Media 1

Please refer to important disclosures at the end of this report
Equity Research
September 10, 2013
BSE Sensex: 19270

ZEEL
(Rs222 Reduce)
Target price Rs240

Sun TV
(Rs389 Buy)
Target price Rs500

Dish TV
(Rs43 Buy)
Target price Rs60

Vikash Mantri
vikash.mantri@icicisecurities.com
+91 22 6637 7161
Satish Kothari
satish.kothari@icicisecurities.com
+91 22 6637 7510
Akhil Kalluri
akhil.kalluri@icicisecurities.com
+91 22 6637 7339
Media

Content - The trump card

Digitisation to give way to Content over Distribution.
ZEEL lags in investments. Star India raises the bar
Sun TV Network is the preferred bet among broadcasters
Dish TV is the preferred bet among distribution plays
Analogue: Content is King and Distribution is GOD; GOD chose the KING.
Digital: Content is King and Consumer is GOD; GOD will still choose the KING.
Please refer to important disclosures at the end of this report

Equity Research
September 10, 2013
BSE Sensex: 19270

Media

Content - The trump card
Reason for report: Sector update

Vikash Mantri
+91 22 6637 7161
Satish Kothari
+91 22 6637 7510
Akhil Kalluri
+91 22 6637 7339
INDIA
Digitisation is the most common theme for investment in the Indian media sector,
with broadcasters sensing windfall gains as addressable digital cable opens the
floodgates to pay-TV revenues. While this thesis is theoretically true, it only
showcases one side of the equation. Digitisation is a double-edged sword and is
likely to transform the broadcast space with power shifting from distribution /
broadcasting networks to content. In such a scenario, we believe broadcasting
networks like ZEEL, Star India and Sun TV Network face a huge challenge of
investing in compelling content in an era of accessible distribution. Star India has
upped the ante by large audacious bets on sport (cricket) and movie satellite
rights. ZEEL, with low investments in broadcasting, is lagging in the race and can
continue to lose market standing. Sun TV Network continues to be the dominant
player in the South and is sitting high and mighty, but needs to invest to maintain
ground.
In this report, we analyse the relative positioning of each broadcaster in the three key
genres of content GEC, sport and movies. We showcase how Star India and Sun
Network have delivered better results owing to investments in content. We also forecast
that the key gains from digitisation are likely to be long drawn as addressability lags
digitisation and might take up to 10 years.
Key findings:
Star India is clearly the leader in the Hindi broadcast space and has made audacious
bets in sport which, if it goes right, can further strengthen its leadership position.
Sun TV Network is clearly the strongest player in South India and has built strong
moats by launching multiple channels and acquiring a huge movie library, thus
making it very difficult for new players to eat into its market share.
ZEEL has lost the first-mover advantage owing to its focus on profitability. In a
digitised environment, as distribution opens up, the company can no longer gain from
its distribution strength and needs to invest in content to fortify its market share.
Investment call:
Sun TV Network (BUY, TP Rs500) remains our preferred bet in the Indian
broadcast space driven by strong market standing, gains from digitisation and strong
content ownership through its movie library.
ZEEL (REDUCE, TP Rs240) remains a strong player in the Hindi broadcast space,
but can slip to lower market shares if it fails to increase the intensity of investing in
sport and movies and launching more channels.
Dish TV (BUY, TP Rs60) is the best bet among distribution companies given its
ownership over last-mile and stands to be a major beneficiary of rising ARPU levels
and digitisation.

.

Media, September 10, 2013
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TABLE OF CONTENTS

Has investing in content delivered? ............................................................................. 3
Investments in content stacking order......................................................................... 3
Sport broadcast the gamechanger ............................................................................. 4
Sport the killer app in digitised cable industry ............................................................. 4
Star India has made an audacious bet on sports ........................................................... 5
ZEEL and Cricket Checkered past .............................................................................. 6
Who owns entertainment? ........................................................................................... 11
Hindi GEC Star Plus at pole position; fight on for no.2 slot....................................... 12
Investment in movies From luxury to necessity ........................................................ 14
Digitisation from a content perspective .................................................................. 17
Subscription revenue from cable to triple by FY18 ...................................................... 17
Digitisation gains will be best driven by ARPU ............................................................ 18
Consumers willing to pay high price for quality ............................................................ 19
Subscription revenues to triple in next five years ......................................................... 20
But, will the gains flow through to EBITDA? ................................................................ 21
Index Tables and Charts ............................................................................................... 22

Companies
Zee Entertainment ........................................................................................................... 23
Sun TV Network .............................................................................................................. 33
Dish TV ............................................................................................................................ 41

Share price and Sensex as on September 6, 2013 unless otherwise mentioned

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Has investing in content delivered?
We compare the revenues of the past five years of the leading broadcasters, which
shows that Star India has witnessed a 32% CAGR in revenues during the period as
against 10% for ZEEL. Also, Sun TV Network has done better on growth during the
same period as compared to ZEEL. So, while ZEELs financial performance in terms
of EBITDA has been good, we believe it has been driven by lack of sufficient
investments (please read our report EBITDA focus eats into growth 1 & 2 dated
5th October 2010 and 26th July 2011 respectively). We believe as content takes
precedence in a digitised environment financial performance is going to be
increasingly determined by content rather than ownership and control over
distribution.
Chart 1: ZEEL underperforming Star India and Sun TV Network

0
10
20
30
40
50
60
FY09 FY10 FY11 FY12 FY13
R
e
v
e
n
u
e

(
R
s

b
n
)
ZEEL Sun TV - Standalone Star India
CAGR 16%
CAGR 10%
CAGR 32%

* Star Indias FY13 revenues include eight months of sport broadcast
** ZEELs FY09 and FY10 revenues are adjusted for R-GECs. FY10 data is as per I-Sec estimates
Source: Company data, I-Sec research

Investments in content stacking order
We compare the investments of leading Indian media broadcasters from a content
perspective to compare who is better placed to gain in the digitised regime. Our
focus is look at the key mass content of sports, movies and GEC to judge the
preparedness of the players.
Table 1: Star India and Sun Network boast of best quality content
Star India ZEEL Sony India TV18 Sun Network
Movies
Library

New movie acquisition

Sport
India cricket

International cricket

Non-cricket sport

GECs
Second GEC

NA
Top slots

Share of top 50 shows

Source: Company data, TAM, I-Sec research. Shaded area represents strength of the network in that genre

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Sport broadcast the gamechanger
Sport broadcast is all set to be the new gamechanger in a digitised environment as
pay-TV revenues take precedence over advertisement revenues in this format. The
importance of sport broadcast stems from multiple aspects as it is: a) one of the few
ways to reach male audience thereby reducing broadcasters dependence on FMCG
or female-focused advertisers, b) a key driver of ARPU as is reflected in higher a-la-
carte rates of Sport vis--vis any other genre, and c) live content cannot be time-
shifted and will continue to garner high advertising rates.
Sport the killer app in digitised cable industry
With cable ARPUs among the lowest in India, sport stands out to as the key content
which can drive ARPUs. Cricket, Indias most followed sport, is among the only
genres for which consumers are ready to pay a higher price and could drive choice
between selections of MSOs/DTH and packages. In the analogue mode, cricket was
available to everybody and broadcasters were unable to price cricket channels
separately. Also, viewers had the opportunity to watch all cricket as the relevant
cricket channel, which was carrying the latest fixtures, was always made available to
the subscriber. However, this is now going to change as consumers will have to pay
for Sport channels separately and more so will have to make this choice regularly,
thereby increasing the importance of Sport content throughout the year.
Sport a-la-carte the most expensive
Sport channels across DTH and MSO packages are add-ons and not available in
base packages. Also, the consumer will now have to remember which cricket series
is being carried on which network, and therefore needs to be subscribed. Over a
period of time, channels with better rights will be able to garner higher interest.
Broadcasters with compelling Sport content will be able to negotiate higher pay-TV
rates and better placement.
Table 2: Sport genre commands premium ARPU
Genre a-la-carte rate per month (Rs)
Hindi movies 35
Regional 25
Music 35
Kids 45
English movies 60
English news 30
English entertainment 55
ESPN Star 65
Neo 40
Ten* 85
*excluding Ten Golf
Source: Industry; I-Sec research

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Star India has made an audacious bet on sports
Star India recently has invested Rs38.5bn (US$750mn) in sport to buy the rights of
India cricket (2012-18) at a price tag of ~Rs400mn per match. It has further invested
in properties like England and Australia cricket rights (four cumulative Indian tours
and four Ashes series), FIFA World Cup, Olympics, etc. While Sport has been a drag
on the financial performance of broadcasters till now, digitisation is likely to enhance
the need to continue to invest in the segment despite its poor economics, because of
the rub-off effects of Sport on the network. Sport broadcast in India is a loss-making
proposition due to skewed viewership in favour of cricket and the high costs of
cricket rights. The need of the hour for broadcasters is to develop non-cricket
properties and localising cricket content promoting domestic cricket like Ranji Trophy
fixtures, commentary in regional languages, etc.
Table 3: Star India leading the pack by acquiring major cricket broadcast rights
Network
Country/
Board
Amount
(US$ mn)
Total matches India related cricket
Period Remarks Test T20 ODI Days Test T20 ODI Days
Star India England 200 47 15 63 313 10 2 10 62 2013-19 Two India tours
Star India
India 750 34 13 50 233 34 13 50 233 2012-18
Other bidder was Sony
(US$727mn)
Star India Australia NA 27 12 44 191 4 2 11 33 2013-17 Two India tours
ZEEL South Africa 180 39 32 68 295 6 4 14 48 2013-20 Two India tours
ZEEL Sri Lanka 60 22 22 56 188 3 2 5 22 2013-20
Cost of India tour:
US$25.5mn
ZEEL West Indies NA 34 20 60 250 6 2 10 42 2013-20
Two Indian tours:
FY16 and FY20
ZEEL Zimbabwe NA 22 13 45 168 2 0 6 16 2012-19 Two Indian tours
Neo New Zealand NA 36 16 65 261 6 3 10 43 2013-20
Two Indian tours:
FY14 and FY19

Star India CL T20 900 2008-17
Star India
ICC
Tournaments 1,100 2007-15 18 ICC tournaments
Neo India Asia Cup 2014
ROFR for next three
Asia Cups till 2020
Sony IPL 1,600 2009-17
Was increased after
first year
CL T20 Champions League T20; ICC- International Cricket Council; IPL Indian Premier League.
Source: Cricinfo, media articles, I-Sec research.

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ZEEL and Cricket Checkered past

Date: 2000: ICC cricket rights from 2000 to 2006.
ICC rights were sold to News Corps Global Cricket Corporation for US$550mn
despite ZEEL bidding highest at US$625mn. ZEELs insufficient sport marketing
experience was cited as the reason.
Date: Sept04: Five-year telecast rights, with Board of Control for Cricket in
India (BCCI), of all matches to be played in India.
Zee Telefilms (ZEEL now) bags India home telecast rights from Oct04 to Sep08
for US$308mn.
ESPN moves court on ZEEL, insisting ZEEL was not eligible as it did not
possess the required two-year experience in "producing" live international cricket
matches.
BCCI files affidavit in Bombay High Court cancelling the tender process for
telecast rights.
Date: Apr06 -May07: Five-year telecast rights of all Indias matches to be
played on neutral non-ICC venues, with BCCI
ZEEL and the BCCI sign a five-year deal in Apr06 worth US$219,000 (Rs9mn)
for global overseas media rights for all matches played by India overseas on
neutral non-ICC member venues from Apr06 to Mar11.
BCCI awarded India rights for four years (2006-10) to Nimbus Sports (Neo) for
US$612mn.
Sport Broadcasting Bill was introduced making it mandatory to share live feed of
national Sport events with Doordarshan and All India Radio on free-to-air basis.
BCCI agrees to slash prices for Nimbus by 12%, but no such deal signed with
ZEEL.
BCCI terminated the agreement with ZEEL in May07.
In 2012, Arbitral tribunal held BCCI guilty of exploiting its dominant position for
arbitrarily terminating its five-year broadcast rights contract with ZEEL and was
asked to pay Rs1.4bn as penalty.
Date: Nov06: Launch of Indian Cricket League (ICL)
Apr07: Launch of ICL. ICL was termed illegal by BCCI and subsequently BCCI
launched IPL in April 2008 in similar format as ICL.
May09: Closure of ICL with amnesty granted to all the players by the respective
boards.

