starts at 7 pm
with news being read by the national film award winner and Kannada female
actor Tara. Tara won the best actress award for her lead role in the film
Hasina. In FY08, it purchased rights for 27 films, one of them being a super hit
– 'Jogi'. Zee Kannada ratings started ascending around the time it telecast
Jogi. This year it has acquired rights to a successful movie ‘Accident’, among
others. Ninety eight Kannada movies were released last year.

Strong growth in viewership
Zee Kannada has averaged around 180 GRPs after the launch of the Kannada
version of Sa Re Ga Ma Pa's 'Little Champs', It once even edged ahead of ETV-
Kannada, the current number two in the Kannada GEC space (week 15, Zee
Kannada had GRP of 347 to ETV Kannada's 317). An analysis of Tam data
shows that Udaya TV started the year with first 4 week GRP average of 723.5
(highest 745 in week 1 of 2008). Its average GRP was 638.6 over next 15
weeks (weeks 5-19), with a lowest figure to date this year of 566 for week 17.
Similarly, ETV Kannada with an average GRP of 343.75 during the first four
weeks of 2008 (highest week 2 with 371), has seen a dip during the next 15
weeks to average a shade over 292 during the next 15 weeks (week 5-19).
For Zee Kannada, reality
shows, talent hunts, and
comedy for weekends has
worked well

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

IPL (week 16) saw its GRP dipping to 247, the lowest to date this year. In the
case of Zee Kannada, the average GRP for the first four weeks stood at 104.5.
The average for next 15 weeks stood at 184.6. Kasturi, on the other hand,
had an average GRP of 135.5 during the first four weeks of 2008 and an
average of 121.26 over the next 15 weeks. Suvarana had an average GRP of
115.5 during the weeks 1 to 4 and an average of 95 over the next 15 weeks.

Tie up with big advertisers
Zee Kannada has bagged ITC as the title sponsor for Li'l Champs while Tata
Indicom is the title sponsor for its popular dance show Kuniyonu Baara (Come
let's dance). Another game show Bangara Baale (Gold Rush) has Kala Mandir
Sarees as the title sponsor. Kannada Kaustaba show had Jyothy Laboratories’
'Silk and Shine' brand as the lead sponsor.

Zee Telugu
Telugu TV market has an estimated ad market size of Rs 4.7 bn. Zee Telugu,
with its current market share of 11.4% faces the dominance of Sun Network’s
Gemini channels, Gemini TV and Teja TV, which have a combined market
share of 47.8%.

Figure 12: Sharp gain in share in the past 3 quarters
Zee Telugu % viewership share of total market
Channel Zee Telugu Eenadu TV Gemini TV Maa Telugu
TV9 Telugu
News
Teja TV DD8 Telugu
Q4 FY'07 6.6 17.6 37.6 11.7 4.7 20.2 1.6
Q1 FY'08 5.6 18.7 37.2 11.7 5.1 20.3 1.4
Q2 FY'08 7.1 17.6 35.6 13.7 6.5 17.7 1.9
Q3 FY'08 8.6 18.2 32.5 14.9 6.2 18.1 1.5
Q4 FY'08 11.4 18.4 30.3 15.1 6 17.5 1.4
Source: TAM Adex, Religare Institutional Equity Research

Zee Gujarati – Number two player in a small market
Gujarati TV market has an estimated ad market size of Rs 300 mn. Zee
Gujarati was launched in March 2000. It is positioned as a family
entertainment channel showcasing contemporary programming including
current affairs/news and festival centric events. It has been steadily increasing
its audience share. It is positioned as a wholesome entertainment channel for
Gujaratis in 22 nations across the globe. Zee Gujarati provides a platform for
culture preservation and promotion. It provides a forum for local talent in
literature, art, music, dance, theatre and handicrafts.

Figure 13: Stagnant share in a small market
Zee Gujarati % viewership share of total market
Channel Zee Gujarati ETV Gujarati DD Gujarati
Q3 FY'07 26.6 56.8 16.6
Q4 FY'07 26.4 57.6 16
Q1 FY'08 32.7 50.8 16.5
Q2 FY'08 28.6 51.9 19.5
Q3 FY'08 26.6 53.2 20.3
Q4 FY'08 28.6 50.5 20.9
Source: TAM Adex, Religare Institutional Equity Research

Zee Kannada has bagged
big advertisers like ITC,
Tata Indicom, Kala Mandir
and Jyothy Laboratories for
its realty shows .

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

Zee Punjabi – share has gone down to a group channel
Punjabi TV market has an estimated ad market size of Rs 650 mn. Zee Punjabi
was launched in October 1999. It provides a full range of quality Punjabi
language programming including news, current affairs, comedies, interactive
shows and live performances. It operates in a market size of Rs 600 mn and is
the only pay channel in the segment at a number two position after ETC
Punjabi, another Zee group channel. It is the only Punjabi channel available
throughout the country.

Figure 14: Decline in share, dominated by a group company
Zee Punjabi % viewership share of total market
Channel Zee Punjabi ETC Punjabi MH1 DD Punjabi
Q4 FY'07 15.4 41.8 32.6 10.2
Q1 FY'08 13.8 54.2 20.8 11.2
Q2 FY'08 14.4 56.5 18.1 11
Q3 FY'08 13.6 58 15.8 12.5
Q4 FY'08 13.4 56.7 16.1 13.8
Source: TAM Adex, Religare Institutional Equity Research

Zee Business
Launched in 2004, Zee Business is the first Hindi business news channel in
India. It features business news and information as well as real life game
shows on business. Zee Business is trying to redefine business news
viewership in India by its aggressive programming. Its weekend programming
has been the first ever in any business channel. It has emerged as the “Best
Business Channel” at the Consumer World Awards for the past two years. We
expect the revamped content to increase the share of ‘Zee business’ further
(up by 22% in the past 2 quarters).

Figure 15: Revamped content, we expect its share to improve further
Zee Business % viewership share of total market
Channel Zee Business CNBC Awaaz NDTV Profit CNBC TV18
Q3 FY'07 14.5 33.3 24.6 27.6
Q4 FY'07 15.9 33.3 20.6 30.2
Q1 FY'08 15.8 33.3 22.8 28.1
Q2 FY'08 13.2 29.4 26.5 30.9
Q3 FY'08 15.1 30.1 19.2 35.6
Q4 FY'08 16.2 35.1 14.9 33.8
Source: TAM Adex, Religare Institutional Equity Research

24 Taas
Zee 24 Taas is the first 24-hour Marathi news channel with a special thrust on
local and regional news. Its approach is defined as “local news, national
outlook and international look.” It tries to offer news and insight into every
aspect of life from police to politics and entertainment to economy.

