BUY

Zee Entertainment Enterprises (Z)

https://ultraviewer.et/en/own Media SEPTEMBER 23, 2021
load.html
UPDATE
Sector view: Cautious

Winners all: Sony-Zee deal portends strategic synergies, re-rating. Zee and Sony CMP (`): 337
have signed an exclusive non-binding term sheet for a potential merger. The merged Fair Value (`): 400
entity would become India’s #1 broadcaster with significant strength in Hindi and
BSE-30: 58,927
regional genres and presence in sports and digital. This deal would put an end to
governance concerns and improve probability of success in digital. It merits re-rating;
we raise FV to Rs400 valuing Zee at 22X FY2024E potential earnings (including
synergies). Key risk to our call is the deal falling through following due diligence.
Zee Entertainment Enterprises
Stock data Forecasts/valuations 2021 2022E 2023E
CMP(Rs)/FV(Rs)/Rating 337/400/BUY EPS (Rs) 11.7 12.5 16.0
52-week range (Rs) (high-low) 355-167 EPS growth (%) 4.9 7.0 27.6
Mcap (bn) (Rs/US$) 324/4.4 P/E (X) 28.8 26.9 21.1
ADTV-3M (mn) (Rs/US$) 4,013/54 P/B (X) 3.2 3.1 2.8
Shareholding pattern (%) EV/EBITDA (X) 17.0 16.2 13.1
Promoters 4.0 RoE (%) 11.6 11.7 13.9
FPIs/MFs/BFIs 57.5/8.1/10.1 Div. yield (%) 0.7 1.2 1.3
Price performance (%) 1M 3M 12M Sales (Rs bn) 77 83 93
Absolute 97.6 54.4 70.9 EBITDA (Rs bn) 18 19 23
Rel. to BSE-30 91.1 42.3 14.7 Net profits (Rs bn) 11 12 15

Event— Zee and Sony enter into an exclusive non-binding term sheet for merger

Zee Board has approved a non-binding term sheet from Sony Pictures Network India (SPNI) for a
potential merger of Zee and SPNI (subject to due diligence and regulatory approvals) as per the
following terms: (1) indicative merger ratio of 47.07%/52.93% (Zee: SPNI) post capital infusion
of US$1.575 bn by SPNI; this deal values Zee at Rs250/share, (2) SPNI would be promoter of the
MergeCo and have the right to nominate the majority of board members, (3) Punit Goenka
would be MD & CEO of the MergeCo for five years subject to approvals, (4) SPNI would transfer
2.1 ppts of its stake in MergeCo to Zee’s existing promoters towards non-compete fee. Thus,
Punit Goenka & family would own 4% stake in the MergeCo; further, they can increase stake
up to 20% per applicable law, (5) Zee and SPNI have agreed to binding exclusivity of 90 days.

Nub— A win-win for all; expect significant synergies and improved right-to-win in digital

The MergeCo would become India’s #1 broadcaster with about 30% viewership market share
and a portfolio with meaningful strength in Hindi and regional entertainment, and presence in
sports genre and digital. Revenue and cost synergies could be in the range 5-7% each over 2-3
years in our view. The proposed deal has the potential to deliver a win-win solution for all
stakeholders: (1) SPNI achieves critical scale, and execution and portfolio strength to step up
investments in OTT and sports genre, (2) Punit Goenka can continue as MD & CEO with a non-
compete fee that compensates for dilution and opportunity to increase of stake in future, and
(3) Zee’s minority: Valuation re-rating driven by easing of governance concerns, merger
synergies and improved probability of success in OTT. Three key ingredients for success in OTT
are capital, content and technology; this transaction augurs well on the former two fronts.
We raise FV to Rs400 (Rs250) valuing Zee at about 22X FY2024E PE (including synergies)

Valuation of a media company is a function of success in digital. In our view, valuation band for Jaykumar Doshi
a linear TV business is about 10-12X 2-year forward PE whereas a future-proof business with
strong digital platform can command 30X+ PE. This merger would end governance concerns
and significantly improve probability of success (right-to-win) in digital. We raise FV to Rs400
valuing the business at about 22X 2-yr FY2024E potential earnings (including synergies). Key
risk to our call— deal not fructifying due to SPNI’s change in view post due diligence or lack of
regulatory approvals. Even then, we expect shareholder activism to end governance concerns.
kspcg.research@kotak.com
Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Media Zee Entertainment Enterprises

Deal details
Zee Board has approved a non-binding term sheet from Sony Pictures Network India (SPNI)
for a potential merger of Zee and SPNI subject to due diligence and regulatory approvals.
Zee and SPNI have entered into a 90 day exclusivity period for due diligence.