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Economics of Sport broadcast weak in India
Sport broadcast economics is currently weak in India as reflected in ZEELs and Neo
Sports heavy losses from the segment. We believe the weak economics is mainly
on due to: a) over-dependence on cricket, b) near-absence of subscription revenues
and c) Short duration of rights. Further, broadcasters are at the mercy of cricket
boards as was evident in the deal between Sony Network and BCCI, where Indian
Premier League (IPL) rates were renegotiated post success of the format.
IPL Success formula is here BUT most gains captured by BCCI
Chart 2: Net surplus for BCCI from IPL Chart 3: Net surplus for BCCI from Champions
League
149
(42)
1,188
2,651
(500)
0
500
1,000
1,500
2,000
2,500
3,000
FY09 FY10 FY11 FY12
(
R
s

m
n
)
13
393
483
476
0
100
200
300
400
500
600
FY09 FY10 FY11 FY12
(
R
s

m
n
)
Source: BCCI, I-Sec research

Chart 4: Sport segment has reported losses for both Nimbus and ZEEL over past few years

(936)
(1,960)
(3,417)
(2,746)
(3,347)
(4,000)
(3,500)
(3,000)
(2,500)
(2,000)
(1,500)
(1,000)
(500)
0
E
B
I
T
D
A

(
R
s

m
n
)
Neo sports
(859)
57
313
(576)
(2,078)
(1,480)
(870)
(2,500)
(2,000)
(1,500)
(1,000)
(500)
0
500
FY07 FY08 FY09 FY10 FY11 FY12 FY13
E
B
I
T
D
A

(
R
s

m
n
)
ZEEL sports segment

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But, sport broadcast economics can change for GOOD under
digitisation
Sport broadcast in India has been a loss-making proposition as all gains from rights
have been appropriated by the rights-holder in this case of cricket, the BCCI. This
is largely due to the short periods of BCCI rights, viz. 3-5 years. However, this
recently has changed, with IPL rights being for 10 years, and Star India recently
gaining home (domestic and international) cricket rights for seven years. Also, ZEEL
has been able to sign longer-term deals for South Africa, Sri Lanka, West Indies and
Zimbabwe tour which would mean the upsides of digitisation will be there for
broadcasters in the event that things go right.
Table 4: Broadcasters signing longer-term deals

Previous deal Current deal
Duration Amount (US$ mn) Duration Amount (US$ mn)
India 2010-14 400 2012-18 750
South Africa 2008-12 75 2013-20 180
Sri Lanka 2009-13 65 2013-20 60
West Indies 2008-12 60 2013-20 NA
New Zealand 2007-12 50 2013-20 NA
IPL 2008-17 1,026 2009-17 1,600
ICC 2007-15 1,100
Source: Media articles, I-Sec research

There will be clear winners and losers
Given that most cricket broadcast rights have been blocked by the leading
broadcasters for longer periods how the economics of Sport changes will be
decide winners and losers. Clearly, Star India has made maximum bets followed up
by Sonys US$1.6bn bet on IPL whereas ZEEL is cautious given its checkered past
in cricket. Sports broadcasting performance in the next 4-5 years could determine
the winners and losers in Indian broadcasting space.
Change in fortune of Sport broadcasters will depend on: a) successful
implementation of digitisation, which will drive pay-TV revenues, b) localisation of
content to penetrate regional markets leading to larger advertiser base, and c) higher
adoption of non-cricket Sport in India. Developing of non-cricket Sport and regional
cricket can help broadcasters gain viewership with low cost rights on a sustainable
basis, which can aid profitability.
Table 5: Most cricket broadcast rights locked till FY18
Network 2012 2013 2014 2015 2016 2017 2018 2019 2020
India
Australia
England
ICC tournaments
Star
India Champions League T20
South Africa
Sri Lanka
West Indies
ZEEL Zimbabwe
Neo New Zealand
Sony
Network IPL
Shift in deal duration
from 4-5 years to 6-8
years should help
improve economics

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Local tournaments in non-cricket sport the future of sport
broadcast in India?
With the success of IPL, broadcasters in India have started focusing on developing
non-cricket Sport as well. ESPN Star Sports (ESS) recently telecasted Indian
Badminton League, an IPL style format promoting badminton in India. Further, ESS
and Neo Sports have ventured into Hockey with Hockey India League and World
Series Hockey respectively. Sony recently partnered with NBA to launch NBA Jam, a
travelling interactive basketball festival in India. Reliance IMG has acquired all
commercial rights of basketball and football in India for the next 15 years and has
launched IPL-style league in football with the first season to be played in J an14. Big
bets by broadcasters and corporates to promote non-cricket Sport in India could
finally shift attention away from cricket and deliver a more economical solution to
target the male audience in India.
Table 6: Broadcast rights across networks
Star India ZEEL Sony Network Neo
Cricket
India South Africa IPL New Zealand
Australia Sri Lanka Asia Cup
England West Indies
ICC tournaments Zimbabwe
Champions League T20
Football
FIFA World Cup 2014 UEFA Champions League Euro 2016 German Bundesliga
English Premier League French Ligue 1 FIFA World Cup 2018 qualifiers
FA Cup
Spanish La Liga
Italian Serie A
Tennis
Australian Open US Open French Open
Wimbledon Chennai Open Davis Cup
ATP series FED Cup
Wrestling/
martial arts
SFL WWE
UFC
TNA Wrestling

Golf
Masters Tournament PGA European Tour
PGA Tour
The Open Championship PGA Championship
The US Open Ryder Cup

Others
Winter Olympics (2014) Tour de France NBA Rugby World Cup
Summer Olympics (2016) Commonwealth Games (2014) Rugby Six Nations
Formula 1 Euroleague Basketball Super Rugby
Major League Baseball Rugby Championship
Domestic
Cricket PGTI (Golf) Basketball World Hockey series
Hockey India League I-League (Football)
Indian Badminton League Indian Federation Cup (Football)
Kabaddi
Source: Cricinfo, Media articles, I-Sec research

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Sport also to exert rub-off effect on network
Sony ventured into sport broadcast in India in 2003 by acquiring telecast rights for
ICC World Cup. But the game changer was their big bet on IPL whose success we
believe has had a rub-off effect on the entire network. Sony Networks GRPs have
increased from 250 levels in 2008 (pre-IPL) to 450 levels currently. While increase in
market share was primarily led by higher viewership of Set Max (especially during
IPL), we believe the success gave Sony enough firepower to invest in acquiring
superior content (e.g. telecast of KBC, higher intensity of satellite rights acquisition),
which has aided the entire network in gaining market share. Presence of strong
Sport properties will also help in better bouquet selling / packaging by networks.
Chart 5: Sony Network ratings improving significantly post IPL
200
250
300
350
400
450
500
550
600
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(
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Source: TAM CS4+HSM, I-Sec research

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Who owns entertainment?
The importance of content is set to increase with the advent of digitisation. In the
analogue market, networks with legacy distribution ruled. More often, broadcasters
themselves owned the distribution enabling better reach for its channels. However,
with digitisation, we expect content to be the key driver of market shares as
distribution just becomes an enabler. We believe digitisation will further escalate the
importance of content due to: a) reduced entry barriers for competition, and b)
greater emphasis on customer to choose and pay for content he/she prefers. While
one cannot deny the role of distribution, we believe there will now be a fair playing
field for quality content, which will open up the market for anybody with quality
content.
Networks have ruled in the past
In the analogue mode, large broadcasting networks with investments in distribution
controlled the market. In that mode, the cost of entry for a new player was
abnormally high owing to carriage fees. ZEEL, Sun Network and Star India have had
active investments in cable and DTH platforms. This was essential in the analogue
mode initially to promote distribution and later to control distribution. However, the
relevance of control over distribution is likely to reduce in the digitised environment,
and benefits are likely to be limited to those of scale. We believe ownership of
distribution is unlikely to play a major role in a content-driven market.
Bouquet owners: Genre-wise leaders
Star India and ZEEL have been the key leaders across genres in the Indian
broadcast space. However, over the last few years, Star India has emerged a
stronger player in the GEC space with the additional launch of Life OK, significant
gains in the regional space by dislodging ZEEL in the Bengali and Marathi market,
and gaining strong traction in the Kannada market. Zee TV has failed to fortify its
position in the Hindi GEC space as Colors has been a close competitor and Sony TV
along with Sab TV has a higher share. TV18s presence is largely limited to the GEC
space and infotainment, whereas its regional channels have lost market share to
Star India and ZEEL. Sun Network continues to have an unchallenged market
standing in South India, which has been further strengthened with launches of
multiple channels.
Table 7: Network wise positioning
ZEEL Star India
Sony
Network TV18 Sun Network
Hindi GEC

Hindi movies
Bengali

Marathi

Tamil
Telugu

Kannada
Malayalam
Sport
English entertainment

Infotainment

HD

Source: Company data, TAM, I-Sec research; Shaded area represents strength of the network in that genre
Group DTH Cable
Essel
Star India*
Sun Group
Sony
TV18
Source:I-Sec research.
*Star India exited Hathway
Cable in 2012

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With digitisation, we expect significant increase in the number of channels as the
cost of entry reduces. Digitisation allows an easier option for entry of new players
like Times Television Network with four channels and planned launch of one
more niche channel. Among the networks, we see huge gaps in childrens,
comedy and regional Marathi and Bengali channels, which need to be filled.
Also, we see a huge increase in niche channels as digitisation enables
economics for channels in sport (golf), cookery, home-shopping, etc. It is up to
the networks to fill this gap or leave it for new players to enter.
Hindi GEC Star Plus at pole position; fight on for no.2 slot
In the digitised mode, strength of a genre is likely to be decided by the number of
channels in the particular genre, quality of programming - originality of content and
scale of investment in programming.
Star Plus is the clear leader in the Hindi GEC space in terms of market share all-
day and prime time, or share of top programmes. As a network, Star India and Sony
Network have the advantage of having two strong channels each in the GEC space.
ZEEL needs to invest in another GEC channel to fortify its genre standing, despite
an earlier failure as Zee Next failed to take off in 2007. The initiative of ZEEL to
launch a new channel Anmol seems a half-hearted approach as it is slated to air re-
runs of Zee TVs popular old and current shows. The channel is similar to Star Utsav,
which airs re-runs of popular shows earlier telecast on Star Plus. With Star Utsav
reporting weekly ratings of ~50 GRPs (4% market share among GECs), we fear that
Zee Anmol too could find it challenging to grab significant additional market share for
ZEEL.
Table 8: Tier-2 GECs picking up steam with increasing share of top programmes
(number of programmes)
Q3FY11 Q4FY11 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q4FY13 Q1FY14 Q2FY14*
Colors 26 29 32 30 24 23 23 23 27 27
SAB - - - 3 5 5 5 8 6 9
Sony 7 6 6 14 17 15 14 7 7 9
Life OK - - - - - 0 2 5 4 1
Star Plus 45 39 37 34 39 36 33 30 35 33
Zee TV 21 25 24 18 15 20 23 27 21 21
Total 100 100 100 100 100 100 100 100 100 100
Colors 13 16 16 15 11 9 10 15 14 14
SAB - - - 1 0 3 1 5 5 6
Sony 3 1 0 8 10 6 5 0 1 2
Life Ok - - - - - - 0 0 0 -
Star Plus 27 20 21 19 26 27 26 20 21 22
Zee TV 7 13 12 7 2 4 7 9 9 6
Total 50 50 50 50 50 50 50 50 50 50
*Q2FY14 data as of J ul13
Source: TAM CS4+HSM, I-Sec research

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Also, the quality and scale of programming stands to gain importance and networks
are likely to invest in bigger and better shows to woo viewers. While the cost of a
programme has low correlation with its performance, there are certain time-tested
international formats, which are usually high on ratings. While international format
shows garner better ratings for the channel, they come with a heavy price tag which
all networks except ZEEL seem to be willing to pay. We also believe that the scale of
programming is to rise as costume drama and big-budget shows become a high
attraction.
Zee TV prefers home-grown formats of content as against more expensive
international formats used by other networks. While indigenous content has worked
for Zee TV in the past with its flagship dance reality show Dance India Dance
outperforming peers, unwillingness to try expensive international formats could hurt
the channels prospects in the long run.
Table 9: Networks investing in big-budget international format shows
Show International format Channel
Bigg Boss Big Brother Colors
India's got talent America's got talent Colors
24 24 Colors
Fear Factor Fear Factor Colors
Jhalak Dikhla Jaa Dancing with the stars Colors
KBC Who wants to be a millionaire Sony
Indian Idol American Idol Sony
Entertainment ke liye kuch bhi karega 30 seconds to fame Sony
Master Chef India Master Chef Star Plus
Survivor India Survivor Star Plus

Table 10: Investment in costume dramas by all players
Show Channel
Maa Durga Colors
Mahadev Life OK
Ramleela Life OK
Mahabharat Star Plus
Maharana Pratap Sony
Jai Bajrang Bali Sahara One
Ramayan Zee TV
Jodha Akbar Zee TV
Buddha Zee TV

ZEEL is refraining
from investing in
international format
shows
All networks are
investing in costume
dramas

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Investment in movies From luxury to necessity
Acquiring satellite rights of movies is another way to safeguard network viewership
share and garner viewership for new fiction programmes. While cost of movie rights
has seen very high inflation, movies still make good economic sense due to the
network benefits of self-promotion and the ability to pull up during patches of lean
programming (case in point: Sony TVs current performance). In a digitised
environment, the importance of satellite movie rights is likely to rise as it is among
the most important genre with sport and GEC for influencing package selection.
Table 11: Big-budget movie premieres garnering high ratings
2012 2011 2010
Film Network TRP Film Network TRP Film Network TRP
Ra. One Star 6.7 Bodyguard Star 10.3 3 Idiots Sony 10.8
Bol Bachchan Star 4.8 Singham Star 8.8 Dabangg TV18 9.2
Agneepath ZEEL 4.7 Golmaal 3 TV18 5.0 Ajab Prem Ki Gajab Kahani TV18 7.5
Ek Tha Tiger Sony 4.6 Zindagi Na Milegi Dobara Star 4.1 Khatta Meetha TV18 4.8
Source: TAM HSM CS 4+, FICCI KPMG report, I-Sec research
While there is plenty of availability of movie content with 100+new Hindi movies
released every year, competition to garner satellite rights for big-budget / popular
star-cast movies is high as reflected in the rising satellite right costs in the past 2-3
years. Further, Star India has signed deals for forthcoming movies of two popular
Bollywood actors (Salman Khan and Ajay Devgan) for Rs5bn and Rs4bn
respectively, which highlights broadcasters clamour for popular content. Currently,
Star India and ZEEL boast of a strong library of ~5,000 and >3,500 movies
respectively. We believe, for movie content to become a differentiator, networks
need to buy-in exclusive rights for long periods of time.
Chart 6: Cable and satellite rights prices witnessing strong growth

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Source: KPMG, FICCI KPMG report