Figure 16: Lost share to Star Majha
% viewership share of total market Zee 24 Taas Star Majha
Q2 FY'08 49.5 50.5
Q3 FY'08 45.3 54.7
Q4 FY'08 35.7 64.3
Source: TAM Adex, Religare Institutional Equity Research
We expect the revamped
content to increase the
share of ‘Zee business’
further (up by 22% in the
past 2 quarters)
Zee 24 Taas is the first 24-
hour Marathi news channel
with a special thrust on
local and regional news

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

24 Ghanta
24 Ghanta is the first regional news channel from the Zee stable. The channel
has performed remarkably well in its segment, having garnered a 37.6%
audience share within a short time. A 24-hour Bengali news Channel, 24
Ghanta showcases rich content of solid, accurate and authentic information on
politics, education, sports, business and Bengal’s multifaceted cultural life. The
emphasis is on accuracy, authenticity, speed, innovation, bold exposes,
incisive analysis and above all, the ability to react to major issues and events
at the right moment.

Figure 17: Close number two player to Star Ananda
24 Ghanta % viewership share of total market
Channel 24 Ghanta TV Star Ananda Tara Newz Kolkata TV
Q3 FY'07 32.3 43.6 8.7 15.4
Q4 FY'07 32 35.8 10.7 21.5
Q1 FY'08 32.1 37.3 10.3 20.4
Q2 FY'08 41.4 36.3 10.4 11.9
Q3 FY'08 34.5 42.3 11.9 11.3
Q4 FY'08 37.6 43.4 10 9
Source: TAM Adex, Religare Institutional Equity Research

Zee News- the flagship channel – on a comeback mode
Hindi news segment is currently extremely competitive and has little
differentiation among the players. The flagship Hindi news channel is the
number four player (after Aaj Tak, Star News and India TV). It was launched
in 1995 and was the first private news channel of South Asia and also the first
24-hour Hindi news channel.

Figure 18: Relaunch expected to reverse the declining share
Zee News % viewership share of total market
Channel Zee News Aaj Tak Star News NDTV India India TV IBN 7 Others
Q3 FY'07 13.7 20.3 18.6 13.7 9.3 7.8 16.6
Q4 FY'07 13.4 22.8 16.7 12.3 9.9 10.1 14.8
Q1 FY'08 12.3 20.1 17.1 9.7 14.5 11.7 14.6
Q2 FY'08 9.8 21 19 8.5 15.5 10.8 15.3
Q3 FY'08 10.4 19.7 19.8 7.9 15.2 9.5 17.5
Q4 FY'08 10.1 19.2 17.9 7.4 15.3 8.3 21.7
Source: TAM Adex, Religare Institutional Equity Research

New positioning of Zee News – will aim to improve market share
Zee News has changed its positioning recently. We expect this to improve its
market share. From the earlier tagline of ‘Haqeeqat Jaisi Khabar Vaisi’, the
channel has now progressed to a more contemplative mode with ‘Zara
Sochiye’. The channel has gone for a new look and feel from May 8
th
, 2008. It
will support this with an aggressive marketing budget of Rs 150 mn (a large
part of this is through barter).

Top management change to bring new idea and more focus
ZNL has made several senior appointments. Barun Das, EVP of Media Content
and Communications Services (MCCS), is now the CEO of Zee News. MCCS
runs Star News and Star Ananda news channels. Prior to MCCS, he was with
ASTRO All Asia Network based in Kuala Lumpur, Malaysia, where he was Head
of International Business Development. At ASTRO he played a key role in the
formation of the JV between ASTRO and NDTV to start news channels in
Malaysia and Indonesia. He was also instrumental in forming a strategic tie-up
with UTV to set up kids’ channels in Malaysia and Indonesia besides being a
key member of the team involved in bidding for the second phase of FM radio
licensing for Sun and ASTRO. ZNL has brought in Punya Prasun Bajpai (ex- Aaj
Tak and Sahara) as Consulting Editor. Bajpai, a well-known political and news
Zee News has changed its
positioning recently. We
expect this to improve its
market share

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Zee News – Initiating coverage – 13 June 2008

anchor, has been specially inducted to add punch to the new direction that
Zee News has taken following its relaunch. He will also be the face of Zee
News for the election coverage.

Content has been revamped with new programs and anchors
Its weekly news shows ‘Inside Story’ (an investigative program), ‘Metro News’
(daily prime time program) and ‘Special Correspondent’ (a hardcore program
on field reporting) are back on the channel. Zee News has added four new
programs – a reporter based weekly show; ‘Halla Bol’ (a soft investigative
program on public issues), ‘Kahiye Janab’ (a talk show featuring VIPs hosted
by Swati Chaturvedi). Bajpai will do a hard talk show, while a daily religious
news and spiritual wellness programme, ‘Manthan’, has also been introduced.
A number of daily shows on the channel have been rebranded in line with the
new channel positioning. The daily Bollywood show, ‘Bole to Bollywood’, has
been renamed ‘Zee Multiplex’ to give it a modern touch. The show ‘Miyan Biwi
aur TV’ is now called ‘House Arrest - Serial ki Giraft Mein’. Astrology show
‘Bachke Rehna’ has a new face in the form of Tarot card reader Ruchira along
with astrologer Sandeep Kochar.

Deal with BBC
Zee News has inked a deal with BBC Worldwide. BBC Worldwide will market,
license and distribute Zee News' archives worldwide on BBC Motion Gallery
website. As per the deal, BBC will source news and current affairs content only
from Zee News in India for its Motion Gallery website. It is the only news and
current affairs media company in India from whom BBC will source content.
Zee News will join the league of some of world's leading broadcasters like
BBC, CBS News, NHK Japan, CCTV China and ABC Australia in providing
content to BBC Motion Gallery.

New channels planned in Tamil Nadu & Chhattisgarh (FY09) and
Kerala (FY10)
ZNL will launch its Tamil GEC ‘Zee Tamil’ shortly. The launch of Zee Tamil will
be followed by a 24-hour Tamil news channel. It has appointed V
Chandrasekhar Barathi as Business Head of Zee Tamil. Zee Tamil has acquired
the rights of many Tamil films released after Feb, 2008. Besides films, the
channel will have a heavy dose of live and interactive shows and a basket of
seven fictions from day one. Besides roping in some of the prominent
production houses such as K Balachander’s Kavithalaya Productions and
Pyramid Saimira for soaps, the channel also plans to have a high decibel
marketing blitzkrieg in the run-up to the launch with a marketing budget of Rs
50 mn. ZNL will launch a channel, ‘Zee 24 Ghante Chhattisgarh’ through the
franchisee model. ZNL will provide operational and strategic advice on a Build,
Operate and Transfer basis to entrepreneurs desirous of launching news
channels in markets which do not figure in Zee's immediate expansion plans.
This will allow ZNL to grow its presence and revenues. ZNL also plans to foray
into the Kerala market with a Malayalam GEC in FY10.