Indicative merger ratio based on valuation of ZEEL and SPNI stands at 61.25 in favor of Zee.
Sony Pictures Entertainment, the parent company of SPNI, would invest growth capital so
that SPNI has a cash balance of US$1.575 bn at closing; indicative merger ratio following
this capital infusion would be 47.07:52.93 (Zee:SPNI). The merged entity will be a publicly
listed company in India.

As part of the transaction, Punit Goenka would be appointed as the MD & CEO of the
merged entity for a period of five years, subject to board and shareholder approval. Further,
as part of the non-compete arrangement, the promoter family will receive ~2.1% additional
stake in the merged entity taking their shareholding to ~4%. The promoter family is free to
increase its shareholding from ~4% to ~20% in the merged entity over time in accordance
with applicable laws (the management has refrained from sharing incremental details on this
aspect and indicated all options are open).

In terms of the board composition of the merged entity, apart from Punit Goenka, existing
board members of Zee would not be a part of the merged entity board. Majority of board
members of the merged entity would be nominated by SPNI.

The way forward

Zee noted that the merger scheme will require NCLT, SEBI, CCI and shareholders’ approval.
The management indicated a timeline of 6-8 months for completion. Management doesn’t
expect any hindrances in securing CCI approval, per internal assessment assuming CCI
considers market share at national-level evaluation. We are not certain if it will sail through
smoothly; however, MergeCo can always divest or shut down a channel or two to meet CCI
requirements if needed. We note that Open offer is not required in this transaction as
merger scheme is applicable.

We would not be surprised if Invesco maintains its demand for EGM and manages to
reconstitute the Board. In that case, the new board would review final binding offer from
Sony and carry out negotiations in the best interest of minority shareholders.

Merger ratio appears slightly favourable to SPNI

As per our estimate, Zee’s normalized revenues are about 40% higher than that of SPNI.
SPNI’s EBITDA margin improved sharply to 22.7% in FY2020 from 12.3% in FY2019 largely
driven by a sharp 20% reduction in operating costs (likely attributable to sports calendar and
perhaps some pull back in investments in sports and OTT). On the other hand, Zee’s
adjusted EBITDA margin (excluding one-time write-offs) declined to 27.5% from 32.3%
partly due to higher investments in business (OTT) and elevated inventory levels. Per our
estimate, Zee’s underlying profitability should be at least 600-700 bps higher than that of
SPNI (like-for-like) and normalized EBITDA (like-for-like) should be about 85% higher than
that of SPNI. Given this, backdrop pre-indicative merger ratio should have been 66:34
(Zee:SPNI) without factoring in Zee’s potential net cash balance of about US$250 mn (as
against 61.25:38.75 Zee:SPNI that factors in Zee’s cash balance). Post-capital infusion
merger ratio should have been 51:49 or 50:50 (Zee:SPNI).

It looks like the proposed indicative post-capital infusion merger ratio of 47:53 (Zee:SPNI): (1)
factors in costs associated with non-compete fee that SPNI has agreed to pay to Zee’s
existing promoters, and (2) has kept buffer for some negative surprises during due diligence
and (3) does not factor in Zee’s existing cash balance assuming some contingent/future
liabilities.

The above view is based on our preliminary assessment of financials of SNPI (unlisted entity)
and Zee.

2 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Zee Entertainment Enterprises Media

Zee and SPNI’s channel portfolio is complementary to a large extent

We note that Zee is a strong player in regional genres while Sony has negligible presence in
regional genres. Sony, on the other hand, has a presence in sports and some strength in
English genre. While both the players have decent strength in Hindi GEC and Hindi movies
genres, the viewership profile is slightly complementary in nature. Per our understanding,
Sony’s Hindi channel portfolio scores well in West and in the urban audience whereas Zee is
relatively stronger in North and in semi-urban/rural markets. Overall, we believe Zee and
Sony have complementary portfolio and strengths. Lastly, we note that Sony would also
benefit from Zee’s operational efficiency (and ability to produce effective content at an
affordable cost)

Merger synergies can potentially boost FY2024E EBITDA by Rs6-7 bn in our view
Zee management noted that post-merger maximizing revenue synergies will take priority
over cost reduction. Management indicated that such mergers typically result in ~6-10%
revenue synergies (larger scale makes it more attractive for advertisers). Digital and Sports
business will be key focus areas post-merger. Zee had divested the sports business to SPNI in
2017. Sports will be an area of focus in the merged entity given improved monetization
opportunity with evolution of the digital ecosystem in India.