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Among the networks, from a library perspective, ZEEL and Sun Network are well
placed in the Hindi and South India markets respectively. However, in the new Hindi
movie library space, there is high competition, with Sony Network and Star India the
most aggressive accumulators. Further, some of the movie studios have also
ventured out into broadcasting with their own movie channels (UTV - UTV Movies,
Eros - HBO Hits and HBO Defined). However, we believe this will encompass only a
small chunk of the overall movies produced and majority of the satellite rights would
still need to be bid for)
Table 12: Satellite rights prices going through the roof
2013 2012 2011
Film Network
Satellite rights
(Rs mn) Film Network
Satellite rights
(Rs mn) Film Network
Satellite rights
(Rs mn)
Chennai Express ZEEL 400+ Ek Tha Tiger Sony 750 Bodyguard Star 280-300
Yeh Jawani Hai Diwani Sony 250 Jab Tak Hai Jaan Sony 350-400 Don 2 ZEEL 320
Krish 3 Sony 380 Rowdy Rathod Sony 350 Ra. One Star 400
Dhoom 3 Sony 750 Dabaang 2 Star 440
Talaash Sony 400
Agneepath ZEEL 400

Chart 7: ZEEL inventory of movies and programs have increased considerably
over last 3 years
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FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
(
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programs and movies

Source: Company data; I-Sec research

Table 13: ZEEL catching up to Sun Networks investment intensity
(Rs mn)
Sun TV FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Acquisitions 402 807 1,051 1,073 1,749 1,992 2,925 4,288
Amortisation 434 835 714 1,065 1,401 1,803 2,519 3,132

ZEEL
Acquisitions 2,160 3,281 NA
Amortisation 1,551 1,531 NA

ICICI Securities

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Table 14: Sony Network and Star India most aggressive in satellite rights acquisition
Colors Star India ZEEL Sony
FY14
Raanjhanna Mental Chennai Express Yeh Jawani Hai Diwani
Go Goa Gone Nautanki Saala Krish 3
Ishkq in Paris Chashme Buddor Dhoom 3
Kochadaiyaan Satyagraha Lootera
Once upon a time in Mumbai 2
Aashiqui 2
Ek thi daayan
Aurangzeb
Shootout at Wadala
FY13
Cocktail Housefull 2 Barfi! Jab Tak Hai Jaan
Khiladi 786 Dabaang 2 Joker Rowdy Rathore
Shirin Farhad Ki Toh Nikal Padi Bol Bachchan ABCD Talaash
3G Son of Sardaar Himmatwala Ek Tha Tiger
Table 21 Matru Ki Bijlee Kai Po Che Raaz 3
Bittoo Boss Jolly LLB Race 2 Tezz
Vicky Donor Ekk Deewana Tha Luv Shuv te Chicken Jannat 2
Oh My God Ferrari Ki Safari English Vinglish Ishaqzaade
Special 26 Heroine Shanghai
Student of the year
Murder 3
FY12
Blood Money Bodyguard Agneepath Mere Brother Ki Dulhan
Chillar Party Ready Don 2 Murder 2
Thank You Rockstar Desi Boyz The Dirty Picture
Singham My Friend Pinto Aarakshan
Zindagi Na Milegi Dobara BBuddah Hoga Terra Baap Ek Main Aur Ekk Tu
Ra.One Agent Vinod Faltu
Kahaani Players Ladies Vs Ricky Bahl
Dil Toh Baccha Hai Ji Luv Ka The End
Force Tere Naal Love Ho Gaya
London Paris New York Dangerous Ishq
Phas Gaye Re Obama Paan Singh Tomar
Always Kabhi Kabhi Mujhse Fraaandship Karoge
Dum Maro Dum
FY11
Dabangg Housefull Double Dhamaal Badmaash Company
Golmaal 3 I Hate Luv Storys Shaitan (Kalki) Band Baaja Baaraat
Kites Once Upon A Time In Mumbai Pyaar Ka Panchnama Crook
Tees Maar Khan Raajneeti Shagird [Nana Patekar] Hisss
Guzaarish Anjaana Anjaani Chalo Dilli Pyaar Impossible
7 Khoon Maaf Action Replayy Masti Express Rakhtcharitra
Khatta Meetha (Akshay) Atithi Tum Kab Jaoge Satrangee Parachute Rakhtcharitra-2
Lafangey Parindey Do Dooni Chaar Tanu Weds Manu Robot
Lamhaa Guzaarish Break Ke Baad We Are Family
Once Upon A Time In Mumbai Jhootha Hi Sahi No Problem Yamla Pagla Deewana
Prince Milenge Milenge Peepli Live
Raavan Veer
Aisha Rann
Udaan Patiala House
FY10
Ajab Prem Ki Ghazab Kahani De Dana Dan All The Best 3 Idiots
Chance Pe Dance My Name Is Khan Love Aaj Kal Newyork
Life Partner Wanted Kaminey Dil Bole Hadippa
Love Sex Aur Dhokha Blue Ishqiya Rocket Singh
Right Yaaa Wrong Paa Kurbaan Striker
Tum Mile Paathshaala
Wake Up Sid Karthick Calling Karthick
Source: TAM, Media articles, I-Sec research. Shaded movie names represent top movies in terms of gross collections

ICICI Securities

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Digitisation from a content perspective
In this section, we argue that though gains from digitisation will help improve
economics of the broadcasting space, a lot of the gains will need to be ploughed
back into content. In the analogue mode, along with quality content, broadcasters
needed a lot of financial muscle or control over distribution to reach out to
consumers. Market shares in the analogue mode were decided not only by quality of
content but, equally importantly, by distribution reach. Digitisation will help improve
transparency and give way to primacy of content over distribution. While the initial
gains will be driven by reduction of leakage (a norm in the analogue regime) and
lower carriage fees, we believe the real opportunity lies in driving ARPU and that
only players with strong market standing will stand to gain.
Subscription revenue from cable to triple by FY18
DTH industry currently pay ~Rs27bn as content costs to broadcasters, which is
almost the same as what the entire cable industry pays despite the DTH subscriber
base being less than half that of cable. The difference is starker if one were to adjust
for the ~Rs15bn carriage fees made by the cable industry, which reduces the net
payout of content fees to a mere Rs11bn. We believe that, with digitisation, content
costs payout from cable will increase 2.8x and carriage fees will reduce to half by
FY18E.
Chart 8: DTH industry pays Rs27bn as content fees to broadcasters
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Source: I-Sec estimates

Table 15: Broadcasters revenue from cable to double from removal of leakage
HHs (mn) Content Cost (Rs mn) CPS* (Rs/month)
DTH 40 26,784 55
Cable 86 25,253 24
Assuming cable CPS at par with DTH CPS
Cable CPS @ DTH rates 86 57,139
Slippage from Cable 31,886
*CPS: Content cost per subscriber per month

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Digitisation gains will be best driven by ARPU
The Indian media industry has been plagued by low ARPU mainly on account of
slippages in analogue, archaic regulation w.r.t. channel pricing, and lack of an
alternative distribution system like DTH. The last-mile cable owners had no incentive
to raise prices and have only pushed prices down with the advent of DTH to stay
competitive. As last-mile operators are forced to pay content costs and taxes, we
expect the cost to consumer to rise. Also, consumers will want to select packages
and channels as against everything being available in a single package, which will
raise ARPUs.
Chart 9: Cost to consumer to rise up by ~70%

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Source: I-Sec research

Table 16: Digital cable announce packages at par with DTH
(Rs/month)
Packs Hathway DEN Siticable Dish TV Tata Sky
Airtel
Digital TV
Videocon
d2h
Basic 180+taxes 160+taxes 170+taxes 220 220 220 220
Medium 225+taxes 245+taxes 222+taxes 280 300 300 285
Premium 270+taxes 275+taxes 267+taxes 400 430 430 396
Note: Prices inclusive of taxes for DTH and exclusive of entertainment and service tax for cable
Entertainment tax varies from state to state. Service tax @12.36%

Chart 10: Customers to start paying for premium and niche content
Base pack Sports
Engl i sh
Entertai nment
Li festyl e
HD


Channel packages
announced by cable
companies indicate
likelihood of higher
ARPU going forward
As tiering gains
prevalence,
customers will start
paying for premium
and niche content,
which currently is
available under the
analogue cable
regime, as part of
basic subscription
package

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Consumers willing to pay high price for quality
The Indian consumer has displayed willingness to pay for quality in other forms of
entertainment medium such as cinema. For instance, average ticket price (ATP) at
multiplexes is almost 3-4x that at single-screen theatres, and data for PVR Cinemas
indicates that ATP has grown at a CAGR of 8% over the past six years. We believe
that ARPU levels can follow the same growth trajectory over a longer term as
consumers start paying for quality content and premium service.
Table 17: Average ticket price: Multiplex vs single screen
Single screen Multiplex
Average Ticket Price (Rs) 25-30 125-130
Occupancy 15-20% 25-30%
Seating capacity (per screen) 700-800 200-250
Source: PWC

Chart 11: Average collection per footfall has grown at a CAGR of 8%
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Ticket rate / person (excl. entertainment tax) F&B / person

Data for PVR cinemas; Source: Company data; I-Sec research

ICICI Securities

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Subscription revenues to triple in next five years
We expect broadcasters subscription revenues to become 2.8x in the next five
years, as we expect 75% addressability by FY18 and 100% by FY23E. We factor
digitisation in 7-8 years and addressability (cash flows) in 10 years. Currently, while
digitisation is in place in Delhi and Mumbai (just two out of the four metros) from
Nov12 onwards, addressability is still pending. Phase-2 markets have seen partial
digitisation and addressability is quite some time away.
Table 18: Broadcasters subscription revenues to become 2.8x in next five years
FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E
Households (mn)
C & S HHs - Cable +DTH 127 135 144 152 161 171 181 192 204 218
DTH 40 45 50 54 58 63 70 77 84 92
Cable Digital 1 4 13 31 50 65 83 97 110 124
Cable Analogue 85 87 80 68 53 43 28 19 10 2

Broadcasters' revenues (Rs mn)
Total revenue 52,038 60,991 71,982 87,670 109,859 134,320 163,106 196,587 233,574 277,101
DTH 26,784 33,624 40,569 47,577 55,055 64,444 76,467 91,217 108,243 127,936
Cable Digital 145 1,089 5,246 16,152 34,585 53,398 74,072 96,787 119,998 146,978
Cable Analogue 25,108 26,277 26,166 23,941 20,218 16,478 12,568 8,583 5,333 2,186

ARPU (Rs/month)
Blended ARPU 167 176 186 199 216 236 259 284 312 342
DTH 173 187 202 218 235 254 274 296 320 345
Cable Digital 173 187 202 218 235 254 274 296 320 345
Cable Analogue 165 170 175 180 185 191 197 203 209 215

Carriage fee (Rs mn) 14,720 14,269 12,889 11,139 9,200 7,846 6,200 5,146 4,225 3,543

Net subscription revenue (Rs mn) 37,318 46,722 59,093 76,531 100,659 126,474 156,906 191,440 229,349 273,558

Digitisation penetration (%)
Metro 10 25 75 100 100 100 100 100 100 100
Phase-2 0 10 25 75 100 100 100 100 100 100
Phase-3 0 0 10 25 60 75 90 100 100 100
Phase-4 0 0 0 5 13 30 50 60 75 90

Chart 12: Gross broadcasters revenues to increase at a CAGR of 20% in next
10 years
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FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E
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CAGR 20%


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But, will the gains flow through to EBITDA?
Currently, the business model of broadcasters is heavily hinged upon network
strength. Stronger the network better is the reach on distribution platforms, leading to
higher advertisement and subscription revenues. However, post-digitisation, we
believe ratings/market shares of channels will be the main driver of advertisement as
well as subscription revenues, thereby making investments in content even more
critical. Therefore, we believe substantial gains from higher subscription revenues
will be invested back into content. A case in point is the Hindi film industry, in which
improving theatrical collections owing to rise in multiplex revenues have resulted in
substantial increase in remuneration for actors.
Chart 13: ZEELs domestic subscription revenues
have grown at a significant pace
Chart 14: but profitability has stagnated on
account of investments in content
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FY08 FY09 FY10 FY11 FY12 FY13
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EBITDA Margin (excl domestic subscription revenue)

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Index Tables and Charts
Tables
Table 1: Star India and Sun Network boast of best quality content ................................... 3
Table 2: Sport genre commands premium ARPU ............................................................. 4
Table 3: Star India leading the pack by acquiring major cricket broadcast rights .............. 5
Table 4: Broadcasters signing longer-term deals .............................................................. 8
Table 5: Most cricket broadcast rights locked till FY18 ...................................................... 8
Table 6: Broadcast rights across networks ........................................................................ 9
Table 7: Network wise positioning ................................................................................... 11
Table 8: Tier-2 GECs picking up steam with increasing share of top programmes ......... 12
Table 9: Networks investing in big-budget international format shows ............................ 13
Table 10: Investment in costume dramas by all players .................................................. 13
Table 11: Big-budget movie premieres garnering high ratings ........................................ 14
Table 12: Satellite rights prices going through the roof ................................................... 15
Table 13: ZEEL catching up to Sun Networks investment intensity................................ 15
Table 14: Sony Network and Star India most aggressive in satellite rights acquisition ... 16
Table 15: Broadcasters revenue from cable to double from removal of leakage ........... 17
Table 16: Digital cable announce packages at par with DTH .......................................... 18
Table 17: Average ticket price: Multiplex vs single screen .............................................. 19
Table 18: Broadcasters subscription revenues to increase 2.8x in next five years ........ 20

