Rating: Hold; Target Price: Rs280; CMP: Rs285; Downside: 2%
Acquisitions to add synergies; expect Rs3bn in tax benefit
We maintain Hold rating on ZEEL and believe the acquisition of the
media business that includes event management, one TV channel license
and game based TV reality show formats after demerger from DMCL will
help the company get Rs3bn in one-time tax benefit. This business has
assets of Rs3.7bn (Rs3.1bn differed tax assets) and Rs1bn liability in
terms of unsecured loans against the issue of Rs22.3mn redeemable,
non-convertible preference shares of Rs1/each with a tenure of 3 years
and coupon of 6%/annum. Business synergies will emerge as the company
acquires an additional channel license for a quick launch while IP
based reality show formats will help in content development.
$ Set to acquire DMCL’s media business: ZEEL will acquire Media
Business Undertaking of Diligent Media Corporation Ltd (DMCL)
comprising event management, one TV channel license and game based TV
reality show formats after demerger from DMCL subject to approvals
from March 31, 2014. This business currently has revenues of only
Rs50mn with an operating profit margin of 40%.
$ To get tax benefit of Rs3bn: This business has assets of Rs3.7bn of
which Rs3.1bn is differed tax asset and total liability of Rs1bn on
the back of unsecured loans. We believe ZEEL will be able to offset
this differed tax asset of Rs3.1bn against its tax liability in FY14
and FY15 itself. On vesting the media business from DMCL, ZEEL will
issue 22.3mn redeemable, non-convertible preference shares of Rs1 each
(1 preference share of Rs1 each for every 4 equity shares of Rs10 each
of DMCL) with a tenure of three years and coupon rate of 6%/annum.
$ Business to add synergies: We believe the non-news channel license
will help ZEEL launch new channels in near term as the government has
not issued new licenses for long. The management believes it would be
difficult to acquire a new license in the next 6 months before
national elections. IP based reality show formats will have synergies
with wholly owned subsidiary Essel Vision Productions and help build
unique in-house content for the company while event management
business has got a huge potential and the management wants it to
become a profit centre in the medium term.
$ Valuations & Risks: We have increased our earnings for FY14 and FY15
on the back of one-time Rs3bn tax benefit through this deal. We
maintain our Hold rating on the stock and maintain our target price of
Rs280 (25x sustainable Sept 2015 earnings) as the change in earnings
is predominantly on the back of tax benefit and not from core
operations. We believe ad revenue will be under pressure in the near
term due to the company cutting its ad inventory while higher sports
losses from the India-SA series will impact margins. Key upside could
be lower than estimated sports losses and significant market share
gain across channels leading to ad yield improvement.
Thanks & Regards
--
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Acquisitions to add synergies; expect Rs3bn in tax benefit
We maintain Hold rating on ZEEL and believe the acquisition of the
media business that includes event management, one TV channel license
and game based TV reality show formats after demerger from DMCL will
help the company get Rs3bn in one-time tax benefit. This business has
assets of Rs3.7bn (Rs3.1bn differed tax assets) and Rs1bn liability in
terms of unsecured loans against the issue of Rs22.3mn redeemable,
non-convertible preference shares of Rs1/each with a tenure of 3 years
and coupon of 6%/annum. Business synergies will emerge as the company
acquires an additional channel license for a quick launch while IP
based reality show formats will help in content development.
$ Set to acquire DMCL’s media business: ZEEL will acquire Media
Business Undertaking of Diligent Media Corporation Ltd (DMCL)
comprising event management, one TV channel license and game based TV
reality show formats after demerger from DMCL subject to approvals
from March 31, 2014. This business currently has revenues of only
Rs50mn with an operating profit margin of 40%.
$ To get tax benefit of Rs3bn: This business has assets of Rs3.7bn of
which Rs3.1bn is differed tax asset and total liability of Rs1bn on
the back of unsecured loans. We believe ZEEL will be able to offset
this differed tax asset of Rs3.1bn against its tax liability in FY14
and FY15 itself. On vesting the media business from DMCL, ZEEL will
issue 22.3mn redeemable, non-convertible preference shares of Rs1 each
(1 preference share of Rs1 each for every 4 equity shares of Rs10 each
of DMCL) with a tenure of three years and coupon rate of 6%/annum.
$ Business to add synergies: We believe the non-news channel license
will help ZEEL launch new channels in near term as the government has
not issued new licenses for long. The management believes it would be
difficult to acquire a new license in the next 6 months before
national elections. IP based reality show formats will have synergies
with wholly owned subsidiary Essel Vision Productions and help build
unique in-house content for the company while event management
business has got a huge potential and the management wants it to
become a profit centre in the medium term.
$ Valuations & Risks: We have increased our earnings for FY14 and FY15
on the back of one-time Rs3bn tax benefit through this deal. We
maintain our Hold rating on the stock and maintain our target price of
Rs280 (25x sustainable Sept 2015 earnings) as the change in earnings
is predominantly on the back of tax benefit and not from core
operations. We believe ad revenue will be under pressure in the near
term due to the company cutting its ad inventory while higher sports
losses from the India-SA series will impact margins. Key upside could
be lower than estimated sports losses and significant market share
gain across channels leading to ad yield improvement.
Thanks & Regards
--
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