Ad rate hikes due to a further improvement in audience ratings
The various channels of ZNL have consistently improved its ratings. We expect
TV ad revenues to grow by 15-17% annually for the next three years. The key
positive triggers for further ad rate hikes are given below:

• Growth in satellite TV audiences: As per NRS 2006, the average
weekly viewership of satellite TV across the country grew from 207mn
individuals in 2005 to 230mn individuals in 2006, a growth of 11%. The
number of cable and satellite (C&S) homes showed an increase of 12%
from 61mn to 68mn in 2006.
The content of Zee News
has been revamped with
new programs and anchors
Zee News will join the
league of some of world's
leading broadcasters in
providing content to BBC
Motion Gallery
ZNL will launch its Tamil
GEC ‘Zee Tamil’ shortly. It
has acquired the rights of
many Tamil films released
after Feb, 2008

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Zee News – Initiating coverage – 13 June 2008

• Credible viewership data is now available for 77 more towns:
Television Audience Measurement (TAM) has expanded its panel from
4,800 people meters to 7,000 because of which credible viewership data is
now available for 77 more towns.
• Increasing penetration of News channels and regional GEC:
Advertisers consider penetration of each genre before selecting preferred
genre for their products. Over the years, News channels and regional GEC
have increased their penetration.

Focus on Program Ratings and Competition
ZNL keeps a close watch on the TAM ratings of its competitors in every time
band for all its categories.

More accountability of the programming team
The key result areas (KRAs) of most programming people are now linked to
rating points (TRPs). This ensures higher accountability and involvement of
the programming team in content.

Focus on content
ZNL gives high focus to revamping its content through continuous infusion of
freshness in order to attract and retain flitting attention. Its recent launches
have reflected this and have done well. The key strategy of ZNL, on the
content side, is as given below:

• Slot leadership model: In a ‘Slot leadership’ model, ZNL’s strategy is to
improve the ratings of its half an hour slots.
• Leverage successful programs to create a buzz for new programs:
This is done through the advertising of new programs during successful
programs.
• Leverage on movies: Leverage the national obsession with films to
create programs / reality shows that revolve around celebrities, song and
dance.

Package selling
ZNL has started focusing on different permutations and combinations of
channels. ZNL offers package deals to bigger clients like HLL, Pepsi, Coke,
Nestle, and L’Oreal. ZNL can replace a lot of other networks because it has a
range of channel genres to offer such as news, regional GEC, music, cinema,
regional, etc.

Employee Morale
There is now a lot of positive energy and every success is celebrated. For
example, if Zee Marathi wins an award, a mail is sent out to everybody from
the Chairman. The result is a culture that encourages people to think and
voice ideas, and systems that ensure that these ideas are converted into
business opportunities.

ZNL gives high focus to
revamping its content
through continuous infusion
of freshness. Its recent
launches have done well

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Zee News – Initiating coverage – 13 June 2008

Increasing viewership and DTH/ CAS
to drive subscription revenues

ZNL has built a successful pay model on the strength of its
programming and distribution network. ZNL currently has eight pay
channels. With the increasing share of DTH/CAS connections,
addressability will increase. The packaging of the ZNL channels with
Zee TV, the flagship channel of the Zee group (owns distribution
businesses of WWIL and Dish TV), allows ZNL to garner higher pay
revenues.

ZNL’s subscription revenues will grow at a CAGR of 21.9% over FY08-11.

Figure 19: High growth in Subscription Revenues
ZNL - Revenues (Rs mn) FY07 FY08 FY09E FY10E FY11E CAGR FY08-11
Subscription revenues 585 667 854 1025 1209 21.9
% Change YoY 14 28 20 18
Source: Company, Religare Institutional Equity Research

Successful pay model and viewership ratings will be a key driver
ZNL’s channels have improved their viewership ratings. This will drive
subscription revenues as 8 of the channels are paid (24 Ghanta and 24 Taas
are not paid). This will be the key driver for the subscription revenues.

Figure 20: Successful pay model
Channel Launch Date Pay/FTA

News Channels
Zee News 1995 Pay
Zee Business 2004 Pay

Regional Channels
Zee Marathi Aug-99 Pay
Zee Gujarati Mar-00 Pay
Zee Punjabi Oct-99 Pay
Zee Bangla Sep-99 Pay
Zee Telugu May-05 Pay
Zee Kannada June-06 Pay

Regional News Channels
24 Ghanta April-06 Free to air
24 Taas February-07 Free to air
Source: Company, Religare Institutional Equity Research

Increasing share of DTH/ CAS connections
ZNL’s subscription revenues will grow due to the increase in the number of
subscribers and greater addressability because of the conversion from analog
cable to digital cable/ DTH. With more subscribers opting for digital services
from across India, subscription revenues will get a big boost in the coming
years. DTH players are expected to add 5-7 mn households (HH) per year
(once new players like SUN, Bharti, ADAG and Videocon (yet to get a license)
enter). A strong broadcaster like ZNL will be in great demand and will stand to
gain, irrespective of the distribution player.

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Zee News – Initiating coverage – 13 June 2008

Figure 21: Growth in DTH
Mn CY04 CY05 CY06 CY07 CY08E CY09E CY10E CY11E CY12E CAGR 2008-12
TV households 102 109 112 115 119 123 128 130 132
% change YoY 7 3 3 3 3 4 2 2
2.8
Pay TV households 50 62 70 74 79 85 91 103 115
% change YoY 24 13 6 7 8 7 13 12
9.2
Cable TV households 50 61 68 70 71 73 76 83 90
% change YoY 22 11 3 1 3 4 9 8
5.2
DTH households 0.1 1 2 3.5 8 12 15 20 25
% change YoY 900 100 75 129 50 25 33 25
48.2
Source: FICCI – PwC Report, Religare Institutional Equity Research

The current structure of the cable industry results in a high ‘leakage’ of
revenues as cable operators under-declare their subscriber bases to
broadcasters of pay-TV channels. The under-declaration results in a very small
share of subscription revenues for broadcasters, with the lion’s share being
retained by local cable operators (who provide the cable connection to
subscribers and receive monthly payments from subscribers) and multi-
system operators (MSOs), who download encrypted signals of pay-TV channels
and retail it to the local cable operators. Currently, the Indian broadcasters
receive approximately 18% of the total subscription revenues, while in
developed markets such as the U.S., broadcasters get close to 40%.

Figure 22: % distribution of subscription revenues
Operator Broadcaster
US 60 40
UK 63 37
Australia 65 35
Japan 65 35
India 82 18
Source: Media Partner Asia, Religare Institutional Equity Research

This indicates the huge potential for subscription revenues that can accrue to
Indian broadcasters with greater addressability. The incentive for consumers
to migrate to digital platforms is the inferior quality and poor service levels
currently offered. Analogue channels can carry only up to 70 channels. This
means that cable operators are constantly switching channel lineups
depending on which networks pay them for carriage. The digital platform can
carry up to 400 channels - this offers consumers a greater degree of certainty
and wider choice.

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Zee News – Initiating coverage – 13 June 2008

High potential for ARPUs to rise
The average revenue per subscriber (ARPU) will also rise as the current ARPUs
in India are among the lowest in the world.