We expect cost synergies of 5-7% over and above revenue synergies of 5-7% over 2-3 years.
Consolidation would drive synergies across several key revenue (better pricing and volume
offtake in advertising and marginally better negotiation and penetration on subscription
front) and cost line items (savings in fixed costs including corporate overheads, employee
rationalization especially sales workforce, market spends efficiency, etc). While, Zee and SPNI
have some business overlap in the Hindi GEC and Hindi movie markets, decision on channel
rationalization will be looked at post-merger with a clear focus on viewership and revenue
maximization. Lastly, consolidation of digital assets would also drive significant cost savings
that can be reinvested in strengthening OTT play.

Integration of culture would be important

In our view, Sony and Zee have very different organization culture. Further, we note that
with Sony as promoter and Punit Goenka as MD & CEO, there is possibility of creation of
power centers. Employee rationalization and appointments for key positions would have to
be done carefully.

Exhibit 1: Merger Math- Indicative post-capital infusion merger ratio values Zee at Rs240 bn (Rs250/share)

mn shares (% stake)
Indicative merger ratio pre-capital infusion Comments
Zee 960.5 61.25
SPNI 607.7 38 .75
Total 1,568.2 100.00

Share issuance to SPNI pertaining to Capital infusion and indicative pre-infusion and post-infusion merger
472.4
capital infusion of US$1.575 bn ratios value Zee at Rs240 bn (Rs250/share) (@ Rs75/US$)

Indicative merger ratio post-capital infusion

Zee 960.5 47.07
SPNI 1,08 0.1 52.93
Total 2,040.6 100.00

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Media Zee Entertainment Enterprises

Exhibit 2: Consolidated P&L of Zee and Sony (SPNI), March fiscal year-end (Rs mn)

SPN India Zee Entertainment

2019 2020 2021 2019 2020 2021
Profit and loss statement
Revenues
Advertising income 33,372 29,262 50,367 46,8 11 37,48 8
Subscription income 21,8 68 23,78 8 23,105 28 ,8 74 32,430
Digital & Licensing income 7,967 4,435
Distribution & Licensing of Movies 157 — 5,8 67 5,614 7,38 1
Sale of Programs — 328
Total revenues from operations 63,364 57,813 55,268 79,339 81,299 77,299

Operating expenses
Direct costs 42,672 32,433 30,758 38 ,28 5 37,505
- Content costs 40,702 31,38 7 28 ,651 36,068 35,221
- Other direct costs 1,970 1,045 2,107 2,217 2,28 4
Employee costs 4,125 4,300 7,249 7,8 05 8 ,18 3
Advt and publicity 3,096 5,179 6,993 6,956 6,167
Other expenses 5,667 2,794 8 ,700 11,907 7,544
Total operating costs 55,560 44,705 44,614 53,700 64,953 59,398

EBITDA 7,804 13,108 10,654 25,638 16,346 17,901

EBITDA margin (%) 12.3 22.7 19.3 32.3 20.1 23.2

Accelerated Amortisation — — — — 2,598

Provisions ad/subscriptions revenues and other assets — — — — 3,433
Adjusted EBITDA 7,804 13,108 10,654 25,638 22,377 17,901
EBITDA margin (%) 12.3 22.7 19.3 32.3 27.5 23.2

Depreciation 1,8 08 2,354 2,163 2,347 2,706 2,649

Other income 8 90 649 1,131 2,515 2,8 36 1,104
Finance costs 591 271 87 1,305 1,449 571

PBT 6,295 11,132 9,535 24,501 15,028 15,786

Minority interest (90) — — (23) 5 (69)
Tax expense 2,151 2,429 3,8 99 8 ,673 4,317 4,625
PAT 4,233 8,704 5,636 15,851 10,706 11,229
Fair value through P&L — — — 36 (2,597) (1,962)
Exceptional items — — — (218 ) (2,8 43) (1,266)
Reported PAT 4,233 8,704 5,636 15,669 5,266 8,001

Growth (%)
Revenue growth (%) (2) (9) (4) 19 2 (5)
Advertising revenue growth (%) (14) (12) 20 (7) (20)
Subscription revenue (%) (2) 9 14 25 12
Content costs growth (%) (0) (23) 22 26 (2)
Employee costs growth (%) 3 4 9 8 5
Advt and publicity costs growth (%) 0 67 21 (1) (11)