Charts
Chart 1: ZEEL underperforming Star India and Sun TV Network in terms of revenue growth .......... 3
Chart 2: Net surplus for BCCI from IPL ............................................................................................ 7
Chart 3: Net surplus for BCCI from Champions League ................................................................... 7
Chart 4: Sport segment has reported losses for both Nimbus and ZEEL over past few years ......... 7
Chart 5: Sony Network ratings improving significantly post IPL ...................................................... 10
Chart 6: Cable and satellite rights prices witnessing strong growth ................................................ 14
Chart 7: ZEEL inventory of movies and programs have increased considerably over last 3 years . 15
Chart 8: DTH industry pays Rs27bn as content fees to broadcasters ............................................ 17
Chart 9: Cost to consumer to rise up by ~70% ............................................................................... 18
Chart 10: Customers to start paying for premium and niche content .............................................. 18
Chart 11: Average collection per footfall has grown at a CAGR of 8% ........................................... 19
Chart 12: Gross broadcasters revenues to increase at a CAGR of 20% in next 10 years ............. 20
Chart 13: ZEELs domestic subscription revenues have grown at a significant pace .................. 21
Chart 14: but profitability has stagnated on account of investments in content ........................... 21

23
Market Cap Rs213bn/US$3.3bn

Year to March FY12 FY13 FY14E FY15E
Reuters/Bloomberg ZEE.BO/Z IN

Revenue (Rs mn) 30,405 36,996 42,113 46,613
Shares Outstanding (mn) 959

Rec. Net Income (Rs mn) 5,891 7,196 8,002 9,601
52-week Range (Rs) 259/169

EPS (Rs) 6.1 7.5 8.3 10.0
Free Float (%) 56.9

% Chg YoY 5.9 24.1 10.6 20.0
FII (%) 42.5

P/E (x) 36.6 29.5 26.7 22.2
Daily Volume (US$/'000) 10,833

CEPS (Rs) 6.4 8.0 8.8 10.5
Absolute Return 3m (%) (4.0)

EV/E (x) 27.1 21.0 18.6 15.5
Absolute Return 12m (%) 30.3

Dividend Yield (%) 0.7 0.9 0.9 1.2
Sensex Return 3m (%) (0.8)

RoCE (%) 18.3 19.9 19.4 20.3
Sensex Return 12m (%) 9.0

RoE (%) 18.0 19.6 19.1 20.0

Equity Research
September 10, 2013
BSE Sensex: 19270
Media

Target price Rs240

Shareholding pattern
Dec
12
Mar
13
Jun
13
Promoters 43.4 43.4 43.1
Institutional
investors
48.9 50.4 50.4
MFs and UTI 9.0 6.5 6.0
Insurance Cos. 2.4 2.2 1.9
FIIs 37.5 41.7 42.5
Others 7.7 6.2 6.5
Source: NSE

Price chart
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Zee Entertainment Enterprises REDUCE
Upgrade from SELL
Not enough firepower to become numero uno Rs222
Reason for report: Company update and recommendation change

Vikash Mantri
+91 22 6637 7161
Satish Kothari
+91 22 6637 7510
Akhil Kalluri
+91 22 6637 7339
Zee Entertainment Enterprises (ZEEL) focus on profitability has made it a
cautious investor in content, which has been at the expense of growth and ability
to hold on to its market share. We highlight that companies like Star India and Sun
TV Network have fared far better than ZEEL in terms of revenue as well as market
share stability over the past five years. In the event of digitisation, low
investments in content are likel y to haunt ZEEL as even pay-TV revenues start
exhibiting a correlation with viewership share and ownership of key content. Also,
ZEELs recent investments have been more focussed towards international
presence launch of Zee Alwan (Arabic channel) and investment in digital content
Ditto TV and the web portal india.com. We upgrade ZEEL to REDUCE (from
SELL) post the recent correction in its stock price maintaining our target price of
Rs240. We do not see reason to downgrade numbers as advertisement revenues
for ZEEL are driven by FMCG spends, which are likely to be strong. Key risks to
our call a) faster than expected digitisation gains and b) higher ad growth led by
strong FMCG spends.
ZEELs investment intensity lacking vis--vis peers. ZEEL has failed to capitalise
on the growth by not investing enough in content and focusing more on profitability.
The company lags its peers in terms of a second GEC, new movie acquisition, and
limited India cricket ownership. While the company has entered a few niche channels
like Zee Khana Khazana (cookery channel), sports (golf channel) and ZeeQ
(edutainment channel), it is yet to build a rival to SAB TV, Life OK and Movies OK.
Regional channels retrieving lost ground. ZEEL, after losing considerable ground
in the Bengali and Marathi genres, has regained some of its lost market share. Also,
the company has been faring better in Telugu and Tamil, though far away from the
leader.
ZEEL sport investments weak. ZEEL has limited ownership of India cricket with
South Africa and Sri Lanka boards being its key cricket rights. Interest in West Indies
(time difference) and Zimbabwe (low ranking) has been limited. Also, ZEELs
investments are dwarfed by Star Indias US$750mn bet on BCCI India rights, and
Sony Networks IPL rights.
Dividend payout (in the form of redeemable preference share) and digitisation
hopes are likel y to keep valuations rich, but high expectations have started to see
correction, and we expect downgrades in consensus earnings to continue.
INDIA

Zee Entertainment Enterprises, September 10, 2013
ICICI Securities

24
ZEEL Not enough firepower to become numero uno
The Essel group, promoters of Zee Entertainment Enterprises (ZEEL), has been the
pioneer in the Indian media space with investments in cable, DTH, HITS, Indian cricket
league (ICL) or building up Marathi and Bengali genres. ZEELs investment intensity
over the past 5-7 years has however been overshadowed by Star Indias investments
in sports, second GEC or regional broadcasting. We believe ZEEL needs to increase
its content intensity to ensure itself a formidable positioning across genres and prevent
new competition from chipping away its market share.
Hindi GEC Lack of tier-2 GEC hurting the network
ZEEL was the first network to launch a tier-2 GEC Zee Smile (a comedy channel
launched in 2004) and Zee Next (a youth-focused channel launched in 2007 and
folded up in only nine months). The launch of these channels by ZEEL was followed
by Star Indias launch of Star One in 2004 and Sonys acquisition of SAB TV in 2005.
While all four channels failed to make a significant impact initially, Sony Network and
Star India have been able to rebrand and renew their content with Life OK (earlier,
Star One) and SAB TV strong emerging as contenders in the Hindi GEC space.
Currently, among Hindi GECs, Star Network and Sony Network lead ZEEL on the
back of their tier-2 GECs
We believe ZEELs new initiative to launch a new Hindi GEC channel, Zee Anmol, is a
half-hearted approach as it is slated to air re-runs of Zee TVs popular old and current
shows. The channel is similar to Star Utsav which airs re-runs of popular shows earlier
telecast on Star Plus. With Star Utsav reporting weekly ratings of <50 GRPs (~4%
market share among GECs), we fear that Zee Anmol too could find it challenging to
grab significant additional market share for ZEEL.
Hindi movies ZEEL not building on library
ZEEL was also the pioneer in launching multiple Hindi movie channels, namely Zee
Action, Zee Premier and Zee Classic in 2003, in addition to its existing flagship movie
channel, Zee Cinema. While, ZEEL has among the best libraries of old movies
(Amitabh Bachchan collection), it has failed to be aggressive in acquisition of new
movie rights. Star India, with big budget satellite rights acquisition and the launch of
new channel Movies OK, has surpassed ZEEL in the movie genre. In 2013, Movies
OK garnered an average of ~55-60 weekly GRPs as against ~50 GRPs by all the
three flanker movie channels of ZEEL. We see the recent launch of &pictures, after
aggressive content acquisition in 2012, to help ZEEL in strengthening its presence in
the Hindi movie space.

ICICI Securities

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Chart 1: Hindi GEC and movies launch timeline
1992 1995 1998 2001 2004 2007 2010 2013
Zee TV (1992)
ZEEL
Star Plus (1996)
Movies OK (2012)
DB Corp
Sony Entertainment
Network (1995)
SET Max (2000)
SAB TV (2005)
1992 1995 1998 2001 2004 2007 2010 2013
Star TV
DB Corp
1992 1995 1998 2001 2004 2007 2010 2013
Sony
Star Gold (2000)
Zee Smile (2004)
9x (2010) Zee Anmol (2013)
Zee Cinema (1995) Zee Action (2003)
Zee Premier (2003)
Zee Classic (2003)
&Picture (2013)
Star Utsav (2004)
Star One (2004)
Life OK (2011)
Colors (2008)
DB Corp
1992 1995 1998 2001 2004 2007 2010 2013
TV18
Hindi GEC
(18% market share)
Hindi Movies
(23% market share)
Hindi GEC
(32% market share)
Hindi Movies
(35% market share)
Hindi GEC
(28% market share)
Hindi Movies
(27% market share)
Hindi GEC
(18% market share)

Source: Company data, TAM, CS4+HSM, I-Sec research

Regional markets ZEEL caught napping by Star India
ZEEL was the first national broadcaster to enter the regional markets of Marathi and
Bengali, with launch of Zee Marathi and Zee Bangla in 1999 and it entered into the
South Indian markets during the mid-2000s. However, ZEEL failed to create moats
around its business through launch of channels across genres as was done by its
competitor Sun Network. Sun Network, in its target markets, has channels across the
entire gamut of genres namely GEC, movie, comedy, music, kids, etc., which has
aided the network in maintaining its market share and created an entry barrier for new
competition. Star India launched its Marathi and Bengali channels in 2008 and was
able to gain leadership in Bengali and the no. 2 position in Marathi in a matter of 10
months. It was only in 2012 that ZEEL launched Zee Bangla Cinema, after entering
the Bengali market in 1999.

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Table 1: Regional markets Star India gaining market share across regions
Language Channel
Launch
date
Market share (%)
2007 2009 2011 2013*
Marathi
Zee Marathi 1999 47 45 31 36
Star Pravah 2008 - 16 28 41
ETV Marathi 2000 35 27 31 17
Bengali
Zee Bangla 1999 38 28 36 34
Zee Bangla Cinema 2012 - - - 6
Star Jalsha 2008 - 36 43 42
Jalsha Movies 2012 - - - 9
ETV Bangla 1999 41 23 15 7
Telugu
Gemini TV 1995 34 28 36 29
Zee Telugu 2005 7 15 16 17
ETV 1995 17 15 18 20
Kannada
Udaya 1994 50 40 39 31
Zee Kannada 2006 6 14 16 15
Suvarna** 2008 3 15 19 25
Suvarna Plus 2013 - - - -
ETV Kannada 2000 26 18 14 20
Tamil
Sun Tv 1993 68 65 66 63
Zee Tamil 2001, 2008 - 1 3 6
Star Vijay 2001 9 7 9 12
*Note: Data for 2013 till J ul13; **Acquired from Asianet in 2008
Source: TAM, Media articles, I-Sec research

Subscription revenue gains to be invested back into content
As discussed in the foregoing, we believe, digitisation will force networks to increase
their investment intensity in content as post-digitisation revenues will be primarily
driven by strength of content (ratings) as against strength of the network. ZEEL in the
past has invested incremental gains from subscription revenues into content
acquisition as reflected in its EBITDA gains being lower than overall gains in domestic
subscription revenues. We expect the trend to continue post digitisation as networks
will continue to invest in new channels/content. In our view, digitisation gains for ZEEL
will be more back-ended and we fear that the street is currently over-optimistic on the
companys profitability in FY14-FY15E. We expect ZEEL to register 20% and 16%
CAGRs in domestic subscription revenues and EBITDA respectively over FY13-18.
Chart 2: ZEELs domestic subscription revenues
have grown at a significant pace
Chart 3: but profitability has remained stagnant
on account of investments in content
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ZEEL lagging behind Star India
ZEEL has delivered 10% revenue CAGR over FY09-13; however, Star India has
outperformed ZEEL with a 32% CAGR over the same period. Star India should have
outperformed ZEEL even after adjusting for higher revenues in FY13 on account of
inclusion of sports for 8 months as is evident from companys revenue CAGR of 25%
over FY09-12 as against 6% revenue CAGR for ZEEL over the same period. Even
Sun TV Network (ex radio) has outperformed ZEEL with 15.9% and 16.4% total
revenue and ad revenue CAGR over FY09-13 as against 10% and ~12% for ZEEL.
Star Indias outperformance has been driven by strong performance across all genres,
be it Hindi GEC, Hindi movie, R-GEC or sport. Star Indias market share has improved
from 11% in FY09 to 22% in FY13 (#2 player being ZEEL with a 14% market share).
Further, in FY13, Star India accounted for 28% and 35% of total advertisement and
subscription revenues respectively, where stronger share of subscription revenues
could have been driven by the strength of the networks sport bouquet. We believe
ZEELs lower investment intensity could significantly hurt, especially in the wake of big
bets taken by Star India in the past few years.
Chart 4: ZEEL reporting 10% revenue CAGR over
FY09-13
Chart 5: however, Star India outperformed ZEEL
with 32% CAGR over FY09-13
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Chart 6: Star India clear leader in terms of GRP share
22%
14%
11%
6%
0%
5%
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Star ZEEL Sony Viacom
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Chart 7: ZEEL significantly lagging Star India in terms of market share
28%
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Ad revenue Subscription revenue
Star ZEEL


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Upgrade to REDUCE; Maintain TP of Rs240/share
We upgrade ZEEL to REDUCE from SELL maintaining our target price of Rs240/share
based on 24x FY15 P/E. Key risks to our call are faster than expected digitisation
gains and higher ad growth led by strong FMCG spends.
Chart 8: Recommendation history
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Note: The grey line indicates our target price