Figure 23: Average revenue per cable subscriber
US$/month
USA 54
Canada 54
UK 35
Japan 28
Hong Kong 23
Thailand 21
Singapore 21
Australia 18
New Zealand 16
Malaysia 13
Indonesia 9
Korea 7
Taiwan 6
Philippines 5
India 4
Source: CRIS INFAC, Religare Institutional Equity Research

Increase in Cable Penetration
India had approximately 70mn cable and satellite households in CY07 as
compared to approximately 0.4mn households in 1992. According to the latest
FICCI PwC Report, the number of TV owning households is expected to rise to
132 mn by CY12E at a CAGR of 2.8%. The growth will come largely from the
rural areas, with the spread of electricity and higher incomes. Currently, TV
penetration in rural areas is only 19%. The TV households, as a percentage of
total households, will rise from 59% in CY07E to 62% by CY12E. The number
of cable TV households is expected to rise to 90 mn, at a CAGR of 5.2% over
CY07-12. The cable TV households, as a percentage of TV households, will rise
from 61% to 68%. The number of DTH households is expected to rise to 25
mn, at a CAGR of 48.2% over CY07-12. The DTH households, as a % of TV
households, will rise from 3% to 19%.

Figure 24: % Penetration of Television, C&S Households
% Penetration CY04 CY05 CY06 CY07 CY08E CY09E CY10E CY11E CY12E CAGR 2008-12
TV households 57 59 59 59 60 60 61 61 62
% change YoY 4 0 0 2 0 2 0 2
1
Pay TV households 49 57 63 64 66 69 71 79 87
% change YoY 16 10 2 3 5 3 11 10
6
Cable TV households 49 56 61 61 60 59 59 64 68
% change YoY 14 8 0 -2 -2 0 8 7
2
DTH households 0 1 2 3 7 10 12 15 19
% change YoY 836 95 70 121 45 20 31 23
44
Source: FICCI – PwC Report, Religare Institutional Equity Research
The number of C&S
households is expected to
rise to 115 mn, at a CAGR of
9.2% over CY07-12.
Over the next few years,
C&S, digital cable, DTH and
IPTV will drive cable TV
penetration.

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Zee News – Initiating coverage – 13 June 2008

Figure 25: Low TV penetration
Indian TV Industry
Number of households(mn) 194
Number of TV households(mn) 115
Number of Cable & Satellite households(mn) 71

% of households with a TV 59
% of households with Cable & Satellite 61

TV Penetration in urban areas 64
TV Penetration in rural areas 19
Source: TRAI, FICCI-PwC, Religare Institutional Equity Research

The outlook for growth in cable TV penetration in India continues to remain
strong. Over the next few years, cable and satellite, along with emerging
delivery platforms like digital cable, DTH and IPTV, will drive this growth. We
have given the details of these platforms in the Annexure 5.

Strong distribution network of group companies of ZNL
The TV sector poses large entry barriers for any newcomer due to a strong
and dominant distribution network and relationships of the existing channels.
Zee Group has a JV with Turner which is a leader in the distribution space. The
company has a strategic partnership with ZEEL for distribution of its
international rights. The entire Zee package is sold as a bouquet as it has a
full variety of channels, thus giving ZNL an advantage.
TV sector poses large entry
barriers due to a strong and
dominant distribution
network and relationships
of the existing channels

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Zee News – Initiating coverage – 13 June 2008

Margins to improve over FY08-11 in
spite of new launches

Its ‘new businesses’- Zee Telugu and Zee Kannada will break even in
FY09. This will result in improved margins. In spite of the startup
losses in Zee Tamil and Zee Malayalam, we expect EBITDA margins to
improve by 520 bps over FY08-11.

The improvement in margins will be due to a strong growth in sales. We
expect the loss making channels like Zee Telugu and Zee Kannada to turn
profitable in FY09. The marketing budgets as a % of sales for the existing
channels will go down as they now have high brand equity and loyal viewers.

Figure 26: Improving margins
Y/E, 31st March FY07 FY08 FY09E FY10E FY11E
Net Sales (Rs mn) 2,405 3,671 4,744 5,795 6,831
EBITDA (Rs mn) 77 704 1,002 1,372 1,665
EBITDA margin (%) 3.2 19.2 21.1 23.7 24.4
Source: Religare Institutional Equity Research

Figure 27: Steady improvement in margins - Quarterly
ZNL - Consolidated FY07 FY08
4Q 1Q 2Q 3Q 4Q
EBIDTA margin (%) (1.29) 14.50 13.28 22.40 23.68
Source: Company, Religare Institutional Equity Research

Figure 28: Steady improvement in margins
ZNL - consolidated FY07 FY08
EBITDA margin (%) 3.2 19.2
Adj PAT margin (%) 3.1 10.8
Source: Company, Religare Institutional Equity Research

Figure 29: Steady decrease in losses in the new businesses
ZNL - New business FY07 FY08
4Q 1Q 2Q 3Q 4Q
Revenues 47 46 63 70 120
% Change - QoQ (3) 37 11 71
Costs 200 174 194 208 220
% Change - QoQ (13) 11 7 6
Loss (153) (129) (131) (138) (101)
Source: Company, Religare Institutional Equity Research
We expect the loss making
channels like Zee Telugu
and Zee Kannada to turn
profitable in FY09

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Zee News – Initiating coverage – 13 June 2008

Strong financials - low debt,
increasing free cash flows

ZNL is expected to report Rs 4,744 mn in revenues in FY09 and have a 3 year
CAGR of 23% till FY11. EBITDA will be Rs 1,002 mn in FY09 with a 3 year
CAGR of 33.2% till FY11. PAT is expected to be Rs 582 mn in FY09 with a 3
year CAGR of 36% till FY11.

Figure 30: Key Financials
Key Financials FY07 FY08 FY09E FY10E FY11E CAGR FY08-11
Net sales (Rs mn) 2,405 3,671 4,744 5,795 6,831 23.0
EBIDTA (Rs mn) 77 704 1,002 1,372 1,665 33.2
EBIDTA % 3.2 19.2 21.1 23.7 24.4
Adjusted Net profit (Rs mn) 75 395 582 812 995 36.0
Source: Religare Institutional Equity Research

Increasing free cash flows: ZNL is expected to have increasing free cash
flows. The free cash flows are a big plus for ZNL as they can be invested in its
expansion plans.

Figure 31: free cash flow
Cash Flow FY07 FY08 FY09E FY10E FY11E
(Rs mn) 205 267 480 682 1,006
Source: Religare Institutional Equity Research

Low Debt: ZNL will have a low debt.

Figure 32: debt/ equity
FY07 FY08 FY09E FY10E FY11E
Debt/equity 0.01 0.00 0.01 0.01 0.01
Source: Religare Institutional Equity Research

Increasing RoE, RoCE: ZNL will see an increase in the average RoE from
19.3% in FY08 to 24.1% in FY11. Similarly, RoCE will rise from 31.1% in FY08
to 37.8% in FY11.