As % of revenues
Direct costs 67.3 56.1 38 .8 47.1 48 .5
Employee costs 6.5 7.4 9.1 9.6 10.6
EBITDA margin (%) 12.3 22.7 32.3 20.1 23.2

Break-up of expenses
Total costs 51,435 40,405 46,451 57,148 37,505
Cost of Programs, Films & other rights 39,993 30,605 28 ,651 23,068 23,221
Digital Licensing Expenses 197 404 — —
Broadcast Cost 1,970 1,045 2,107 2,217 2,28 4
Other direct costs 512 379 — 13,000 12,000

Rent 213 2 889 598 605

Repairs to machinery 25 164 413 528 443
Insurance 418 344 43 85 80
Rates and taxes 251 99 125 148 238
Travelling conveyance 148 107 8 70 8 77 663
Legal professional charges 319 413 8 01 652 885
Advertising promotional expenses 3,096 5,179 6,993 6,956 6,167
Channel Placement Charges + Subscription payout 2,598 794 — — —
Payment to auditors 11 4 35 37 43
Exchange difference (net) — 66 101 38
Bad debts 166 4 — —
Provision for doubtful debts 18 9 8 34 5,656 956
Loss on disposal of intangible Assets — — — —
Loss on disposal of PPE 33 21 24 — 127
CSR expenditure 144 148 228 3 500
Miscellaneous expenses 1,48 9 524 4,368 3,222 2,966

Source: Company, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Zee Entertainment Enterprises Media

Exhibit 3: Hindi genre- BARC ratings market share, 1-Apr-18 to 2-Jul-21 (Week 14, 2018 to Week 26, 2021) (%)

1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22
Hindi GEC (Urban + Rural)- Viewership share in the top 7 channels (%)
Star Plus 17.6 18 .8 20.0 19.5 20.5 20.5 19.3 18 .1 24.3 26.9 25.8 26.1 26.9
Colors (TV18 ) 17.9 18 .5 16.7 18 .0 16.4 15.0 16.6 18 .8 13.2 15.0 17.8 17.6 15.1
Zee TV 21.2 19.3 20.1 19.3 18.6 18.5 17.6 16.1 8.4 15.0 17.5 16.3 12.9
Sony TV 13.0 15.4 16.2 17.2 15.4 16.2 15.5 14.2 14.0 12.1 12.9 12.9 12.7
Sony SAB 13.9 13.7 12.1 11.9 15.0 16.7 18 .3 19.8 25.7 18 .9 17.3 17.4 22.1
&TV (Zee) 5.0 4.9 4.6 4.9 4.5 4.0 4.0 4.7 6.5 4.7 3.7 4.1 3.3
Life Ok (Star Bharat) 11.4 9.5 10.3 9.2 9.5 9.0 8 .7 8 .3 7.9 7.5 5.1 5.5 7.0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Zee Network 26.2 24.2 24.7 24.2 23.1 22.5 21.6 20.8 15.0 19.6 21.2 20.5 16.2

Hindi movies (Urban + Rural)- Viewership share in the top 6 channels (%)
Sony Max 27.9 28 .5 25.8 25.2 23.8 22.6 23.3 23.4 24.0 23.3 22.7 22.2 21.4
Star Gold 19.8 18 .5 20.1 19.8 21.5 20.8 20.8 19.9 20.4 20.4 21.6 21.6 23.2
Zee Cinema 20.8 21.9 22.2 21.1 22.1 21.5 20.4 21.1 21.1 20.9 21.3 21.1 21.5
Movies OK 11.2 10.8 11.5 12.4 12.6 12.8 13.4 13.3 12.6 13.4 13.3 13.6 13.8
& Pictures 11.8 11.1 11.8 12.1 11.6 12.8 12.2 12.9 13.1 13.0 12.0 12.0 11.8
Sony Max 2 8 .5 9.1 8 .6 9.3 8 .4 9.5 9.9 9.4 8 .8 9.0 9.0 9.6 8 .3
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Zee Network 32.5 33.0 34.0 33.2 33.7 34.3 32.6 33.9 34.2 33.9 33.3 33.0 33.3

Source: BARC, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

Media Zee Entertainment Enterprises

Exhibit 4: Regional genres- BARC ratings market share, 1-Apr-18 to 2-Jul-21 (Week 14, 2018 to Week 26, 2021) (%)

