ZEE

Entertainment Enterprises
Manindra K (0181/51)
Nikhil Gupta (0235/51)
Prathyusha N(0217/51)
Harika N
(0232/51)
Sireesha N R (0220/51)

Introduction
Name of the Company
Name of the Chairman
Listed In
Financial Year end
Employees

Zee Entertainment Enterprises

Subhash Chandra
BSE/ NSE
March 31
2075

Zee Entertainment Enterprises Limited is one of India's leading television media and entertainment
companies. Based in Mumbai, ZEE Ltd, the second-largest media and Entertainment Company in India, is a
subsidiary of the Essel Group. With rights to around 3500 movie titles & Housing over 120,000 hours of television
content makes ZEE Ltd one of the largest producers and aggregators of Hindi programming in the world. Its
presence is not only limited to India, it entertains over 700+ million viewers across 169 countries.
ZEE Ltd currently operates the following TV channels Zee TV, Zee Cinema, Zindagi, Zee Premier, Zee
Action, Zee Classic, &Pictures, Zee Anmol, Zee Smile, 9X, Zee Cafe, Zee Studio, Zee Jagran, Zee Salaam, Zing, ETC
Music, Zee Khana Khazana and Zee Q. The company also has a strong presence in the domain of regional language
with channels such as Zee Marathi, Zee Bangla, Zee Telugu, Zee Kannada etc.

Industry Overview
The Indian media and entertainment industry is full of potential and has a huge impact on Indias economy.
This industry reaches 161 million households, according to FICCI-KPMG documents. The estimated television
industry of Rs 41,720 crore (2013) is projected to increase at a CAGR of 16.2 % to reach Rs 88,500 crore by 2018.
The industry is expected to benefit from the rapidly growing young population and heavy usage of 3G and
portable devices. Broadcasting industry is to witness a paradigm shift in its business model. With the
implementation of digitization, subscription revenues will increase, while the reliance of broadcasters on
advertising will come down. Subscription revenues for the industry are likely to increase. Govt. has implemented
digitization of cable distribution to improve profitability and ease of institutional finance. It also increased FDI limit
from 49% to 74% in cable and DTH satellite services.
Today India is 3rd largest television market in the world. As of 2012 823 satellite Television channels
broadcast in India including Doordarshan, Zee ltd, Sun Network, TV18 broadcast, Sony Entertainment TV, Star TV.
Company Name
Turnover (crores)
Zee Entertainment Enterprises Ltd
3075.70
Sun TV Network Ltd
1817.62
TV18 Broadcast Ltd
541.55
With strong advertising growth and implementation of digitization, we expect Zees top-line to increase
and EBITDA margins are likely to increase resulting in increase in PAT. RoE and RoA are likely to increase. With
strong earnings growth, debt-free b/s, limited capex, improvement in return ratios will enable ZEE to invest in niche
content after digitization.

Impact of market on ZEE Ltd

Due to the implementation of digitization, subscription revenue growth is likely to be modest. Also ZEE ltd
breaking its JV with Star (Medipro) will now be approaching cable operators and other distribution platforms; it is
likely to have impact on collections until customer level billing improves
As advertising revenue increased, movie and music channels improved distribution. Market shares of ZEE channels
improved, leading to ZEE ltd outperforming industry. Until customer payments begin to rise, expected revenue
growth may be upto 12%. After closing Medipro, Zee is forced to launch ZEE zindagi impacting profitability