Figure 33: RoE and RoCE
Return ratios (%) FY07 FY08 FY09E FY10E FY11E
RoE 4.1 19.3 22.9 25.1 24.1
RoCE 7.3 31.1 36.4 39.6 37.8
Source: Religare Institutional Equity Research

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Zee News – Initiating coverage – 13 June 2008

Valuations and Recommendation

ZNL currently trades at 20x 1-year forward earnings and on
EV/EBITDA multiple of 12.2x FY09E and 8.6x FY10E. We have valued
ZNL at 19x 2-year forward earnings which give a target price of Rs 67.

ZNL is currently trading at 20x 1-year forward P/E band which is near the
lower end of its trading band.

Figure 34: ZNL P/E Band – has corrected sharply
10
20
30
40
50
60
70
80
90
100
Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
(Rs)
30x
25x
20x
15x
35x

Source: Religare Institutional Equity Research

Valuation method – P/E Comparison with peers

We have valued ZNL based on P/E comparison with other companies in the
broadcasting (both TV and radio) sector and its trading band.

Figure 35: Media Sector
Media Sector Price Rating Mkt Cap EPS (Rs) P/E (x) EV/EBIDTA (x) EV/Sales (x) RoE (%) RoCE (%)
(Rs) (Rs bn) FY08 FY09E FY10E FY08 FY09E FY10E FY09E FY10E FY09E FY10E FY09E FY10E FY09E FY10E
Zee News 50 Accumulate 12.0 1.6 2.4 3.4 30.3 20.6 14.8 11.7 8.2 2.5 1.9 22.9 25.1 36.4 39.6
Prime Focus 497 Accumulate 6.3 26.8 35.9 52.6 18.5 13.9 9.4 4.9 3.1 1.7 1.2 18.2 21.7 25.2 30.6
HT Media 125 Hold 29.3 5.4 6.9 8.8 23.2 18.0 14.2 8.5 6.4 1.7 1.3 16.7 18.0 21.0 23.5
Jagran Prakashan 72 Hold 21.7 3.4 4.2 5.2 21.1 17.1 13.8 10.6 8.4 2.4 1.9 19.3 20.6 23.0 25.8
ENIL 387 Accumulate 18.4 -3.6 10.6 21.7 -108.2 36.5 17.8 14.5 7.9 3.1 2.2 16.8 28.4 22.5 43.3
Zee Entertainment 216 Buy 93.7 8.6 9.9 13.7 25.2 21.9 15.8 14.0 9.9 3.9 3.1 13.3 16.0 18.1 22.5
Info Edge 987 Accumulate 26.9 20.2 26.3 38.7 48.8 37.6 25.5 24.5 15.1 6.9 4.5 21.8 24.7 32.0 36.2
TV 18 256 Accumulate 29.0 2.3 7.7 11.7 113.5 33.3 21.8 18.7 13.0 5.8 4.5 24.0 30.4 31.6 41.4
Source: Religare Institutional Equity Research

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Zee News – Initiating coverage – 13 June 2008

We have valued Zee TV (valued at 24 times), TV18 (valued at 27 times) which
are also in TV segment and ENIL (valued at 27 times) which is in the radio
segment. We have valued ZNL at a P/E multiple of 19 which is at a 20%
discount to ZEEL and at a 30% discount to TV18 and ENIL. This is due to the
following reasons:

• Smallest company out of the four broadcasting companies under
our coverage: ZNL is the smallest company in terms of sales out of the
four broadcasting companies under our coverage. ZNL is the smallest
company in terms of profit ( FY10 numbers) out of the four broadcasting
companies under our coverage. ZEEL has channels in the Hindi GEC which
is the biggest genre in TV and is a strong number two player. TV18 is the
dominant leader in the business news genre. ENIL is the number one
player in radio (a sunrise industry) and will see a faster growth.

Figure 36: ZNL/ Company - multiple (x) - Sales
Sales FY08 FY09E FY10E
ENIL 0.89 0.79 0.74
Zee Entertainment 0.20 0.21 0.21
TV 18 0.91 0.85 0.79
Source: Religare Institutional Equity Research

Figure 37: ZNL/ Company - multiple (x) - Profit
Net Profit FY08 FY09E FY10E
ENIL (2.32) 1.15 0.79
Zee Entertainment 0.11 0.14 0.14
TV 18 1.54 0.65 0.57
Source: Religare Institutional Equity Research

Figure 38: Sales (Rs mn)
Broadcasting Sector FY08 FY09E FY10E
Zee News 3,671 4,744 5,795
ENIL 4,134 5,972 7,882
Zee Entertainment 18,343 22,246 27,187
TV 18 4,016 5,608 7,307
Source: Religare Institutional Equity Research

Figure 39: Net Profit (Rs mn)
Media Sector FY08 FY09E FY10E
Zee News 395 582 812
ENIL (170) 505 1,033
Zee Entertainment 3,717 4,283 5,925
TV 18 256 895 1,419
Source: Religare Institutional Equity Research

• Slower growth: ZNL will see a slower growth in Sales and PAT than TV18
and ENIL.

Figure 40: Sales - Growth %
Broadcasting Sector FY08 FY09E FY10E
Zee News 53 29 22
ENIL 76 44 32
Zee Entertainment 21 21 22
TV 18 63 40 30
Source: Religare Institutional Equity Research

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Zee News – Initiating coverage – 13 June 2008

Figure 41: Net Profit - Growth %
Media Sector FY08 FY09E FY10E
Zee News 429 47 40
ENIL (168) 397 105
Zee Entertainment 57 15 38
TV 18 (49) 249 59
Source: Religare Institutional Equity Research

• Lower return ratios: ZNL will have lower return ratios than TV18 and
ENIL in FY10.

Figure 42: RoE (%)
Media Sector FY08 FY09E FY10E
Zee News 19.3 22.9 25.1
ENIL (2.6) 16.8 28.4
Zee Entertainment 12.9 13.3 16.0
TV 18 8.0 24.0 30.4
Source: Religare Institutional Equity Research

• High volatility in ZNL’s earnings: ZNL will be investing in new channels
in Tamil and Malayalam which may increase the volatility in ZNL’s
earnings.

Based on the above method, we have arrived at a target price of Rs 67 for
ZNL. We expect a CAGR of 23% and 36% in revenues and profits respectively
over FY08-11. The possibility of positive surprises is high as its business is on
an upswing. ZNL is currently trading near the lower end of its trading band.
Hence our ACCUMULATE rating.