1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22
Tamil GEC (Urban + Rural)- Viewership share in the top 6 channels (%)
Sun TV 45.5 44.2 41.5 40.2 39.6 41.1 44.2 45.8 47.0 42.1 38.4 38.3 40.7
STAR Vijay 20.7 21.5 21.8 22.7 23.5 25.7 22.6 20.8 18 .1 20.8 27.0 28 .0 26.0
Zee Tamil 19.6 20.9 22.7 22.1 22.5 19.6 20.3 19.1 14.7 20.9 20.9 19.7 15.9
Polimer 3.1 2.5 2.1 2.1 1.7 1.4 1.3 1.3 2.3 1.5 1.3 1.3 1.6
Kalaignar TV 2.4 2.2 2.0 3.9 3.9 3.5 3.5 4.0 5.1 3.7 2.9 2.7 3.8
Jaya TV 2.2 2.3 2.3 1.6 1.3 1.8 1.7 2.8 4.3 3.3 2.7 2.8 3.3
Colors Tamil 3.7 3.1 3.8 3.4 3.3 3.0 2.8 3.1 4.0 3.4 3.0 3.6 4.3
Sun Life 2.9 3.2 3.8 4.0 4.1 3.9 3.5 3.1 4.6 4.3 3.7 3.7 4.3
Total of top 8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Telugu GEC (Urban + Rural)- Viewership share in the top 4 channels (%)
Zee Telugu 26.8 25.1 24.8 24.9 23.6 21.1 20.9 21.8 20.0 25.4 25.2 26.7 26.6
Star Maa TV 27.8 30.1 31.9 31.0 33.4 36.3 36.6 33.8 29.8 33.2 38 .1 36.8 37.8
Gemini TV (Sun) 22.4 22.0 21.6 19.6 20.5 19.9 19.6 21.2 26.2 18.2 15.2 14.8 14.0
ETV Telugu 23.0 22.8 21.8 24.5 22.5 22.7 22.8 23.2 24.1 23.1 21.6 21.7 21.5
Total of Top 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Kannada GEC (Urban + Rural)- Viewership share in the top 5 channels (%)
Colors Kannada 33.9 33.5 32.4 31.2 28 .1 23.9 24.7 19.1 16.1 19.7 23.8 24.6 23.8
Colors Super 8 .0 8 .9 10.7 9.2 10.2 9.6 7.4 6.4 5.2 2.7 3.1 3.4 3.8
Zee Kannada 25.0 29.2 29.6 31.3 32.1 35.9 38.1 39.5 31.3 34.4 34.0 35.6 33.0
Udaya TV (Sun) 18.8 17.0 16.1 16.7 16.9 16.9 15.6 18.2 30.8 22.7 16.9 16.1 19.5
Star Suvarna 14.4 11.3 11.1 11.7 12.7 13.7 14.3 16.8 16.6 20.4 22.1 20.3 19.8
Total of Top 5 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Malayalam GEC (Urban + Rural)- Viewership share in the top 4 channels (%)
Star Asianet 52.8 52.7 49.7 46.9 43.9 46.0 49.1 49.6 33.6 43.1 49.9 52.1 45.0
Surya TV (Sun) 16.6 16.8 14.2 12.4 12.6 11.2 11.0 12.3 22.3 14.6 10.5 9.7 12.3
Mazhavil Manorama 15.5 15.8 15.0 17.3 17.8 16.0 15.3 14.4 18 .5 14.3 13.7 12.5 15.7
Flowers TV 15.1 14.7 17.0 19.3 19.8 18 .3 14.2 12.9 15.5 16.3 13.9 14.1 14.7
Zee Keralam 4.0 4.1 5.9 8.5 10.4 10.8 10.2 11.6 12.0 11.6 12.2
Total of Top 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22E
Marathi GEC (Urban + Rural)- Viewership share in the top 6 channels (%)
Zee Marathi 51.7 51.1 54.5 56.2 53.8 53.6 48.3 41.3 46.8 43.1 32.3 30.7 29.0
Colors Marathi 20.2 20.6 20.1 22.3 26.3 24.9 27.2 29.4 15.4 17.0 16.8 16.8 15.7
Star Pravah 18 .6 19.3 19.2 15.5 14.5 15.7 19.2 23.2 23.6 34.4 47.8 49.5 51.6
Zee Yuva 9.5 8.9 6.3 6.1 5.5 5.8 5.3 6.0 14.2 5.6 3.1 3.0 3.7
Fakt Marathi 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Maiboli 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total of top 6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Bangla GEC (Urban + Rural)- Viewership share in the top 4 channels (%)
Star Jalsha 44.8 38 .3 38 .9 37.6 35.9 37.2 39.1 42.3 30.1 44.8 45.5 46.0 44.5
Zee Bangla 41.0 46.1 45.7 49.1 48.4 47.1 45.4 42.1 36.5 36.0 39.6 40.6 41.0
Colors Bangla 8 .3 8 .9 8 .4 7.2 7.1 7.4 7.9 7.8 15.9 10.3 8 .3 7.2 6.6
Sony Aath 5.8 6.6 7.1 6.1 8 .6 8 .3 7.6 7.8 17.5 8 .9 6.6 6.3 7.9
Total of Top 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: BARC, Kotak Institutional Equities estimates