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Table 2: Quarterl y summary data
(Rs mn, year ending March 31)
FY12
FY12
FY13
FY13
FY14
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Advertisement revenues 3787 15841 3955 15841 17010 4472 5281 5094 4792 19639 5301
Growth QoQ% (21.0) 0.1 7.8 18.1 (3.5) (5.9) 10.6
Growth YoY% 0.5 (6.9) (10.1) (6.9) 59.4 18.1 33.7 28.8 15.5 24.0 18.5
Subscription Revenues 3051 13244 3262 13244 11259 3641 3950 4098 4546 16235 4241
Growth QoQ% (1.8) 12.1 (9.5) 8.5 3.7 10.9 (6.7)
Growth YoY% 16.7 17.6 15.7 17.6 14.1 19.3 35.7 25.6 13.0 22.6 16.5
Domestic subscription 2075 9222 2223 9222 7182 2505 2808 2961 3374 11649 3168
Growth QoQ% 0.0 0.1 0.0 0.1 0.1 0.1 (0.1)
Growth YoY% 0.3 28.4 0.2 28.4 27.1 0.2 0.4 0.3 0.4 26.3 0.3
Intl. subscription 976 4,022 1038 4,022 4,094 1137 1141 1136 1172 4,586 1073
Growth QoQ% (0.1) 0.1 0.1 0.0 (0.0) 0.0 (0.1)
Growth YoY% (0.0) (1.8) 0.0 (1.8) (1.9) 0.2 0.2 0.1 0.1 14.0 (0.1)
Others Sales & service 145 1320 332 1320 1166 317 305 197 305 1122 191
Growth YoY% (62.5) (0.3) 118.7 (6.0) (40.7) (41.2) (39.6)
Total Income 6983 30,405 7548 30,405 29,436 8430 9535 9389 9643 36,996 9733
Growth QoQ% (12.5) 5.1 (3.0) 13.1 (1.5) 2.7 0.9
Growth YoY% 3.2 3.3 (0.0) 3.3 33.8 20.7 32.7 24.4 11.0 21.7 15.5

Programming &
operating costs 3423 14311 3422 14311 14369 3757 4791 4185 4669 17401 4108
% of sales 49.0 47.1 45.3 47.1 48.8 44.6 50.2 44.6 48.4 47.0 42.2
Staff costs 747 2925 731 2925 2738 888 873 895 835 3491 956
% of sales 10.7 9.6 9.7 9.6 9.3 10.5 9.2 9.5 8.7 9.4 9.8
Admin & selling expenses 1253 5774 1236 5774 4762 1453 1695 1697 1716 6561 1754
% of sales 17.9 19.0 16.4 19.0 17.7 17.2 17.8 18.1 17.8 17.7 18.0
Total expenses 5422 23010 5389 23010 21870 6097 7359 6777 7220 27453 6818
% of sales 77.7 75.7 71.4 75.7 74.3 72.3 77.2 72.2 74.9 74.2 70.0

EBITDA 1561 7395 2160 7395 7566 2333 2177 2612 2423 9543 2915
EBITDA Margin % 22.3 24.3 28.6 24.3 25.7 27.7 22.8 27.8 25.1 25.8 30.0

Depreciation 89 323 74 323 288 99 96 90 115 399 87
Interest & financial charges 30 50 182 50 104 18 23 16 29 86 22
Other Income 255 1384 340 1384 851 301 260 360 538 1461 722
PBT 1696 8406 2243 8406 8025 2517 2318 2866 2817 10519 3528
Tax 394 2500 867 2500 2813 947 444 933 1014 3337 1289
Adjusted PAT 1337 5891 1393 5891 5614 1582 1876 1941 1795 7196 2246
Growth QoQ% (35.3) (10.7) (4.0) 18.6 3.5 (7.5) 25.2
NPM % 19.1 19.4 18.5 19.4 19.1 18.8 19.7 20.7 18.6 19.5 23.1

Sports Business
Revenues 873 3934 901 3934 4411 992 1818 1078 1072 4960 1159
Growth QoQ% (38.7) 2.3 (22.4) 83.3 (40.7) (0.6) 8.1
Growth YoY% 4.9 (10.8) (6.6) (10.8) 40.0 13.6 106.4 19.6 (16.2) 26.1 16.8
Costs 1439 5414 1001 5414 6489 1202 1987 1164 1477 5830 1254
Growth QoQ% (8.7) (9.6) (35.6) 65.3 (41.4) 26.9 (15.1)
EBITDA (566) (1,480) (100) (1,480) (2,078) (210) (169) (86) (405) (870) (95)
EBITDA Margin % (64.8) (37.6) (11.1) (37.6) (47.1) (21.2) (9.3) (8.0) (37.8) (17.5) (8.2)

Ex sports business
Revenues 6110 26471 6647 26471 25025 7438 7717 8311 8571 32036 8574
Growth QoQ% (6.8) 5.5 0.4 3.8 7.7 3.1 0.0
Growth YoY% 2.9 5.8 1.0 5.8 32.8 21.7 22.4 25.0 15.6 21.0 15.3
Costs 3983 17596 4388 17596 15381 4895 5372 5613 5743 21623 5564
Growth QoQ% (3.7) 9.7 (6.3) 9.7 4.5 2.3 (3.1)
Growth YoY% 7.3 9.4 22.9 34.2 27.9 9.9 13.7
EBITDA 2127 8875 2260 8875 9644 2543 2346 2698 2828 10413 3010
EBITDA Margin % 34.8 33.5 34.0 33.5 38.5 34.2 30.4 32.5 33.0 32.5 35.1

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Table 3: Annual summary data
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E
Advertisement revenues 9,307 10,593 10,670 17,010 15,841 19639 22538 24295
Growth % 32.3 13.8 0.7 59.4 (6.9) 24.0 14.8 7.8
Subscription revenues 7,436 9,038 9,869 11,259 13,244 16235 18396 21080
Growth % 11.9 21.5 9.2 14.1 17.6 22.6 13.3 14.6
Domestic subscription 4,043 4,546 5,652 7,182 9,222 11649 13885 16465
Growth% (39.2) 12.4 24.3 27.1 28.4 26.3 19.2 18.6
International subscription 3,393 4,492 4,173 4,094 4,022 4,586 4,511 4,615
Growth YoY% - 32.4 (7.1) (1.9) (1.8) 14.0 (1.6) 2.3
Others Sales & service 1,611 2,143 1,459 1,166 1,320 1122 1180 1239

Total Revenues 18,354 21,773 21,998 29,436 30,405 36,996 42,113 46,613
Growth % 21.1 18.6 1.0 33.8 3.3 21.7 13.8 12.0

Operational costs / COGS 7,818 9,810 9,452 14,369 14,311 17401 20160 21327
% of sales 42.6 45.1 43.0 48.8 47.1 47.0 47.9 45.8
Personnel costs 1,438 2,031 1,963 2,738 2,925 3491 4016 4445
% of sales 7.8 9.3 8.9 9.3 9.6 9.4 9.5 9.5
Admin and other exp 2,132 1,860 2,113 1,896 5,774 2514 2690 2977
% of sales 11.6 8.5 9.6 8.0 19.0 6.8 6.4 6.4
Selling and distribution exp 1,543 2,592 2,335 2,866 3,445 4047 4469 4946
% of sales 8.4 11.9 10.6 9.7 11.3 10.9 10.6 10.6
Total expenses 12,931 16,293 15,863 21,870 23,010 27453 31334 33695
Cost of Sales % 70.5 74.8 72.1 74.3 75.7 74.2 74.4 72.3

Total EBITDA 5,423 5,480 6,135 7,566 7,395 9543 10779 12918
EBITDA Margin % 29.5 25.2 27.9 25.7 24.3 25.8 25.6 27.7

Depreciation & amortisation 232 310 285 288 323 399 459 486
Interest & financial charges 516 1,339 331 104 50 86 90 94
Other Income 1,138 1,572 1,220 851 1,384 1461 1870 1963
PBT 5,813 5,403 6,738 8,025 8,406 10519 12100 14301
Tax 1,627 1,633 1,145 2,813 2,500 3337 4114 4719
Adjusted PAT 3,851 3,673 5,772 5,614 5,891 7196 8002 9601
Growth % 62.1 (4.6) 57.2 (2.7) 4.9 22.2 11.2 20.0
NPM % 21.0 16.9 26.2 19.1 19.4 19.5 19.0 20.6

Sports
Revenues 2,140 3,876 3,151 4,411 3,934 4960 6238 6181
Growth % 0.0 81.1 -18.7 40.0 (10.8) 26.1 25.8 (0.9)
Costs 2,083 3,563 3,727 6,489 5,414 5830 7579 6821
EBITDA 57 313 (576) (2,078) (1,480) (870) (1,341) (640)
EBITDA margin % 2.7 8.1 (18.3) (47.1) (37.6) (17.5) (21.5) (10.4)

Ex-Sports
Revenues 16,213 17,897 18,847 25,025 26,471 32036 35875 40432
Growth % - 10.4 5.3 32.8 5.8 21.0 12.0 12.7
Costs 10,847 12,730 12,136 15,381 17,596 21623 23755 26874
EBITDA 5,366 5,167 6,711 9,644 8,875 10413 12120 13558
EBITDA margin % 33.1 28.9 35.6 38.5 33.5 32.5 33.8 33.5

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Financial summary
Table 4: Profit and Loss statement
FY12 FY13 FY14E FY15E
Operating Income (Sales) 30,405 36,996 42,113 46,613
of which advertising 15,841 19,639 22,538 24,295
of which subscription 13,244 16,235 18,396 21,080
of which others - - - -
Operating Expenses 1,320 1,122 1,180 1,239
EBITDA 23,010 27,453 31,334 33,695
% margins 7,395 9,543 10,779 12,918
Depreciation & Amortisation 24.3 25.8 25.6 27.7
Gross Interest 323 399 459 486
Other Income 50 86 90 94
Recurring PBT 1,384 1,461 1,870 1,963
Add: Extraordinaries 8,406 10,519 12,100 14,301
Less: Taxes 2,550 3,370 4,114 4,719
- Current tax 2,685 3,318 4,114 4,719
- Deferred tax (135) 52 - -
Less: Minority Interest (32) 33 (133) (152)
Net Income (Reported) 5,841 7,163 8,002 9,601
Recurring Net Income 5,891 7,196 8,002 9,601

Table 5: Balance sheet
Assets
Total Current Assets 25,418 32,380 36,042 42,787
of which cash & cash eqv. 3,283 5,316 4,442 9,445
Total Current Liabilities &
Provisions 8,820 11,393 10,319 11,049
Net Current Assets 16,598 20,987 25,723 31,738
Investments 7,999 7,916 7,916 7,916
Net Fixed Assets 2,506 2,848 3,612 4,091
Goodwill 6,894 7,127 7,127 7,127
Total Assets 33,997 38,878 44,378 50,872

Liabilities
Borrowings 12 17 17 17
Deferred Tax Liability (337) (288) (288) (288)
Minority Interest (32) 33 (133) (152)
Equity Share Capital 959 954 959 959
Face Value per share (Rs) 1.0 1.0 1.0 1.0
Reserves & Surplus* 33,349 38,161 43,822 50,335
Net Worth 34,354 39,115 44,782 51,295
Total Liabilities 33,997 38,878 44,378 50,872

Table 15: Quarterl y trend
Sep-12 Dec-12 Mar-13 Jun-13
Net sales 9,535 9,389 9,643 9,733
% growth (YoY) 32.7 24.4 11.0 15.5
EBITDA 2,177 2,612 2,423 2,915
Margin (%) 22.8 27.8 25.1 30.0
Other income 260 360 538 722
Add: Extraordinaries 0 - - -
Net profit 1,875 1,941 1,795 2,246
Source: Company data
Table 6: Cashflow statement
Operating Cashflow 4,105 6,817 6,879 8,313
Working Capital Changes (3,592) (2,961) (5,125) (1,785)
Capital Commitments (1,017) (712) (1,164) (947)
Free Cashflow (504) 3,144 591 5,581
Cashflow from Investing
Acti vities 3,122 1,457 1,038 2,527
Issue of Share Capital - - 5 -
Buyback of shares (19) (5) - -
Inc (Dec) in Borrowings (5) 5 - -
Dividend paid (1,690) (2,218) (2,325) (3,068)
Extraordinary Items - - - -
Chg. in Cash & Bank balances (575) 2,033 (874) 5,002

Table 7: Key ratios
(Year ending March 31)
Per Share Data (in Rs)
Diluted Recurring EPS 6.1 7.5 8.3 10.0
Reported EPS 6.0 7.5 8.3 10.0
Recurring Cash EPS 6.4 8.0 8.8 10.5
Dividend per share (DPS) 1.5 2.0 2.1 2.8
Book Value per share (BV) 35.4 41.0 46.6 53.4

Growth Ratios (%)
Operating Income 3.3 21.7 13.8 10.7
EBITDA (2.3) 29.0 13.0 19.8
Recurring Net Income 4.9 22.2 11.2 20.0
Diluted Recurring EPS 5.9 24.1 10.6 20.0
Diluted Recurring CEPS 6.2 24.2 10.8 19.2

Valuation Ratios (x)
P/E 36.6 29.5 26.7 22.2
P/CEPS 34.7 27.9 25.2 21.1
P/BV 6.3 5.4 4.8 4.2
EV / EBITDA 27.1 21.0 18.6 15.5
EV / Operating Income 6.6 5.4 4.8 4.3
EV / Operating FCF 391.1 52.1 114.4 30.7

Operating Ratios (%)
Production cost/Sales 7.7 6.8 6.4 6.4
Other Income / PBT 16.5 13.9 15.5 13.7
Effective Tax Rate 30.3 32.0 34.0 33.0
NWC / Total Assets 39.2 40.3 48.0 43.8
Inventory Turnover (days) NA NA NA NA
Receivables (days) 105.7 91.5 89.2 86.8
Payables (days) 75.5 68.9 73.9 76.2
D/E Ratio (x) (0.01) (0.01) (0.01) (0.01)