Figure 43: Valuation
VALUATION – METHOD – P/E based FY07 FY08 FY09 FY10 FY11
EPS 0.2 1.6 2.4 3.4 4.2
% Growth 625.6 47.2 39.6 22.5
EPS two year forward 3.5
Target P/E 19
Target Price (Rs) 67
Source: Religare Institutional Equity Research

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Zee News – Initiating coverage – 13 June 2008

Triggers

Franchisee model - new channel in Chhattisgarh/other markets
ZNL has found a unique route to expand its presence in regional markets. It
has forayed into consulting business through its division ‘News Consultancy
Services Division’ (NCSD). The first step in this direction is its deal with SB
Multimedia which is launching a regional news channel in Chhattisgarh. The
channel, ‘Zee 24 Ghante Chhattisgarh’, plans to launch in the next couple of
months. Zee NCSD will provide operational and strategic advice on a Build,
Operate and Transfer basis to entrepreneurs desirous of launching news
channels in markets which do not figure in Zee's immediate expansion plans.
The consultancy and franchisee agreement with regional news organizations
will allow ZNL to grow its presence and revenues. According to the agreement
with SB Multimedia, ZNL will look after the national ad sales and marketing of
the regional news channel. ZNL will also have editorial say over the channel.
Besides, there will be a content-sharing arrangement. It is in talks with
several regional upcoming news channels to work out similar arrangements.
The NCSD will leverage the company’s intellectual property such as expertise
and experience and brand value to further grow the company. A dedicated in
house mobile squad will provide marketing, research, technical, legal and
production services to the franchisee.

Sustained earnings growth
ZNL may see a higher earnings growth than our projections. This could be on
the back of a rising share in the Kannada and Telugu markets.

Transfer of movie businesses from ZEEL to ZNL
ZEEL is transferring its Marathi movie channel Zee Talkies to ZNL. Currently,
Zee Talkies resides in Zee Entertainment Enterprises Ltd (ZEEL). Zee has
already applied to the information and broadcasting ministry for the transfer.
Zee has plans to launch a Bengali movie channel. ZNL will have the news
channels, the regional general entertainment channels and the regional movie
channels.

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Zee News – Initiating coverage – 13 June 2008

Risks to our call

Slowdown in the Indian ad market
We expect the ad revenues to grow at a CAGR of 15-18% over the next 2-3
years. However, a slowdown in the economy or regulatory impediments may
hamper the same. There is a slowdown in sectors like auto, real estate etc.
This is a key risk for ZNL.

Decline in popularity of channels
The key concern for ZNL is a decline in the popularity of its channels. This can
adversely impact its revenues, both ad and subscription. While the markets
that ZNL operates in are rapidly growing, they are also intensely competitive.
The flagship news channel, Zee News is up against formidable competition
from Aaj Tak, Star News and India TV. CNBC TV18 has a virtual monopoly in
the business news segment. The regional broadcasting markets where ZNL is
operational (Bangla, Gujarati, Punjabi and Marathi) are largely two player
markets with Eenadu Group’s ETV being the key competitor. However, the
southern regional markets where Zee is extending its presence are highly
competitive. Sun Network, with its channels – Sun TV, Gemini TV, Udaya TV,
Surya TV, etc – is a strong incumbent in these markets.

Higher competitive intensity might lead to reduction in ad rates
Entry of new players into ZNL’s markets could lead to price wars, losses and
depressed return ratios. Also, competition may intensify with the likely entry
of players like TV18 Group, Star TV, Raj TV and NDTV into regional
broadcasting.

Subscription revenue deal may take time to materialize
The ramp up in subscription depends on the mandatory CAS/ DTH
implementation to an extent.

Execution risk
ZNL plans to enter Tamil and Malayalam markets in the next two years. This
may drag the financials as these are among the toughest media markets.
Although we are confident of the management’s execution capabilities, we will
watch this space carefully.

Stability of top management and key personnel
There has been a significant churn in the employees in the media industry in
general and TV industry in particular. This is likely to continue as new
channels will be launched. Media is a people centric business (creative staff,
news anchors etc) and high attrition can hit the business.

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Zee News – Initiating coverage – 13 June 2008

Annexure 1
SWOT Analysis of ZNL

Source: Religare Institutional Equity Research

Weaknesses
• Stability of Top management
• No experience in a tough market like
Tamil Nadu which is dominated by a
large player like Sun TV. Sun TV has
very strong relationships with the
content providers and has a strong
presence in distribution through a
group company ‘Sumangli’.

Threats
• Improvement in ratings of
competitors
• New launches from TV18, Star,
NDTV, Raj TV, NDTV

Opportunities
• Strong growth in ad revenues
due to improvement in ratings/
GDP growth
• Strong growth in subscription
revenues due to DTH and
digital cable
• New GEC in Tamil, Malayalam
and other markets
Strengths
• Strong viewership ratings
• Strong management track record
• Strength across media vehicles in
group companies (news, regional
channels, sports, distribution)
• Presence in diverse genres
• Strong brand equity
• Strong balance sheet
SWOT
Analysis of
ZNL

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

Annexure 2
Five Forces Analysis – ZNL
Bargaining Power of Buyers – Medium

Alternatives to market leaders like ZNL are few.
Its popular soap operas, reality shows,
marketing spends and strong brand are a clear
advantage

Threat from Substitutes - Low

Advertising on TV is seen as a must for any
media plan especially for FMCG brands.

Bargaining Power of Suppliers – Medium

Employee compensation will keep rising due to
paucity of supply.

ZNL is dependent on quality content providers who
are in short supply

Threat of new entrants – Medium

Strong Brand Equity of Zee Group

Soap operas continue to dominate GEC

Inter-firm Rivalry – Strong

Competitors may fight back strongly.

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

Annexure 3
Company Background

ZNL which was demerged from Zee Telefilms is a leading regional and news
network. It has four news and six regional channels. News and regional
channels are seeing rising viewership share and are an exciting growth
segment. ZNL is strong player in Hindi genre with presence in both general
and business news. In spite of being a paid channel, Zee news continues to
enjoy decent viewership. ZNL is planning to launch Zee Tamil and in
Chhattisgarh (through a franchise) shortly. It is present in various regional
markets: Marathi, Bangla, Punjabi, Gujarati, Telugu, and Kannada. ZNL
benefits from being part of the Zee group both in terms of ability to market its
channels to advertisers and the growth of subscription revenues (Zee Group
that owns general entertainment broadcast Zee Entertainment and television
distribution businesses of WWIL and Dish TV). ZNL had launched new channels
in Zee 24 Taas (Marathi) and 24 Ghanta (Bangla) under it subsidiary arm
company known as Zee Akaash News Private Limited. ZNL also supplies
content to the international broadcasting business of Zee in the United States,
Europe, Africa, Middle East and Asia Pacific.