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Zee Entertainment Enterprises Media

Exhibit 5: Key metrics of OTT players in India

Dec 2020 July 2020

MAUs DAUs Average time spent MAUs DAUs Average time spent
(mn) (mn) (mins per user per day) (mn) (mn) (mins per user per day)
Hotstar (a) 130-140 26-29 35-40 115-125 24-26 40-45
SONY LIV 35-40 6-8 30-35 20-25 2-4 28 -33
Voot 20-25 4-6 40-45 12-15 2-4 40-45
Airtel TV NA NA NA NA NA NA
ZEE5 25-30 3-5 20-25 40-50 4-6 20-25
Prime Video 65-75 10-15 45-50 8 5-95 20-25 45-50
Netflix 55-60 10-15 55-60 60-65 20-25 65-75
Sun NXT 2-3 0-0.5 NA 2-3 0-0.5 NA
JioCinema 13-15 1-2 20-25 13-15 1-2 20-25
JioTV Live 75-8 0 15-20 35-40 40-45 6-8 20-25
Facebook 400-425 310-340 45-50 275-300 195-210 40-45
Youtube 450-475 38 0-410 75-8 0 360-390 290-310 75-8 5
Vodafone Play NA NA NA NA NA NA

Notes:
(1) Hotstar's MAUs and DAUs on non-cricket days. It is 30-50% higher on key cricketing days (especially IPL),
(2) Above metrics includes (a) Android and iOS as per 3rd party and (b) Web users (per KIE estimates; typically 15-25% of total traffic is through web
whereas 75-85% is through app).

Source: BARC, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7

Media Zee Entertainment Enterprises

Exhibit 6: Consolidated financial summary of Zee Entertainment, March fiscal year-ends, 2016-24E (Rs mn)

2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E

Profit model (Rs mn)
Total revenues 58,514 64,332 66,857 79,339 81,299 77,299 82,956 93,271 101,834
EBITDA 15,094 19,260 20,761 25,639 16,346 17,901 19,043 22,987 25,363
Other income 2,016 2,240 2,795 2,515 2,8 36 1,104 1,262 1,733 2,153
Interest (123) (161) (1,448 ) (1,305) (1,449) (571) (450) (150) (150)
Depreciation (8 40) (1,152) (1,8 21) (2,347) (2,706) (2,649) (2,775) (2,8 32) (3,125)
Pretax profits 16,147 20,187 20,287 24,501 15,028 15,786 17,081 21,739 24,242
Extraordinary items (331) 12,234 2,955 (218 ) (2,8 43) (1,266) (37) — —
Taxes (5,528 ) (6,8 05) (8 ,409) (8 ,673) (4,317) (4,625) (5,08 4) (6,522) (7,273)
Minority interest (22) 5 25 23 (5) 69 120 120 120
RPS dividends (incl tax) (1,457) — — — — — — — —
PAT 8,810 23,416 14,791 15,670 5,266 8,001 11,982 15,337 17,089
Adj PAT (pre-exceptional; excl RPS impact) 10,482 13,386 14,428 15,852 10,706 11,229 12,019 15,337 17,089
EPS (Rs) 9.2 24.4 15.4 16.3 5.5 8.3 12.5 16.0 17.8
Adj EPS (Rs) - (excl RPS impact) 10.9 13.9 15.0 16.5 11.1 11.7 12.5 16.0 17.8

Balance sheet (Rs mn)