Financial Statements
1) Abridged Balance Sheet

2) Abridged Income Statement

3) Cash Flow Statement & its Horizontal Analysis

Select Accounting Principles

The financial statements are prepared and presented under the going concern and historical cost
convention on accrual basis of accounting in accordance with the Generally Accepted Accounting Principles
(Indian GAAP) in India. The adopted policies are consistent with those of previous year. Some of the key
accounting practices for the firm are:
Tangible fixed assets are stated at cost, less accumulated depreciation and impairment loss if any.
Capital work in progress comprises cost of fixed assets and related expenses that are not yet ready
for their intended use at the reporting date.
The recoverable amount of assets is estimated in order to determine the extent of impairment loss.
Depreciation on tangible fixed assets is provided on straight line method, except Aircraft on which
depreciation is provided based on estimated useful life of 15 years.
Current investments are held for not more than 1 year. They are stated at lower of cost and fair
market value. Investment properties are stated at cost
Foreign currency transactions are accounted at the exchange rate prevailing on the date of such
transactions. Non-monetary foreign currency items are carried at cost.
Advertisement revenue is recognized when the related advertisement appears before the public.
Subscription revenue is recognized on time basis on the provision of television broadcasting service
to subscribers. Interest income is recognized on a time proportion basis. Dividend income is
recognized when the Companys right to receive dividend is established.
Costs comprises acquisition /direct production cost, where the realizable value on the basis of its
estimated useful economic life is less than its carrying amount, the difference is expensed as
impairment. Film rights are amortized on a straight-line basis over the licensed period or 60 months
from the commencement of rights, whichever is shorter.
Cost is allocated to each right based on management estimate of revenue. 90% of the cost is
allocated and amortized as per theatrical and satellite rights, and 10% of the cost is allocated to
Intellectual Property Rights (IPR) and amortized over subsequent five years. For raw stock, cost is
taken on weighted average basis.
Actuarial gains and losses are charged to the Statement of Profit and Loss.
INTERPRETATION OF FINANCIAL STATEMENTS
Balance Sheet
The Shareholders Equity stands at Rs 2113 crores of which 96 crores are public shareholding. Zee
issued 20,169,423,120 non-convertible Bonus Preference Shares of Rs 1 each on March 6 2014 and
hence the tremendous increase in the shared capital in the FY2014. There isnt any significant
increase in the equity share-capital of FY14 compared to FY11.
The firms long-term borrowings stand at Rs 2 crores in FY14 compared to Rs 119 crores in FY10,
whereas the short-term liabilities increased from Rs 21 crores in FY11 to Rs 219 crores in FY14. This
shows that firm is moving away from long term borrowings to short term liabilities.
Firms total assets valued at Rs 4717 crores in FY14. The Inventories, valued at Rs 1120 crores in
FY14 show an increase of 247% over FY10.
There is 50% increase in fixed assets from FY13 to FY14, and an overall increase of 132% from FY11.
The corresponding effect is shown in the decrease in C&CE from FY13 to FY14, showing the firm
has invested in fixed assets.
Income Statement
During the FY10, the firm received the refund of taxes paid in earlier years amounting to excess
provision for tax, Rs 28.4 crores. The provision was made under minimum alternate tax. This is the
reason for high profit for the same year.

Zee Entertainment has shown a growth in net revenues having grown at a CAGR of ~10% (FY11-14)
to attain a value of Rs 3076 crores in FY14.
There has been a general increase in PAT, except for the FY12. This is because of the operational
costs were high, while the Sales increased only slightly.

Cash Flow Statement

Cash Flow From Operating Activities
o The cash flow from operating activities increased from Rs 181 crores in FY09 to Rs 443
crores in FY14. This can be attributed to increase in revenue.
o The Net Cash Flow from Operating activities is decreasing from FY13 to FY14, even though
the Net Operating Profit is increasing because of the increase in interest and other
extraordinary item adjustments.
Cash Flow from Investing Activities
o There is significant increase in expenditure on investing activities in FY14 compared to
FY09, FY10, wherein the company has got cash inflow from many investment activities
o The firm is not focusing on purchase of fixed assets but are more focused on purchase and
sale of investments as can be seen from the graph above
Cash Flow from Financing Activities
o We see that the firm is consistently paying the increasing dividend to the shareholders,
leading to increase in cash outflow from financing activities
o However, from FY13 to FY14, the company has a cash inflow of Rs 77.8 crores from issue of
shares, leading to a decrease in cash outflow from financing activities