Figure 44: ZNL Business Mix

Source: Company, Religare Institutional Equity Research

Hindi news channels

• Zee News
• Zee Business

Regional news channels

• 24 Ghanta (Bengali)
• 24 Taas (Marathi)

Regional general
entertainment channels

• Zee Marathi
• Zee Bangla
• Zee Punjabi
• Zee Gujarati
• Zee Telugu
• Zee Kannada
• Zee Tamil (planned
in FY09)
• Zee Chhattisgarh
(planned in FY09)
• Zee Malayalam
(planned in FY10)

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INSTITUTIONAL EQUITY RESEARCH

Zee News – Initiating coverage – 13 June 2008

Annexure 4
Media industry continues to be buoyant in spite of
a slowdown in sectors like Auto, Real estate etc.

The Indian TV Industry will grow at a CAGR of 22% over CY07-12
According to the PWC report, the TV industry is expected to grow from Rs 217
bn in CY07 to Rs 580 bn by CY12, at a CAGR of 22%. This growth will be
driven by both ads and subscriptions. Subscription revenues will grow at a
CAGR of 22.7% during CY07-12. TV ad revenues are expected to grow at a
CAGR of 20.1% during CY07-12. Based on our interaction with the industry,
we expect the ad revenues to remain buoyant in spite of a slowdown in some
sectors like auto, real estate etc.

Figure 45: TV industry growth
Rs bn CY04 CY05 CY06 CY07 CY08E CY09E CY10E CY11E CY12E CAGR 2007-12
TV - subscription 75 97 117 137 167 204 253 310 380
%change 29 21 17 22 22 24 23 23
22.7
TV – ad 48 55 66 80 100 120 150 175 200
%change 14 21 21 25 20 25 17 14
20.1
Total 123 152 183 217 267 324 403 485 580
%change 23 21 18 23 21 24 20 20
21.8
Source: FICCI-PWC report – 2008, Religare Institutional Equity Research

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Zee News – Initiating coverage – 13 June 2008

Annexure 5
Alternate Distribution Platforms

DTH
DTH is currently offered in India by Dish TV, Tata Sky and DD Direct Plus.
There will be other entrants like Sun, Bharti, Reliance ADAG and Videocon(yet
to get a license). The Indian broadcasting industry is witnessing a high growth
of DTH subsequent to the regulatory changes that permitted such services.
DTH broadcasting utilizes a dish antenna that is installed at the viewer’s
premises and is capable of directly receiving television signals from the
broadcast satellite. DTH broadcasting is expected to provide alternative means
of reaching satellite television viewers, especially in relatively inaccessible
areas. DTH broadcasting may offer revenue growth opportunities to
broadcasters through the creation of additional channels or distribution of their
existing channels through this additional distribution platform.

IPTV
IPTV is a system where television or video signals are distributed to
subscribers or viewers using a broadband connection. Often, this is parallel to
the subscriber’s Internet connection. Advantages of IPTV include two-way
capability, which is lacking in traditional TV distribution technologies, and a
point-to-point distribution that allows each viewer to view individual
broadcasts. This enables stream control (pause, wind/rewind etc.) and a free
selection of programming. IPTV would enable broadcasters to provide value
added services, help improve addressability and increase the scope for niche
channels for smaller audiences.

Mobile Broadcasting/ Value-added services
Mobile Broadcasting is referred to as broadcasting of content via mobile
phones. With the advent of improved connectivity, several mobile operators
are allowing streaming news and video through mobile phones. Now, mobile
phones allow broadcasting and streaming of news, media, film content etc. as
value-added services to attract customer base and improve market share. In
fact, the channel ‘Times Now’ was first launched through the mobile medium.

International revenue
According to the Annual Report – 2006 prepared by the Ministry of Overseas
Indian Affairs, there were approximately 25mn non-resident Indians and
persons of Indian origin living outside India in over 110 countries. They
represent a potential source of subscription revenues for the Indian
broadcasting industry. There is an upswing with the increase in the demand
for Indian content abroad. Due to the commitment towards economic reforms
and globalization, Indian markets are generating interest from both foreigners
and persons of Indian origin living outside India. This represents a significant
opportunity for Indian broadcasters and quality content providers, in terms of
potential revenue from international subscription, advertising and content
syndication. With the demand for ‘local flavor’ worldwide, there is a steady
growth in international broadcasting. This is done through various
technologies, such as cable, DTH and terrestrial broadcast, through
arrangements with broadcasters, cable operators and other industry
participants. Typically, these are revenue-sharing arrangements based on the
total number of subscribers.

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Zee News – Initiating coverage – 13 June 2008

Stock performance
Zee News

Absolute Perf. From Jan 07
30
40
50
60
70
80
90
100
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
Sensex Zee News Ltd

Relative Perf. From Jan 07
75
95
115
135
155
175
195
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
Sensex Zee News Ltd

Relative Perf. From Jan 07 to Mar 07
80
85
90
95
100
105
110
115
120
125
Jan-07 Feb-07 Mar-07
Sensex Zee News Ltd

Relative Perf. From Apr 07 to Mar 08
80
90
100
110
120
130
140
150
160
170
Apr-07 Jun-07 Sep-07 Dec-07 Mar-08
Sensex Zee News Ltd

Relative Perf. From Apr 08
90
95
100
105
110
115
120
1-Apr 16-Apr 1-May 16-May 31-May
Sensex Zee News Ltd

Source: Bloomberg, Religare Institutional Equity Research

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Zee News – Initiating coverage – 13 June 2008

12 month forward rolling band charts
Zee News

P/E Band
10
20
30
40
50
60
70
80
90
100
Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
(Rs)
30x
25x
20x
15x
35x

P/BV Band
30
40
50
60
70
80
90
Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
(Rs)
7x
6x
5x
4x

EV/EBITDA Band
5,000
7,000
9,000
11,000
13,000
15,000
17,000
19,000
21,000
23,000
25,000
Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
22x
18x
14x
10x
(Rs mn)

EV/Sales Band
5,000
10,000
15,000
20,000
25,000
30,000
Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
5x
4x
3x
2x
(Rs mn)

Mkt cap/Sales Band
0
5,000
10,000
15,000
20,000
25,000
30,000
Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
5x
4x
3x
2x
(Rs mn)

Source: Bloomberg, Religare Institutional Equity Research

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Zee News – Initiating coverage – 13 June 2008

Financials – Zee News
Income statement (Rs mn)
Y/E, 31st March FY07 FY08 FY09E FY10E FY11E
Net Sales 2,405 3,671 4,744 5,795 6,831
EBITDA 77 704 1,002 1,372 1,665
EBITDA margin (%) 3.2 19.2 21.1 23.7 24.4
Depreciation 52 76 87 100 115
EBIT 25 628 915 1,272 1,550
Other income 131 11 12 15 20
Interest exp/ (inc) 51 6 10 12 15
PBT 104 633 917 1,275 1,555
PBT margin (%) 4.3 17.3 19.3 22.0 22.8
Extra ord (inc)/exp 0 0 0 0 0
Taxes 46 243 335 459 552
Minority interest (16) (5) 1 4 8
PAT( Reported) 75 395 582 812 995
Less: Extra ordinary
income / Others
(1) 0 0 0 0
Adj PAT 75 395 582 812 995
Adj PAT margin (%) 3.1 10.8 12.3 14.0 14.6