Total Equity 42,145 66,567 75,617 8 9,239 93,439 100,945 105,179 115,070 126,713
Preference capital 20,169 — — — — — — — —
Minority interest 85 10 141 143 110 129 129 129 129
Total borrowings 9 19,08 8 15,254 11,133 5,950 3,8 33 — — —
Currrent liabilities 16,532 14,702 20,28 4 28 ,8 14 24,238 23,28 1 23,616 26,552 28 ,990
Total capital 62,408 85,665 91,012 100,515 99,499 104,908 105,308 115,199 126,843
Cash and cash eq 21,346 40,935 33,264 23,798 11,750 20,044 15,8 23 21,250 27,636
Inventories 13,160 16,8 43 26,278 38 ,505 53,475 54,030 57,030 60,030 63,530
Receivables 13,245 13,059 15,365 18 ,274 20,8 47 19,452 20,455 22,998 25,110
Loans and advances 12,972 14,156 13,114 24,744 15,421 13,392 14,912 16,450 18 ,008
Other current assets 2,127 3,429 7,026 7,98 2 7,78 9 8 ,123 8 ,523 8 ,923 9,323
Net fixed assets 14,960 9,721 14,125 14,155 13,18 2 12,147 11,18 0 11,099 11,224
Investments 576 1,321 2,124 1,8 72 1,274 8 36 8 36 8 36 8 36
Deferred tax assets 556 903 — — — — — — —
Total assets 62,408 85,665 91,012 100,516 99,499 104,908 105,308 115,199 126,843

Free cash flow (Rs mn)

Operating cash flow, excl. W-cap, ex-taxes 15,713 19,170 22,390 27,8 02 22,371 19,679 16,313 23,272 25,648
Working capital (2,632) (5,670) (8 ,551) (17,151) (16,758 ) 8 09 (5,58 8 ) (4,545) (5,132)
Taxes paid (5,8 27) (6,8 10) (8 ,295) (9,299) (3,114) (5,011) (5,08 4) (6,522) (7,273)
Capital expenditure (4,064) (2,768 ) (4,605) (2,8 23) (1,451) (1,740) (1,8 09) (2,750) (3,250)
Other income (net) 1,003 1,001 1,107 956 1,300 400 8 12 1,58 3 2,003
Free cash flow (prior to RPS dividends) 4,193 4,923 2,046 (515) 2,348 14,137 4,645 11,039 11,997
RPS redemption + RPS dividend payout (excl DDT) (1,457) — (3,8 34) (4,121) (5,18 3) (2,117) (6,333) (2,500) (2,500)
Free cash flow to equity holders 2,736 4,923 (1,788) (4,636) (2,835) 12,020 (1,688) 8,539 9,497

Key assumptions / metrics

Ad revenue growth (%) 28 .9 9.2 14.5 19.8 (7.1) (19.9) 23.0 12.5 9.0
Domestic subscription revenue growth (%) 14.5 11.7 11.8 17.4 33.2 13.7 4.0 11.0 9.0
Overseas subscription revenue growth (%) 15.7 3.0 (2.8 ) (0.7) (16.0) 1.2 — (1.0) (1.0)
Content cost as % of revenue 42.2 40.9 35.3 36.1 44.4 45.6 44.4 43.7 43.8
Effective tax rate (%) 34.2 33.7 41.5 35.4 28 .7 29.3 29.8 30.0 30.0
EBITDA margin (%) 25.8 29.9 31.1 32.3 20.1 23.2 23.0 24.6 24.9
ROAE 22.7 43.1 20.8 19.0 5.8 8 .2 11.6 13.9 14.1
ROACE 21.6 20.5 15.7 21.1 13.2 13.7 14.0 16.6 16.7

Source: Company, Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Disclosures

Kotak Institutional Equities Research coverage universe

Distribution of ratings/investment banking relationships
Percentage of companies covered by Kotak Institutional
70%
Equities, within the specified category.

60%
Percentage of companies within each category for which Kotak
Institutional Equities and or its affiliates has provided
50%
investment banking services within the previous 12 months.

40% * The above categories are defined as follows: Buy = We expect

32.5% this stock to deliver more than 15% returns over the next 12
30% 27.4% months; Add = We expect this stock to deliver 5-15% returns
23.6% over the next 12 months; Reduce = We expect this stock to
deliver -5-+5% returns over the next 12 months; Sell = We
20% 16.5% expect this stock to deliver less than -5% returns over the next
12 months. Our target prices are also on a 12-month horizon
10% basis. These ratings are used illustratively to comply with
4.2% 4.2% 2.8% applicable regulations. As of 30/06/2021 Kotak Institutional
0.5%
Equities Investment Research had investment ratings on 212
0%
equity securities.
BUY ADD REDUCE SELL

Source: Kotak Institutional Equities As of June 30, 2021

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our Fair Value estimates are also on a 12-month horizon basis.