Return/Profitability Ratios (%)
Recurring Net Income Margins 18.5 18.7 18.2 19.8
RoCE 18.3 19.9 19.4 20.3
RoNW 18.0 19.6 19.1 20.0
Dividend Payout 24.7 26.5 25.0 27.5
Dividend Yield 0.7 0.9 0.9 1.2
EBITDA Margins 24.3 25.8 25.6 27.7

33
Market Cap Rs153bn/US$2.3bn

Year to Mar 2012 2013 2014E 2015E
Reuters/Bloomberg SUTV.BO/SUN IN

Revenue (Rs mn) 18,472 19,230 22,997 26,021
Shares Outstanding (mn) 394.3

Rec. Net Income (Rs mn) 6,929 7,096 8,046 9,457
52-week Range (Rs) 492/271

EPS (Rs) 17.6 18.0 20.4 24.0
Free Float (%) 25.0

% Chg YoY (10.0) 2.4 13.4 17.5
FII (%) 14.3

P/E (x) 22.1 21.6 19.0 16.2
Daily Volume (US$/'000) 7,303

CEPS (Rs) 29.6 29.2 32.4 37.3
Absolute Return 3m (%) (8.9)

EV/E (x) 10.6 10.6 9.4 8.2
Absolute Return 12m (%) 28.2

Dividend Yield (%) 2.4 2.4 2.8 3.3
Sensex Return 3m (%) (0.8)

RoCE (%) 27.0 25.2 26.0 27.8
Sensex Return 12m (%) 9.0

RoE (%) 28.7 26.6 27.2 28.9

Equity Research
September 10, 2013
BSE Sensex: 19270
Media

Target Price Rs500

Dec
12
Mar
13
Jun
13
Promoters 77.0 77.0 75.0
Institutional
investors 15.8 16.0 17.2
MFs and UTI 2.2 1.8 2.8
FIIs 13.5 14.0 14.3
Others 7.2 7.1 7.8
Source: NSE

Price chart
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Sun TV Network BUY
Maintained
Building moats
Rs389
Reason for report: Company update

Vikash Mantri
+91 22 6637 7161
Satish Kothari
+91 22 6637 7510
Akhil Kalluri
+91 22 6637 7339
Sun TV Network (Sun TV) is among the strongest broadcasting players in terms of
content, as the company has been very aggressive in cordoning off content from
competition. With a bouquet of 32 channels across genres and a huge library of
movies (70%+ of market), the companys market share stands least threatened.
We have a BUY rating on the stock with a target price of Rs500/share based on
21x FY15 P/E. Sun TV remains our preferred pick among the Indian broadcasting
space. Political risk and negative news flow on telecom scam are the key risks to
the stock.
Strong entry barrier of content: Over the past two decades, Sun TV has made
huge investments in content owing satellite rights of 70%+movies. It has also been
actively investing in channels across genres and languages, allowing little scope for
new players to break in the market. Sun TV enjoys a market share of 40%+in its
target markets and owns ~25% of major channels in its markets.
Unfazed by new competition: Sun TV offers the strongest franchise in South India,
with leadership in key markets of Tamil Nadu, Andhra Pradesh and Karnataka and
at No. 2 slot in Kerala. The company has been able to successfully maintain its
leadership by launching multiple channels across languages and acquiring critical
movies for its library. Sun TVs ratings have remained steady over the years with
dominant (60%+) market share in the key state of Tamil Nadu. While Star India and
Zee Entertainment Enterprises (ZEEL) are trying to make inroads in these markets
for years, they are largely vying for No.2 slot.
No South pack without Sun TV: Given the strength of Sun TV bouquet, no TV
channel package can avoid having Sun TV channels in its base pack. This makes
Sun TV a huge beneficiary of ongoing digitization drive, given its dominant position
in key regional markets of South India. We expect Sun TVs subscription revenues to
grow at a CAGR of 20% over FY13-FY15E driven by digitization in phase II cities,
where Sun TV has a strong franchisee in five cities. Further, any improvement in
collection from Chennai market will lead to a higher growth in subscription revenues.
Trading at a huge 25%+ discount to ZEEL: We feel such a high valuation discount
is unreasonable given Sun TV historically has traded at a premium to ZEEL and is
the market leader with one of the strongest channel bouquet in its target markets.
Sun TV is currently trading at FY14 P/E of 19.0x and FY15 P/E of 16.2x.
INDIA

Sun TV Network, September 10, 2013
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34

Strong regional franchise
Table 1: Sun TV Network Market leader by a long shot in South India
Tamil Telugu Kannada Malayalam
#1 player market share Sun Tv 40 Gemini 24 Udaya 26 Asianet 32
#2 player market share KTV 12 Maa 16 Suvarna 16 Surya 18
#3 player market share Vijay 10 ETV 13 Zee Kannada 12 Mazhavil Manorama 10
Size of market (Rs bn) 13.5 9.0 6.2 6.6
No of major channels 45 30 19 24
Sun - No of channels 12 9 7 4
Share of Sun TV's channels 61 38 41 29
Source: TAM CS 4+respective markets; FICCI; I-Sec research

Table 2: Sun TV Network boasts of a strong bouquet of channels in its target markets
Tamil Telugu Malayalam Kannada
GEC Sun Tv Gemini Tv Surya Tv Udaya TV
Movies KTV Gemini Movies Udaya Movies
Music Sun Music Gemini Music Kiran Tv Udaya Music
News Sun News Gemini News Udaya News
Comedy Adithya Tv Gemini Comedy Udaya Comedy
Kids Chutti Tv Kushi Tv Kochu Tv Chintu TV
LifeStyle Sun Life Gemini Life
Others Sun Tv Ri
Action Movie Sun Action Gemini Action Surya Action Suriyan Action
HD Bouquet Sun TV HD,KTV HD, Sun Music HD Gemini HD
No of channels 12 9 4 7

Table 3: Sun TV Network acquiring higher film and programming broadcast rights in past two
years
(Rs mn)
Sun TV FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Acquisitions 402 807 1,051 1,073 1,749 1,992 2,925 4,288
Amortisation 434 835 714 1,065 1,401 1,803 2,519 3,132

Chart 1: Subscription revenues to ramp up in FY14-15E led by digitization
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Impact of ARASU


ICICI Securities

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Sun TV Network trading at significant discount to ZEEL
Chart 2: Sun TV Network trading at a discount to
its historical valuations
Chart 3: Sun TV Network currentl y trading at
~25% discount to ZEEL
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Source: Company data, Bloomberg, I-Sec research
Chart 4: ZEEL has outperformed Sun TV Network in past 2 years
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Chart 5: Sun TV Network margins and return profile much stronger than ZEEL
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Chart 6: Sun TV continues to dominate Tamil
market
Chart 7: Kannada ratings improve
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Source: TAM CS4+Market Tamil Nadu, I-Sec research Source: TAM CS4+Market Karnataka, I-Sec research

Chart 8: Leader in Telugu but market share on a
decline
Chart 9: Malayalam ratings stabilizing after
slipping in Q3FY13
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Source: TAM CS4+Market Andhra Pradesh, I-Sec research Source: TAM CS4+Market: Kerala, I-Sec research

ICICI Securities

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Maintain BUY with a TP of Rs500/share
We reiterate BUY on Sun TV Network with a target price of Rs500/share based on 21x
FY15 P/E. Sun TV remains our preferred pick among the Indian broadcasting space.
Political risk and negative news flow on telecom scam are the key risks to the stock.
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Table 4: Summary of quarterl y data
(Rs mn)

FY12
FY12
FY13
FY13
FY14
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Income
Ad income 2,310 2,350 2,440 2,350 9,450 2,428 2,445 2,930 2,694 10,497 2,792
Growth YoY 4.1 2.2 (6.5) (8.9) (2.7) 5.1 4.0 20.1 14.6 11.1 15.0
Broadcast Fee 390 390 410 450 1,640 370 370 340 360 1,440 350
Growth YoY 11.4 (2.5) (2.4) 21.6 6.5 (5.1) (5.1) (17.1) (20.0) (12.2) (5.4)
Programme Licensing
income 200 180 238 222 840 260 260 260 260 1,040 290
Growth YoY 25.0 12.5 19.0 30.6 21.7 30.0 44.4 9.2 17.1 23.8 11.5
Income from pay channels 1,400 1,260 1,130 1,170 4,960 1,190 1,240 1,315 1,380 5,125 1,480
of which analogue 560 470 290 310 1,630 300 340 370 380 1,390 420
of which DTH 840 790 840 860 3,330 890 900 945 1,000 3,735 1,060
Growth QoQ 1.4 (10.0) (10.3) 3.5 1.7 4.2 6.0 4.9 7.2
Growth YoY 17.6 1.6 (8.6) (15.2) (1.7) (15.0) (1.6) 16.4 17.9 3.3 24.4
Others 240 310 30 100 680 20 25 14 33 91 1,106
Growth YoY (50.0) 121.4 (98.0) (16.7) (69.8) (91.7) (91.9) (54.7) (67.3) (86.6) 5,431.5
Total revenue 4,540 4,513 4,251 4,270 17,574 4,258 4,333 4,859 4,727 18,176 6,019
Growth YoY 3.1 6.2 (28.9) (7.3) (8.6) (6.2) (4.0) 14.3 10.7 3.4 41.4
Cost of revenues 242 225 251 288 1,007 401 338 338 475 1,552 450
% of sales 5.3 5.0 5.9 6.8 5.7 9.4 7.8 7.0 10.0 8.5 7.5
Employee costs 440 414 403 384 1,641 422 429 476 445 1,771 442
% of sales 9.7 9.2 9.5 9.0 9.3 9.9 9.9 9.8 9.4 9.7 7.3
Other expenditure 199 219 186 316 920 205 277 281 322 1,085 1,590
% of sales 4.4 4.9 4.4 7.4 5.2 4.8 6.4 5.8 6.8 6.0 26.4
Total expenses 881 858 840 988 3,567 1,028 1,043 1,095 1,241 4,407 2,482
% of sales 19.4 19.0 19.8 23.1 20.3 24.1 24.1 22.5 26.3 24.2 41.2
EBITDA 3,659 3,654 3,411 3,282 14,007 3,230 3,290 3,763 3,486 13,769 3,537
EBITDA Margin 80.6 81.0 80.2 76.9 79.7 75.9 75.9 77.5 73.7 75.8 58.8
Depreciation & amortisation 1,061 1,176 1,124 1,068 4,430 933 1,138 1,044 1,017 4,132 1,174
Interest 2 8 36 9 56 2 5 17 24 48 7
Other income 173 186 232 151 742 132 96 106 216 550 134
PBT 2,769 2,657 2,483 2,355 10,263 2,427 2,243 2,808 2,661 10,139 2,489
Tax 892 856 804 765 3,317 784 726 910 886 3,306 845
Reported PAT 1,876 1,801 1,679 1,590 6,947 1,643 1,517 1,899 1,775 6,833 1,644
EPS (Rs) 4.8 4.6 4.3 4.0 17.6 4.2 3.9 4.8 4.5 17.3 4.2

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Table 5: Summary of annual financials
(Rs mn)
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E
Income
Ad income 4,755 6,057 8,450 10,532 10,294 11,567 12,961 14,516
Growth YoY % 30.6 27.4 39.5 24.6 (2.3) 12.4 12.2 12.0
Broadcast Fee 1,256 1,304 1,343 1,537 1,640 1,440 1,450 1,450
Growth YoY % 15.7 3.8 3.0 14.5 6.6 (12.2) 1.0 0.0
Programme Licensing income 383 540 544 623 826 1,040 1,165 1,294
Growth YoY % 12.4 41.2 0.7 14.5 32.6 26.0 13.0 11.1
Income from pay channels 2,293 2,151 3,431 5,157 5,046 5,125 6,171 7,323
of which DTH 110 813 1,835 2,891 3,312 3,720 4,505 0
Others 2,183 1,338 1,596 2,266 1,734 1,405 1,665 0
Growth YoY % 37.2 (6.2) 59.5 50.3 (2.2) 1.6 20.5 18.7
Others 12 341 761 2,285 666 91 1,250 1,438
Growth YoY % (36.7) 2,648.4 123.2 200.5 (70.9) (86.3) 1,315.6 15.0
Total Revenue 8,699 10,394 14,528 20,135 18,472 19,230 22,997 26,021
Growth YoY % 28.3 19.5 39.8 38.6 (8.3) 4.1 19.6 13.1
Cost of revenues 766 1,114 1,227 1,373 1,333 1,844 1,951 2,147
% of sales 8.8 10.7 8.4 6.8 7.2 9.6 8.5 8.3
Employee costs 958 1,155 1,340 1,919 1,859 1,994 2,140 2,380
% of sales 11.0 11.1 9.2 9.5 10.1 10.4 9.3 9.1
General and admn expenses 954 684 928 1,004 1,061 1,179 1,481 1,605
% of sales 11.0 6.6 6.4 5.0 5.7 6.1 6.4 6.2
Selling expenses 47 73 125 59 74 122 1,460 1,527
% of sales 0.5 0.7 0.9 0.3 0.4 0.6 6.3 5.9
Total expenses 2,724 3,026 3,620 4,356 4,328 5,139 7,032 7,659
% of sales 31.3 29.1 24.9 21.6 23.4 26.7 30.6 29.4
EBITDA 5,975 7,368 10,909 15,779 14,144 14,091 15,965 18,362
EBITDA margin (%) 68.7 70.9 75.1 78.4 76.6 73.3 69.4 70.6
Depreciation & amortisation 1,239 2,205 3,209 4,805 4,736 4,417 4,714 5,225
Interest 159 138 49 23 58 49 53 57
Other income 556 668 350 487 796 722 833 960
PBT 5,133 5,693 8,000 11,439 10,145 10,347 12,032 14,040
Tax 2,015 2,293 2,991 3,831 3,317 3,306 4,047 4,633
Share in profits from associates 11 2 8 35 79 79 83 87
PAT before minority interest 3,130 3,402 5,017 7,642 6,907 7,120 8,068 9,493
Minority Interest (137) (281) (182) (55) (22) 25 22 36
Reported PAT after minority interest 3,267 3,683 5,199 7,698 6,929 7,096 8,046 9,457
Reported EPS (Rs) 8.3 9.3 13.2 19.5 17.6 18.0 20.4 24.0
DPS (Rs) 2.5 2.5 7.5 8.8 9.5 9.5 10.8 12.6

