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Annual report analysis
Zee Entertainment’s FY11 annual report reveals improvements, led by
further reduction in loans and advances, debtor days and goodwill writeoffs
as well as rising cash levels that enable higher dividends and
buyback. Debtors net off provisions have reduced from 124 to 111 days
while content cost and inventory increased with higher spend on sports.
FY11 was a year of consolidation and focus is now on Zee TV viewership
and turnaround in sports business. As Zee is best placed to lever
structural changes in distribution, we maintain BUY.
Debtor days down, spending on sports up.
Zee’s FY11 annual report reveals a reduction in debtors net off provisions for
doubtful debt from 124 to 111 days of sales (gross 125 days from 164 days).
Debt older than six months declined 16%YoY to Rs3.3bn, to 33% of total but
also the provision for doubtful debts was lower by about Rs1.2bn. However,
Zee’s programming/movie/sport content inventories increased 15%YoY to
Rs5.4bn and programming cost rose 66%YoY to Rs11.4bn, mainly due to
increased spending on the sports business. Sports events rights valued at
Rs5.7bn have been transferred to Zee (standalone). The year marked the first
period of full consolidation for Zee’s regional entertainment channels (R-GEC)
and Ten Sports (95% ownership), which makes P&L figures noncomparable to
previous years. However, post the deals, Zee has an even more diversified
revenue base with 38% from subscriptions that is about equally split between
direct to home, cable and international collections.
Return ratios improving, goodwill written off.
Zee’s FY11 ROACE, without adjusting for Rs16bn of goodwill in the balance
sheet, has improved 2ppts to 20%. We project a further improvement of
13ppts by FY13. Return ratios were suppressed by Rs16bn in goodwill,
primarily for two mega transactions in 2000 - acquisition of Zee Multimedia
Worldwide and a deal with Rupert Murdoch's News Corp. Valuations of these
deals reflected the internet-boom era but had led to Zee’s transition from a
content house to 100%-owned broadcasting, content and distribution
operations. The initial goodwill was Rs31bn, of which Zee wrote off Rs18bn in
2004 against the share-premium reserves and Rs11bn in FY11. We believe
this capital-restructuring exercise better represents the company’s net worth,
assets and return ratios.
Improved balance sheet, rising cash.
Meanwhile, there has been a further 24% YoY reduction in Zee’s loans and
advances, from the peak of Rs14.1bn in FY09 to Rs4.8bn, as group
companies repaid loans. This addresses a significant investor concern about
lending to the group, debt repayments and rising cash levels. From Rs2.5bn
in net debt in FY09, Zee turned around to Rs10.8bn net cash in FY11. With
low capex requirements, we expect it to generate an additional Rs10bn in free
cashflow by FY13, which should enable rising dividends. Dividend of
Rs2/share for FY11 represents a payout of 36%. Also, the company had
announced a share buyback at a price not exceeding Rs126 and the
aggregate consideration at or below Rs7bn. The focus is now on Zee TV
viewership ratings and turnaround in the sports business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Annual report analysis
Zee Entertainment’s FY11 annual report reveals improvements, led by
further reduction in loans and advances, debtor days and goodwill writeoffs
as well as rising cash levels that enable higher dividends and
buyback. Debtors net off provisions have reduced from 124 to 111 days
while content cost and inventory increased with higher spend on sports.
FY11 was a year of consolidation and focus is now on Zee TV viewership
and turnaround in sports business. As Zee is best placed to lever
structural changes in distribution, we maintain BUY.
Debtor days down, spending on sports up.
Zee’s FY11 annual report reveals a reduction in debtors net off provisions for
doubtful debt from 124 to 111 days of sales (gross 125 days from 164 days).
Debt older than six months declined 16%YoY to Rs3.3bn, to 33% of total but
also the provision for doubtful debts was lower by about Rs1.2bn. However,
Zee’s programming/movie/sport content inventories increased 15%YoY to
Rs5.4bn and programming cost rose 66%YoY to Rs11.4bn, mainly due to
increased spending on the sports business. Sports events rights valued at
Rs5.7bn have been transferred to Zee (standalone). The year marked the first
period of full consolidation for Zee’s regional entertainment channels (R-GEC)
and Ten Sports (95% ownership), which makes P&L figures noncomparable to
previous years. However, post the deals, Zee has an even more diversified
revenue base with 38% from subscriptions that is about equally split between
direct to home, cable and international collections.
Return ratios improving, goodwill written off.
Zee’s FY11 ROACE, without adjusting for Rs16bn of goodwill in the balance
sheet, has improved 2ppts to 20%. We project a further improvement of
13ppts by FY13. Return ratios were suppressed by Rs16bn in goodwill,
primarily for two mega transactions in 2000 - acquisition of Zee Multimedia
Worldwide and a deal with Rupert Murdoch's News Corp. Valuations of these
deals reflected the internet-boom era but had led to Zee’s transition from a
content house to 100%-owned broadcasting, content and distribution
operations. The initial goodwill was Rs31bn, of which Zee wrote off Rs18bn in
2004 against the share-premium reserves and Rs11bn in FY11. We believe
this capital-restructuring exercise better represents the company’s net worth,
assets and return ratios.
Improved balance sheet, rising cash.
Meanwhile, there has been a further 24% YoY reduction in Zee’s loans and
advances, from the peak of Rs14.1bn in FY09 to Rs4.8bn, as group
companies repaid loans. This addresses a significant investor concern about
lending to the group, debt repayments and rising cash levels. From Rs2.5bn
in net debt in FY09, Zee turned around to Rs10.8bn net cash in FY11. With
low capex requirements, we expect it to generate an additional Rs10bn in free
cashflow by FY13, which should enable rising dividends. Dividend of
Rs2/share for FY11 represents a payout of 36%. Also, the company had
announced a share buyback at a price not exceeding Rs126 and the
aggregate consideration at or below Rs7bn. The focus is now on Zee TV
viewership ratings and turnaround in the sports business.
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