Quarterly – Financials (Rs mn)
(Rs mn) Q4FY07 Q1FY08 Q2FY08 Q3FY08 Q4FY08
Net Sales 690 745 776 955 1,102
Change (%) 38 40 52 1 11
EBITDA 8 119 105 219 265
Change (%) (148) (39) (71) 162 112
Margin (%) 1 16 14 23 24
PAT 13 64 57 794 699
PAT adj 13 64 57 128 153
Change (%) (132) (49) (51) 166 178
Margin (%) 2 9 7 13 14
EPS adj (Rs) (0) 0 0 2 2
EPS dil (Rs) (0) 0 0 2 2

Ratios
Y/E, 31st March FY07 FY08 FY09E FY10E FY11E
Growth
Net sales (%) 570.6 52.6 29.2 22.2 17.9
EBITDA (%) 89.6 813.1 42.3 37.0 21.3
PAT adjusted (%) 437.8 428.9 47.2 39.6 22.5
EPS adjusted (%) 837.8 428.9 47.2 39.6 22.5
EPS diluted (%) 583.5 625.6 47.2 39.6 22.5
EPS Consl and diluted (%) 583.5 625.6 47.2 39.6 22.5

Valuations FY07 FY08 FY09E FY10E FY11E
P/E (x) 220.1 30.3 20.6 14.8 12.0
Price/BV (x) 8.9 5.3 4.2 3.3 2.6
EV/EBITDA (x) 154.1 16.5 11.7 8.2 6.3
EV/Sales (x) 4.9 3.2 2.5 1.9 1.5

Profitability FY07 FY08 FY09E FY10E FY11E
EBITDA margin (%) 3.2 19.2 21.1 23.7 24.4
Adj PAT margin (%) 3.1 10.8 12.3 14.0 14.6
RoE (%) 4.1 19.3 22.9 25.1 24.1
RoCE (%) 7.3 31.1 36.4 39.6 37.8
RoIC (%)* 0.8 19.8 23.6 33.5 38.7

B/S ratios FY07 FY08 FY09E FY10E FY11E
Inventory days 0.3 0.2 0.2 0.2 0.2
Creditor days 134.5 96.9 82.5 74.3 69.3
Debtors days 154.6 111.5 94.9 85.4 79.7
Working Capital days 160.4 143.3 112.4 129.1 161.7
Net debt/equity 0.01 0.00 0.01 0.01 0.01
* ROIC is calculated on post tax basis.
Balance sheet (Rs mn)
Y/E, 31st March FY07 FY08E FY09E FY10E FY11E
Liabilities
Equity share capital 240 240 240 240 240
Total Res. & Surplus 1,609 2,004 2,586 3,398 4,393
Total Shareholders’ funds 1,849 2,244 2,825 3,638 4,632
Convertible debt 0 0 0 0 0
Others 13 10 15 20 25
Total loans 13 10 15 20 25
Total liabilities 1,862 2,254 2,840 3,658 4,657

Assets FY07 FY08E FY09E FY10E FY11E
Net fixed assets & others 784 1,057 1,370 1,620 1,655
Capital WIP & others 24 40 30 20 20
Total non-current assets 808 824 1,400 1,640 1,675
Total investments –
non current
83 83 83 83 83
Current assets
Inventories 2 2 2 3 3
Sundry debtors 1,019 1,121 1,233 1,356 1,492
Cash & cash equivalents 38 303 189 627 1,437
Cash 203 69 487 1,277
Liquid investments 100 120 140 160
Other current assets 884 990 1,109 1,242 1,391
Total current assets 1,943 2,416 2,533 3,228 4,323
Total current liabilities 886 975 1,072 1,179 1,297
Total provisions 86 95 104 114 126
Net current assets 971 1,347 1,357 1,934 2,900
Misc. expenditure 0 0 0 0 0
Total assets 1,862 2,254 2,840 3,658 4,657

Cash flow
Y/E, 31st March FY07 FY08E FY09E FY10E FY11E
Cash from op.
PBT 104 633 917 1,275 1,555
Tax Paid (46) (243) (335) (459) (552)
Dep & other amor. exp. 52 76 87 100 115
Working capital changes (120) (134) (149) (167) 1,589
Others 0 1 2 3 4
Net cash from operations 520 617 880 1,032 1,156
Cash from investments
Capital expenditure (315) (350) (400) (350) (150)
Sale/pur. of inv & others (65) 0 0 0 0
Net cash from investments (380) (350) (400) (350) (150)
Cash from financing
Issue of shares & share pre (178) 0 0 0 0
Dividends paid 0 0 0 0 0
Debt change 538 3 (5) (5) (5)
Minority Interest & Others 582 5 (589) (238) (191)
Net cash from financing 941 8 (594) (243) (196)
Net change in cash 1,081 275 (114) 438 809

Per share data
Y/E, 31st March FY07 FY08 FY09E FY10E FY11E
EPS adjusted 0.3 1.6 2.4 3.4 4.2
EPS diluted - wtd 0.2 1.6 2.4 3.4 4.2
EPS Consl and diluted 0.2 1.6 2.4 3.4 4.2
CEPS 0.4 2.0 2.8 3.8 4.6
Book value 5.6 9.4 11.8 15.2 19.3
Dividend 0.0 0.0 0.0 0.0 0.0
O/s shs.-actual (mn) 239.7 239.7 239.7 239.7 239.7
O/s shs.-diluted (mn) 239.7 239.7 239.7 239.7 239.7
O/s shs wtd / diluted (mn) 328.9 239.7 239.7 239.7 239.7

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Zee News – Initiating coverage – 13 June 2008

Vi dur Pendharkar
Head of Techni cal Research
I nsti tuti onal Busi ness
vi dur . p@rel i gare. i n
+91 022- 66550109
Technical View
Zee News Close Price Rs.50.40

The weekly candlestick chart of Zee news shows that it is moving sideways.
The weekly averages are still negatively phased and are pegged at Rs.54.33
(10 wema) and Rs.56.24(40 wema). Trendline resistance (in red) is pegged at
Rs.56 for the coming week. It has to be crossed in close with high volumes for
the stock to go in an uptrend. The support line (in blue) is pegged far away at
around Rs.40.

At this moment it is trading at the 61.8% retracement of the recent rise from
Rs.38.05 to Rs.67. One can accumulate between the Rs.44-48 range from a
medium to long term perspective as it has the potential to move up to the
Rs.67-71 on the minimum side and in an optimistic scenario Rs.82.

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Zee News – Initiating coverage – 13 June 2008

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Rating definition
Buy : > 15% returns relative to Sensex Accumulate : +5 to +15% returns relative to Sensex
Sell : > (-)15% returns relative to Sensex Reduce : (-) 5 to (-) 15% returns relative to Sensex
Hold : Upto + / (-) 5% returns relative to Sensex

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