ICICI Securities

40
Financial summary
of which Advertising Income 10,294 11,555 12,961 14,516
of which Pay Channels Income 5,046 5,120 6,171 7,323
of which Broadcast fee 1,640 1,436 1,450 1,450
EBITDA 14,144 14,091 15,965 18,362
% margins 76.6 73.3 69.4 70.6
Depreciation & Amortisation 4,736 4,417 4,714 5,225
Gross Interest 58 49 53 57
Other Income 796 722 833 960
Recurring PBT 10,145 10,347 12,032 14,040
Add: Extraordinaries - - - -
Less: Taxes 3,317 3,306 4,047 4,633
- Current tax 3,389 3,359 3,688 4,299
- Deferred tax (72) (53) 358 334
- Others - - - -
Less: Minority Interest (101) (54) (61) (51)
Net Income (Reported) 6,929 7,096 8,046 9,457
Recurring Net Income 6,929 7,096 8,046 9,457
Source: Company data, I-Sec Research

Assets
Provisions 2,380 3,006 4,443 4,719
Net Current Assets 8,181 11,076 15,822 18,430
Investments
of which 2,244 2,437 2,437 2,437
Strategic/Group 1,926 2,005 2,005 2,005
Other Marketable 318 432 432 432
Net Fixed Assets 16,259 15,878 14,019 14,840
of which
Capital Work-in-Progress 3,801 2,109 972 1,136
Total Assets 26,685 29,391 32,278 35,707

Liabilities
Borrowings - - - -
Deferred Tax Liability 338 284 284 284
Minority Interest 1,227 1,252 1,191 1,140
Equity Share Capital 1,970 1,970 1,970 1,970
Face Value per share (Rs) 5 5 5 5
Reserves & Surplus* 23,149 25,884 28,832 32,312
Net Worth 25,120 27,854 30,803 34,282

Net sales 4,333 4,859 4,727 6,019
% growth (YoY) (4) 14 11 41
EBITDA 3,290 3,763 3,486 3,537
Margin (%) 76 77 74 59
Other income 96 106 2,661 2,489
Add: Extraordinaries - - - -
Net profit 1,517 1,899 1,775 1,644
Source: Company data
Table 8: Cash flow statement
Working Capital Changes (1,357) (2,399) (4,132) (1,760)
Capital Commitments (7,904) (2,791) (2,855) (6,046)
Free Cashflow 68 4,815 5,298 6,251
Acti vities 1,347 608 833 960
Issue of Share Capital - - - -
Buyback of shares - - - -
Inc (Dec) in Borrowings (1) - - -
Dividend paid (4,493) (4,493) (5,098) (5,978)
Extraordinary Items - - - -
Chg. in Cash & Bank balances (2,955) 1,087 614 848

Table 9: Key ratios
Per Share Data (Rs)
Recurring EPS 17.6 18.0 20.4 24.0
Reported EPS 17.6 18.0 20.4 24.0
Dividend per share (DPS) 9.5 9.5 10.8 12.6
Book Value per share (BV) 63.7 70.7 78.2 87.0

Growth Ratios (%)
Operating Income (8.3) 4.1 19.6 13.1
EBITDA (10.4) (0.4) 13.3 15.0
Recurring Net Income (10.2) 3.1 13.4 17.8
Diluted Recurring EPS (10.0) 2.4 13.4 17.5
Diluted Recurring CEPS (6.7) (1.3) 10.8 15.1

P/E 22.1 21.6 19.0 16.2
P/CEPS 13.1 13.3 12.0 10.4
P/BV 6.1 5.5 5.0 4.5
EV / EBITDA 10.6 10.6 9.4 8.2
EV / Operating FCF 18.8 19.7 18.4 12.2

Operating Ratios
Cost of revenues / Revenues (%) 7.2 9.6 8.5 8.3
Selling Expenses/ Sales (%) 5.7 6.4 6.4 6.2
Other Income / PBT (%) 7.8 7.0 6.9 6.8
Effective Tax Rate (%) 32.7 31.9 33.6 33.0
NWC / Total Assets (%) 19.1 23.5 34.2 35.9
Receivables (days) 93 104 102 104
Payables (days) 43 29 32 43
D/E Ratio (x) 0.0 0.0 0.0 0.0

Return/Profitability Ratios (%)
Recurring Net Income Margins 35.4 35.3 33.5 34.9
RoCE 27.0 25.2 26.0 27.8
RoNW 28.7 26.6 27.2 28.9
Dividend Payout Ratio 54.0 52.8 52.8 52.7
Dividend Yield 2.4 2.4 2.8 3.3
EBITDA Margins 76.6 73.3 69.4 70.6

41
Market Cap Rs45.7bn/US$701mn Year to March FY12 FY13 FY14E FY15E
Reuters/Bloomberg DSTV.BO/DITV IN Revenue (Rs mn) 19,579 21,668 24,252 27,500
Shares Outstanding (mn) 1,063 Net Income (Rs mn) (1,331) (1,254) (1,176) (936)
52-week Range (Rs) 83/40 EPS (Rs) (1.3) (1.2) (1.1) (0.9)
Free Float (%) 36.4 % Chg YoY (30.7) (5.8) (6.3) (20.4)
FII (%) 21.0 P/E (x) NM NM NM NM
Daily Volume (US$'000) 3,442 CEPS (Rs) 3.7 4.7 4.5 5.8
Absolute Return 3m (%) (30.3) EV/E (x) 10.9 10.0 9.4 7.7
Absolute Return 12m (%) (41.4) Dividend Yield (%) - - - -
Sensex Return 3m (%) (0.8) RoCE (%) 5.6 0.2 4.5 7.7
Sensex Return 12m (%) 9.0 RoE (%) NM NM NM NM

Equity Research
September 10, 2013
BSE Sensex: 19270
Media

Target price Rs60

Target Price revision
Rs60 from Rs72
Earnings revision
(%) FY14E FY15E
Sales 0.5 0.0
EBITDA 5.7 2.8
PAT NM NM

Dec
12
Mar
13
Jun
13
Promoters 63.6 63.6 63.6
Institutional
investors 25.9 25.7 25.4
MFs and UTI 4.5 21.3 4.4
FIIs 21.3 10.8 21.0
Others 10.6 63.6 11.1

Price chart
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Dish TV BUY
Maintained
Rupee stings Rs43
Reason for report: Company update and earnings revision

Vikash Mantri
+91 22 6637 7161
Satish Kothari
+91 22 6637 7510
Akhil Kalluri
+91 22 6637 7339
INDIA
Dish TV, the leading DTH player in India, is the best play among listed distribution
companies. We prefer DTH over cable owing to ownership of the last mile and
lack of transparency in reporting subscription by cable companies. DTH stands to
gain from digitization, as it will lead to fair playing field between cable and DTH.
Currentl y in the digitised 38 cities, DTH cannot compete with digital cable as the
latter is being offered at analogue prices with improved content quality. (cable
continues to avoid taxes and content costs). We believe DTH economics will
significantly improve once this anomal y is corrected. Notwithstanding the
negative impact of depreciation in the rupee, which will eventuall y be passed on
as higher Set Top Box (STB) prices, we remain positive on the space. The key
challenge for DTH in digitization is to manage content costs and drive higher
Average Revenue per User (ARPU) growth.
Drastic improvement in industry structure in past 18 months: We believe DTH
industry has undergone a sea change in the past 18 months with lower level of
subsidy and higher package prices. Industry has moved from Rs1,600 for STB with
one month free viewing to Rs2,250 for STB without any free viewing. Further,
package prices have also risen sharply from Rs180/month to Rs220/month in the
past 18 months. Churn level for the industry has fallen from ~1.2% to 0.6% in June
2013, with cable digitization increasing the switchover cost.
Well-placed to refinance debt. Dish TV has a repayment of US$140mn due in
FY14. The sharp fall in the rupee has significantly pushed up this liability. We believe
Dish TV is well placed to refinance its debt, as it will generate Rs5.6bn of operating
FCF in FY14-15E. Further, capex in FY14 will be much lower, as Dish TV has an
inventory (including trade) of 1.9mn STBs currently vs. the acceptable inventory of
1mn STBs.
Slowdown in subscriber addition as company focuses on quality. Dish TVs
subscriber addition has come down in recent months due to hike in STB prices and
due to weak consumer sentiment. We expect Dish TVs endeavor to focus on quality
subscribers, as reflected in lower churn levels, bodes well for the company over the
longer run.
Lower target price to Rs60/share (from Rs72/share), as we factor in a lower
subscriber addition and raise our exchange rate assumption to Rs65/USD from
Rs59/USD. We have revised our EBITDA estimate for FY14 and FY15 by 5.7% and
2.8% respectively factoring in aforementioned changes. Dish TV currently trades at
an attractive valuation of 9.4x and 7.7x FY14 and FY15 EV/EBITDA. Maintain BUY.
Dish TV remains our top pick in the media distribution space.

Dish TV, September 10, 2013
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Chart 1: Dish TV trading at attractive valuation of 7.7x FY15 EV/E
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Source: Bloomberg, I-Sec research
Sensitivity to rupee fluctuations
Table 1: Dish TV highly sensitive to exchange rate fluctuations
(Rs mn)
Exchange rate 55 60 65 70 75
EBITDA - FY14E 6,345 6,237 6,128 6,020 5,912
EBITDA - FY15E 7,669 7,559 7,450 7,340 7,231
Target Price (Rs) 70 65 60 55 50

Improving industry economics
Table 2: Package price in last 18 months to lead APRU growth
(Rs)
Company Package
Monthl y tariff
Nov11 Dec 11 Apr 12 Jul y 12 Apr13
Dish TV Family Pack 165 175 180 200 220
Tata Sky Dhamaal Mix 165 175 180 200 220
Videocon d2h SuperGold Pack 165 174 180 200 220
Airtel Digital TV Value Sports 158+taxes 158+taxes 158+taxes 200 220
Reliance Big TV Bronze Pack 171 171 174 200 220
Sun Direct Value Plus pack 165+taxes 165+taxes 165+taxes 165+taxes 199
Source: Company, I-Sec research

Table 3: DTH operators have consistentl y taken price hike to reduce subsidy burden
(Rs)

Earlier Revised prices
Cost of STB Offer Cost of STB Offer
Tata Sky 1,690 1 month free subscription 2,250 No free subscription
Dish TV 1,640 1 month free subscription 2,249 No free subscription
Videocon d2h 1,690 1 month free subscription 2,249 No free subscription
Airtel digital TV 1,690 1 month free subscription 2,249 No free subscription
Source: Company, I-Sec research

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Chart 2: Churn level for Dish down considerably Chart 3: ARPU on the uptrend
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Earnings revision
We revise our earnings estimates factoring in a lower subscriber addition and raising
our exchange rate assumption to Rs65/USD from Rs59/USD. Our revised EBITDA
estimates are cut by 3%-6%.
Table 4: EBITDA estimates cut by 3-6%

FY14E FY15E
Revised Earlier % chg Revised Earlier % chg
Revenues 24,252 24,365 (0.5) 27,500 27,488 0.0
EBITDA 6,128 6,499 (5.7) 7,450 7,668 (2.8)
PAT (1,176) (475) NM (936) (40) NM
Net subscribers 11.5 11.5 - 12.2 12.2 -
ARPU (Rs/month) 166 166 0.0 177 176 0.3

Table 5: SAC as well as gross subscriber addition estimates lowered
FY14E FY15E
Gross subscribers (mn)
Earlier 17.7 20.0
New 17.3 19.3
Change (0.4) (0.7)
Net subscribers (mn)
Earlier 11.7 12.4
New 11.5 12.2
Change (0.2) (0.2)
ARPU (Rs/month)
Earlier 169 180
New 165 175
Change (4.5) (4.9)
SAC (Rs)
Earlier 2,052 2,003
New 1,879 1,835
Change (173) (168)

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Table 6: Quarterl y summary data

FY12
FY12
FY13
FY13
FY14
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Profit & Loss statement
DTH 4,472 4,680 4,703 4,988 19,169 5,016 5,157 5,323 5,315 21,179 5,580
Growth % QoQ 6.5 4.7 0.5 6.1 0.6 2.8 3.2 (0.2) 11.4 5.0

Subscription revenue 3,922 4,130 4,254 4,338 16,639 4,556 4,727 4,943 4,995 19,225 5,280
Growth % QoQ 7.5 5.3 3.0 2.0 5.0 3.8 4.6 1.1 15.5 5.7
ARPU (Rs) 150 152 152 151 153 156 159 160 157 158 165
Growth % QoQ 0.0 1.3 0.0 (0.7) 3.3 5.0 2.6 (1.3) 5.1%
Net subscribers (mn) 8.9 9.2 9.5 9.6 9.6 9.8 10.0 10.5 10.7 10.7 10.8
Net sub adds (000s) 426 265 305 100 1,096 200 200 500 146 1,046 155