Our Ratings System does not take into account short-term volatility in stock prices related to movements in the market. Hence, a particular Rating may not
strictly be in accordance with the Rating System at all times.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following
designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and fair value, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)
and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction
involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and fair value, if any, for this stock, because there is not a sufficient
fundamental basis for determining an investment rating or fair value. The previous investment rating and fair value, if any, are no longer in effect for this stock
and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9

Corporate Office Overseas Affiliates
Kotak Securities Ltd. Kotak Mahindra (UK) Ltd Kotak Mahindra Inc
27 BKC, Plot No. C-27, “G Block” 8th Floor, Portsoken House 369 Lexington Avenue
Bandra Kurla Complex, Bandra (E) 155-157 Minories 28th Floor, New York
Mumbai 400 051, India London EC3N 1LS NY 10017, USA
Tel: +91-22-43360000 Tel: +44-20-7977-6900 Tel:+1 212 600 8856
Copyright 2021 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.
1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and
2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject
company, public appearances and trading securities held by a research analyst account.
3. Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc and (ii) any transactions in
the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc at vinay.goenka@kotak.com.
This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the
Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore
048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of
Singapore.
Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are
leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a
significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other
business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or
companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our
research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited
generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that
the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of
any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect
opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the
recommendations expressed herein.
In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important
information regarding our relationships with the company or companies that are the subject of this material is provided herein.
This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not
soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the
particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is
suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go
down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original
capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment.
Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all
investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions
expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory,
compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this
material, may from time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Kotak
Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to
or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or
income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition
options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any
derivative transactions.
Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house.
Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock
Exchange of India Limited (MSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange(MCX). Our businesses include stock broking, services rendered
in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management.
Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited
is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor
registered with Association of Mutual Funds in India (AMFI). Kotak Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014.
We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI,
Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise letters or levied minor penalty on KSL for certain operational
deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point
of time.
We offer our research services to primarily institutional investors and their employees, directors, fund managers, advisors who are registered with us
Details of Associates are available on website i.e. www.kotak.com
Research Analyst has served as an officer, director or employee of subject company(ies): No
We or our associates may have received compensation from the subject company(ies) in the past 12 months.
We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months. YES. Visit our website for more details
We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our
associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the
past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report.
Our associates may have financial interest in the subject company(ies).
Research Analyst or his/her relative's financial interest in the subject company(ies): No
Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: Zee Entertainment
Enterprises - YES
Nature of Financial interest: Holding equity shares or derivatives of the subject company.
Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of
Research Report.
Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of
publication of Research Report: No
Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of
Research Report: No
Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report.
A graph of daily closing prices of securities is available at https://www.moneycontrol.com/india/stockpricequote/ and http://economictimes.indiatimes.com/markets/stocks/stock-quotes.
(Choose a company from the list on the browser and select the"three years" icon in the price chart).
Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22
43360000, Fax No.: +22 67132430. Website: www.kotak.com / www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg,
Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No. INZ000200137(Member of NSE, BSE, MSE, MCX & NCDEX). Member Id: NSE-08081; BSE-673; MSE-1024;
MCX-56285; NCDEX-1262. AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Compliance Officer Details: Mr. Manoj Agarwal.
Call: 022 - 4285 8484, or Email: ks.compliance@kotak.com. Investments in securities market are subject to market risks, read all the related documents carefully before investing.
In case you require any clarification or have any concern, kindly write to us at below email ids:
Level 1: For Trading related queries, contact our customer service at ‘service.securities@kotak.com’ and for demat account related queries contact us at ks.demat@kotak.com or call us on:
Toll free numbers 18002099191 / 1860 266 9191
Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at ks.escalation@kotak.com or call us on 022-42858445 and if you feel you are
still unheard, write to our customer service HOD at ks.servicehead@kotak.com or call us on 022-42858208.
Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Name: Mr. Manoj Agarwal) at
ks.compliance@kotak.com or call on 91- (022) 4285 8484.
Level 4 : If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach Managing Director / CEO (Mr. Jaideep Hansraj) at ceo.ks@kotak.com or
call on 91-(022) 4285 8301.
First Cut notes published on this site are for information purposes only. They represent early notations and responses by analysts to recent events. Data in the notes may not have been
verified by us and investors should not act upon any data or views in these notes. Most First Cut notes, but not necessarily all, will be followed by final research reports on the subject.
There could be variance between the First cut note and the final research note on any subject, in which case the contents of the final research note would prevail. We accept no liability
for the contents of the First Cut Notes.