Life is about to come full circle for Zee Entertainment (ZEEL). Firmly ensconced as the number two player in GEC space, it is lunging for the top slot to displace Star. ZEEL is consistently moving up the rating charts (occupies 40% of the Top 50 rated content). In a business where increasing TRPs drive advertising rates as indeed distribution revenues, we expect 29% CAGR in ZEEL's revenues and 49% CAGR in net profit over FY07-09. However, a twist in the tale awaits ZEEL. An impending clutter in GEC space makes viewership fragmentation, as also higher content and management costs a near-term reality. The onslaught of emerging media giants such as TV18 group, NDTV, INX and UTV in GEC space poses the biggest risk to ZEEL. Our take is that ZEEL could get de-rated in the wake of cut-throat competition. We recommend a switch from ZEEL (USD 3.3 billion market cap) to a basket of NDTV, GBN, UTV and INX Media (private) with GECs cumulatively valued at USD 1 billion).
ZEEL gunning for top slot:
ZEEL's regained aggression in the past one year is reflected in its improving TRPs (23 shows among top 50) and a seat closer to Star. As ZEEL converts better ratings into higher advertising rack rates, we expect it to clock 28% CAGR in advertising revenues over FY07-09, supported by a 56% CAGR in domestic pay revenues. We estimate 49% CAGR in ZEEL's earnings over FY07-09.
but market headed for fragmentation:
With well-capitalized and integrated players like NDTV, TV18 group, INX Media and UTV lining up GEC launches in the next 6- 8 months, the Indian broadcast space is set for a clutter. Escalating competition would, in its wake, lead to fragmented viewership, stretched ad rates, and steeper content and management costs. All this is bound to put pressure on incumbents, more so on leaders.
Valuations build in upsides; exposed to competitive intensity:
Trading at 28x FY09E earnings, we believe ZEEL builds in all the upsides of a strong content, and thereby distribution revenues. From hereon, our take is that ZEEL could get de-rated on the back of increased competitive risk. We, therefore, recommend a switch from ZEEL (market capital of USD 3.3 billion) to a basket of NDTV, GBN, UTV and INX Media (private) valued at a cumulative USD 1 billion.
Investment Argument:
A changing distribution landscape and improving economics are drawing many a player to the broadcasting business, particularly the GEC genre. And unlike in the past, the new entrants – GBN (Viacom18), NDTV (headed by Sameer Nair), INX Media (headed by Peter Mukherjea) and UTV (along with Astro Broadcast) – are well equipped for a long haul with adequate funding, strong management and lucrative media properties. Upon entry into this genre, we expect these players to redefine the competitive scenario in the GEC space with maximum risk to incumbents like ZEEL and Star. Therefore, we see merit in investors opting for a basket of incubated ventures, cumulatively valued at USD1 billion, rather than invest in the number two player valued at USD 3.3 billion and facing high competitive risk.
ZEEL gunning for top slot:
ZEEL's regained aggression in the past one year is reflected in its improving TRPs (23 shows among top 50) and a seat closer to Star. As ZEEL converts better ratings into higher advertising rack rates, we expect it to clock 28% CAGR in advertising revenues over FY07-09, supported by a 56% CAGR in domestic pay revenues. We estimate 49% CAGR in ZEEL's earnings over FY07-09.
but market headed for fragmentation:
With well-capitalized and integrated players like NDTV, TV18 group, INX Media and UTV lining up GEC launches in the next 6- 8 months, the Indian broadcast space is set for a clutter. Escalating competition would, in its wake, lead to fragmented viewership, stretched ad rates, and steeper content and management costs. All this is bound to put pressure on incumbents, more so on leaders.
Valuations build in upsides; exposed to competitive intensity:
Trading at 28x FY09E earnings, we believe ZEEL builds in all the upsides of a strong content, and thereby distribution revenues. From hereon, our take is that ZEEL could get de-rated on the back of increased competitive risk. We, therefore, recommend a switch from ZEEL (market capital of USD 3.3 billion) to a basket of NDTV, GBN, UTV and INX Media (private) valued at a cumulative USD 1 billion.
Investment Argument:
A changing distribution landscape and improving economics are drawing many a player to the broadcasting business, particularly the GEC genre. And unlike in the past, the new entrants – GBN (Viacom18), NDTV (headed by Sameer Nair), INX Media (headed by Peter Mukherjea) and UTV (along with Astro Broadcast) – are well equipped for a long haul with adequate funding, strong management and lucrative media properties. Upon entry into this genre, we expect these players to redefine the competitive scenario in the GEC space with maximum risk to incumbents like ZEEL and Star. Therefore, we see merit in investors opting for a basket of incubated ventures, cumulatively valued at USD1 billion, rather than invest in the number two player valued at USD 3.3 billion and facing high competitive risk.
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