Rental revenue 550 550 449 650 2,206 460 430 380 320 1,650 300
Growth % QoQ - - (18.4) 44.8 (29.2) (6.5) (11.6) (15.8) (25.2) (6.3)

Teleport services 30 30 49 40 140 50 50 50 50 196 50
Growth % QoQ (53.8) - 63.3 (18.4) 25.0 - - - 40.0 -

Total income 4,604 4,822 4,905 5,247 19,578 5,200 5,336 5,578 5,554 21,668 5,784
Growth % QoQ 6.3 4.7 1.7 7.0 (0.9) 2.6 4.5 (0.4) 10.7 4.1

Operating expenses 2,472 2,380 2,540 2,632 9,972 2,578 2,548 2,846 3,183 10,977 3,175
% of sales 53.7 49.4 51.8 50.2 50.9 49.6 47.8 51.0 57.3 50.7 54.9
Programming costs 1,572 1,472 1,576 1,468 6,066 1,510 1,420 1,627 1,967 6,525 1,916
% of DTH revenues 35.1 31.5 33.5 29.4 31.6 30.1 27.5 30.6 37.0 30.8 34.3
Personnel costs 174 171 173 191 748 202 203 207 209 822 242
% of sales 3.8 3.5 3.5 3.6 3.8 3.9 3.8 3.7 3.8 3.8 4.2
Admin and other exp 231 235 232 253 2,845 212 284 249 218 3,036 249
% of sales 5.0 4.9 4.7 4.8 5.1 4.1 5.3 4.5 3.9 4.4 4.3
S&D expenses 605 818 758 729 797 651 744 898 743 823 900
% of sales 13.1 17.0 15.5 13.9 14.5 12.5 13.9 16.1 13.4 14.0 15.6
Total expenses 3,482 3,604 3,703 3,805 14,619 3,643 3,779 4,200 4,353 15,873 4,566
% of sales 75.6 74.7 75.5 72.5 74.7 70.1 70.8 75.3 78.4 73.3 78.9

EBITDA 1,122 1,218 1,202 1,442 4,959 1,556 1,557 1,378 1,201 5,795 1,218
EBITDA margin % 24.4 25.3 24.5 27.5 25.3 29.9 29.2 24.7 21.6 26.7 21.1

Depreciation 1,107 1,162 1,232 1,678 5,219 1,512 1,533 1,713 1,450 6,276 1,444
Interest charges 334 634 477 348 1,780 572 317 288 344 1,284 354
Other income 137 92 78 94 707 205 80 175 157 512 277
PBT (183) (486) (430) (490) (1,332) (323) (213) (448) (436) (1,252) (303)

Tax - - - - - - - - - - -
Adjusted PAT (183) (486) (430) (490) (1,332) (323) (213) (448) (436) (1,252) (303)
Growth % QoQ (50.6) 165.3 (11.6) 14.1 (34.2) (34.0) 110.3 (2.7) (6.0) (30.5)
NPM % (4.0) (10.1) (8.8) (9.3) (6.8) (6.2) (4.0) (8.0) (7.9) (5.8) (5.2)

Operating metrics
Gross subscribers (mn) 11.2 11.7 12.5 12.9 12.9 13.4 13.9 14.7 15.1 15.1 15.5
Gross sub adds (000s) 725 575 740 415 2,459 504 477 829 400 2,210 348

Net subscribers (mn) 8.9 9.2 9.5 9.6 9.6 9.8 10.0 10.5 10.7 10.7 10.8
Net sub adds (000s) 426 265 305 100 1,096 200 200 500 146 1,046 155

Disconnects (000s) 299 310 435 315 1,363 304 277 329 254 1,164 193
Monthly Churn (%) 1.1 1.1 1.6 1.1 1.0 1.0 0.9 1.1 0.8 1.0 0.6

ARPU (Rs) 150 152 152 151 153 156 159 160 157 158 165
Growth % QoQ 0.0 1.3 0.0 (0.7) 3.3 5.0 2.6 (1.3) 5.1

SAC (Rs) 2,058 2,232 2,124 2,127 2,145 2,273 2,201 1,996 1,828
Growth % QoQ (7.5) 8.5 (4.8) 0.1 0.8 6.0 (3.2) (9.3) (8.4)

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Table 7: Annual summary data
FY09 FY10 FY11 FY12 FY13 FY14E FY15E
Profit & Loss statement
DTH 6,905 9,854 13,949 19,004 21,077 23,716 26,932
Growth % 77.4 42.7 41.6 36.2 10.9 12.5 13.6

Subscription revenue 5,897 8,353 11,927 16,639 19,228 22,108 25,251
Growth % 79.3 41.6 42.8 39.5 15.6 15.0 14.2
ARPU (Rs) 130 140 141 151 158 166 177
Growth % (10.7) 7.2 0.7 7.8 3.5% 4.9% 6.5%
Net subscribers (mn) 4.3 5.7 8.5 9.6 10.6 11.5 12.2
Net sub adds (000s) 1,793 1,383 2,849 1,096 1,047 890 712

Rental revenue 1,007 1,501 1,985 2,206 1,597 1,275 1,252
Growth % 66.9 49.0 32.3 11.1 (27.6) (20.1) (1.8)

Teleport services 133 168 107 140 198 201 218
Growth % 18.6 26.3 (36.2) 30.3 41.4 2.0 8.0

Total Income 7,381 10,850 14,367 19,578 21,668 24,252 27,500
Growth % 78.8 47.0 32.4 36.3 10.7 11.9 13.4

Operating expenses 5,293 6,902 7,838 9,972 11,081 13,032 14,594
% of sales 71.7 63.6 54.6 50.9 51.1 53.7 53.1
Programming costs 3,479 4,373 5,036 6,066 6,525 7,583 8,461
% of DTH revenues 50.4 44.4 36.1 31.9 31.0 32.0 31.4
Personnel costs 543 514 761 748 822 901 1,002
% of sales 7.4 4.7 5.3 3.8 3.8 3.7 3.6
Admin and other expense 2,162 1,771 2,572 2,845 3,036 3,196 3,384
% of sales 6.4 4.8 5.5 5.1 4.0 3.8 3.6
Selling and distribution expenses 898 752 782 797 761 852 917
% of sales 29.3 16.3 17.9 14.5 14.0 13.2 12.3
Total expenses 8,614 9,733 11,986 14,619 15,874 18,123 20,050
% of sales 116.7 89.7 83.4 74.7 73.3 74.7 72.9

EBITDA (1,233) 1,117 2,380 4,959 5,794 6,128 7,450
EBITDA margin % (16.7) 10.3 16.6 25.3 26.7 25.3 27.1

Depreciation 2,289 3,227 3,996 5,219 6,276 5,995 7,115
Interest & financial charges 1,293 971 1,534 1,780 1,284 1,784 1,809
Other Income 13 453 1,226 707 511 474 539
PBT (4,801) (2,628) (1,923) (1,332) (1,254) (1,176) (936)

Tax 6 (6) (3) - 1 - -
Adjusted PAT (4,807) (2,622) (1,920) (1,332) (1,255) (1,176) (936)
Growth % 18.4 (45.5) (26.8) (30.6) (5.7) (6.3) (20.4)
NPM % (65.1) (24.2) (13.4) (6.8) (5.8) (4.8) (3.4)

Operating metrics
Gross subscribers (mn) 5.1 6.9 10.4 12.9 15.1 17.3 19.2
Gross sub adds (000s) 2,063 1,828 3,536 2,459 2,205 2,165 1,901

Net subscribers (mn) 4.3 5.7 8.5 9.6 10.6 11.5 12.2
Net sub adds (000s) 1,793 1,383 2,849 1,096 1,047 890 712

Disconnects (000s) 270 445 687 1,363 1,158 1,276 1,189
Monthly Churn (%) 0.6 0.6 0.7 1.0 1.0 1.0 0.8

ARPU (Rs) 130 140 141 151 158 166 177
Growth % (10.7) 7.2 0.7 7.8 3.5 4.9 6.5

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Valuation methodology and key risks
We maintain BUY rating on Dish TV with a revised DCF based target price of
Rs60/share (earlier: Rs72/share). The stock is currently trading at FY14E and FY15E
EV/EBITDA of 9.4x and 7.7x.
The key risks to our call are muted growth in ARPU, substantial increase in
competitive intensity and significant depreciation in the rupee.
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Financial summary
of which DTH 19,004 21,077 23,716 26,932
of which Teleport 140 198 201 218
of which Others 436 393 334 351
EBITDA 4,960 5,794 6,128 7,450
% margins 25.3 26.7 25.3 27.1
Depreciation & Amortisation 5,219 6,276 5,995 7,115
Net Interest 1,973 1,284 1,784 1,809
Other Income 900 511 474 539
Recurring PBT (1,331) (1,254) (1,176) (936)
Add: Extraordinaries - (594) - -
Less: Taxes - - - -
- Current tax - - - -
- Deferred tax - - - -
Net Income (Reported) (1,331) (660) (1,176) (936)
Recurring Net Income (1,331) (1,254) (1,176) (936)

Assets
Provisions 13,276 16,774 15,844 16,415
Net Current Assets (6,523) (8,883) (9,315) (9,264)
Investments - - - -
Net Fixed Assets 18,088 20,875 19,014 16,811
of which
intangibles 791 841 896 936
Capital Work-in-Progress 3,884 6,535 3,544 2,899
Goodwill - - - -
Total Assets 13,065 14,774 12,481 10,329

Liabilities
Borrowings 14,003 16,330 17,915 16,699
Deferred Tax Liability - - - -
Equity Share Capital 1,064 1,065 1,063 1,063
Face Value per share (Rs) 1.0 1.0 1.0 1.0
Reserves & Surplus (2,002) (2,621) (6,497) (7,434)
Net Worth (939) (1,556) (5,434) (6,370)

Net sales 5,336 5,578 5,554 5,784
% growth (YoY) 10.7 13.7 5.8 11.2
EBITDA 1,557 1,378 1,201 1,218
Margin (%) 29.2 24.7 21.6 21.1
Other income 80 175 157 277
Add: Extraordinaries 764 - - -
Net profit (213) (448) (436) (303)
Table 10: Cashflow statement
Working Capital Changes (5,664) 341 (1,015) 317
Capital Commitments
Free Cashflow (3,599) (9,174) (4,908) (4,758)
Acti vities (5,412) (2,537) (1,578) 1,200
Issue of Share Capital 1,400 (770) 474 539
Buyback of shares 23 43 - -
Inc (Dec) in Borrowings 4,593 2,327 (1,116) (1,216)
Dividend paid - - - -
Extraordinary Items - 594 - -
Chg. in Cash & Bank balances 603 (343) (2,220) 522

Table 11: Key ratios
Per Share Data (Rs)
Diluted Recurring EPS (1.3) (1.2) (1.1) (0.9)
Diluted Reported EPS (1.3) (0.6) (1.1) (0.9)
Dividend per share (DPS) - - - -
Book Value per share (BV) (0.9) (1.5) (2.6) (3.5)

Growth Ratios (% YoY)
Operating Income 36.3 10.7 11.9 13.4
EBITDA 108.4 16.8 5.8 21.6
Recurring Net Income (30.7) (5.8) (6.3) (20.4)
Diluted Recurring EPS (30.7) (5.8) (6.3) (20.4)
Diluted Recurring CEPS 87.3 29.2 (4.0) 28.2

P/E NM NM NM NM
P/CEPS 11.8 9.1 9.5 7.4
P/BV NM NM NM NM
EV / EBITDA 10.9 10.0 9.4 7.7
EV / Operating FCF NM 8.7 17.3 9.7

Operating Ratios
Raw Material/Sales (%) 0.3 0.4 0.3 0.3
SG&A/Sales (%) 15.0 14.4 13.5 12.6
Other Income / PBT (%) (67.6) (40.8) (40.3) (57.5)
Effective Tax Rate (%) - - - -
NWC / Total Assets (%) (80) (85) (92) (115)
Inventory Turnover (days) 282 236 234 251
Receivables (days) 35 18 25 18
Payables (days) 47 39 38 31
Net D/E Ratio (x) (9.1) (6.4) (2.2) (1.8)

Profitability Ratios (%)
Recurring Net Income Margins (6.5) (5.7) (4.8) (3.3)
RoCE 5.6 0.2 4.5 7.7
RoNW NM NM NM NM
Dividend Payout Ratio - - - -
Dividend Yield - - - -
EBITDA Margins 25.3 26.7 25.3 27.1

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New I-Sec investment ratings (all ratings based on absolute return)
BUY: >15% return; ADD: 5% to 15% return; REDUCE: Negative 5% to positive 5% return; SELL: < negative 5% return

ANALYST CERTIFICATION
We /I, Vikash Mantri, PGDM; Satish Kothari, PGDM and Akhil Kalluri, PGDM research analyst and the author of this report, hereby certify that all of the views
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not predictions and may be subject to change without notice.
ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and
affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for
services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. It is confirmed that Vikash
Mantri, PGDM,; Satish Kothari, PGDM and Akhil Kalluri, PGDM research analyst and the author of this report have not received any compensation from the
companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which
include earnings from Investment Banking and other business.
ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month
preceding the publication of the research report.
It is confirmed that Vikash Mantri, PGDM,; Satish Kothari, PGDM and Akhil Kalluri, PGDM research analyst and the author of this report or any of their family
members does not serve as an officer, director or advisory board member of the companies mentioned in the report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities
and affiliates may act upon or make use of information contained in the report prior to the publication thereof. This report is not directed or intended for distribution to,
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document may come are required to inform themselves of and to observe such restriction.
This report has not been prepared by ICICI Securities, Inc. However, ICICI Securities, Inc. has reviewed the report and, in so far as it includes current or historical
information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed

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