Ratio Analysis
Financial Ratios
Type

Profitability

Name

FY 14

FY 13

FY 12

FY 11

FY 10

Gross Profit Margin

0.57

0.58

0.54

0.59

0.67

Operating Profit Margin

0.32

0.33

0.27

0.35

0.41

Profit Margin

0.25

0.25

0.22

0.27

0.44

Return on Assets

0.18

0.17

0.14

0.16

0.16

Return on Equity

0.70

6.70

5.06

7.86

11.43

Current Ratio

4.01

4.36

5.20

4.22

2.83

Quick Ratio

2.45

2.84

3.26

2.53

2.10

Inventory Turnover

1.26

1.10

0.97

1.13

0.94

Asset Turnover

0.70

0.68

0.62

0.61

0.36

Receivables Turnover

4.06

3.72

3.44

4.01

2.76

Current Asset Turnover

1.09

0.95

0.82

0.96

0.73

Working Capital Turnover

1.43

1.20

1.04

1.34

1.12

No. of Inventory Days

289.57

332.76

377.09

322.21

388.55

No. of Receivable Days

89.90

98.12

106.11

91.04

132.27

Operating Cycle

379.47

430.87

483.20

413.25

520.81

Interest Coverage

164.19

733.23

1468.60

249.29 35.70

Liability to Equity Ratio

0.64

6.18

6.16

9.59

15.14

Cash Flow Yield

0.57

1.05

0.73

0.81

0.29

Cash Flow to Assets

0.10

0.18

0.10

0.13

0.05

Cash Flow to Net Sales

0.14

0.26

0.16

0.21

0.13

Liquidity

Efficiency

Cycles

Solvency Ratio

Cash Flow Ratio

Leverage

Risk to Income

FLM

3.95

39.36

36.62

48.65

72.92

Degree of Operating Risk

1.49

1.57

1.62

1.52

1.36

Degree of Financial Risk

1.01

1.00

1.00

1.00

1.03

Total Risk

1.50

1.57

1.62

1.53

1.40

Profitability
Even though the sales have been increasing significantly from FY10 to FY14, we see that the Gross
Profit Margin has more or less remained the same, showing that the firm is not focusing on
reducing the Operational Costs. In fact, the decrease in Operating Profit Margin in FY12 is due to a
huge increase in the Operating Costs.
The decrease in ROE from FY13 to FY14 is due to the issuance of shares by the firm.
Efficiency
Theres a decrease in both Inventory Days and Receivable Days from FY10 to FY14, resulting in
improvement in cash flow and reflecting a healthy stream of sales.
The increase in Working Capital Turnover is due to the increase in revenue, because the difference
between Current Assets and Current Liabilities remain almost the same.
Solvency Ratio
The increase in Interest Coverage from FY10 to FY12 can be attributed to the fact that the firm was
reducing its dependency on long-term borrowings (and hence interest expense reduced), whereas
the gradual decrease in Interest Coverage from FY12 to FY14 is due to the increasing dependency
on short term borrowings
Leverage
Theres a sharp decrease in FLM from FY13 to FY14 because of the previously mentioned fact of the
firms issue of Shares, resulting in a huge increase in Equity.
Note The rest of the financial ratios remain more or less the same.

Trend Analysis

Analysing the balance sheet of FY2010 to FY2014, we can see a 32% increase in the size of the
balance sheet largely due to the increase in revenues

TOTAL-EQUITY AND LIABILITIES

FY14

FY13

FY12

FY11

FY10

132

112

99

100

100

Net Revenue has grown by 240% in the last 5 years at a CAGR of 19%. The 40% increase in Revenue
from FY13 to FY14 is largely due to 21% increase in Advertisement Revenue and 11% increase in
Subscription Revenue.

Net Revenue

FY 14

FY 13

FY 12

FY 11

FY 10

240.53

200.66

172.36

169.70

100.00

The 1000% increase in Other Current Liabilities is due to the firms gradual shift from the long term
borrowings to short term payables.

The sharp drop in firms Reserves Surplus from 117% in FY13 to 67% in FY14 is because the firm paid
24.09% share of profits as Equity dividend and dividend distribution tax.

The operational cost has increased 50% (as compared to base year FY10) from FY13 to FY14
because of the higher programming costs on account of big sporting events during the year, which
can be seen across the industry.

The C&CE decreased considerably from FY13 to FY14 because of the loans given to others.

Common Size Analysis

The Reserves Surplus, that formed the major part (~80%) of Equities and Liabilities from FY10 to
FY13, has reduced to 39.33% of Total Equities and Liabilities in FY14 because of the tremendous
increase in Shareholders Capital.
FY 14

FY13

FY 12

FY 11

FY 10

Share Capital

44.80

2.38

2.72

2.74

1.37

Reserves Total

39.33

81.26 82.32

78.57

77.87

The total Current Liabilities doesnt show any significant change as a percentage of total Equities
and Liabilities, even though the trade payables have reduced from FY10 to FY14. This is due to the
firms primarily taking short term credit, which is reflected in increase in Other Current Liabilities.
FY14

FY13 FY12

FY11

FY10

Trade payables

3.72

5.65

8.72

10.92

10.75

Other current liabilities

4.63

4.10

0.99

0.60

0.00

The firm is shifting its focus from non-current investments (42.96% in FY10 to 17.13% in FY14) to
other non-current assets (0% in FY10 to 13.69% in FY14).
FY 14

FY13

FY 12

Non - current investments

17.1299

14.96 16.818

Inventories

23.7486 23.91

FY 11

FY 10

16.307

42.964

28.195 30.889 12.708

Theres also a gradual decrease in Inventories from 30.89% in FY11 to 23.75% in FY14.

Assessment of Companys Financial and Operational Performance and Position

Zee Entertainment is enjoying the first position in Entertainment/Multimedia sector with highest
revenues and PAT.

Zee Entertainment has covered almost all age groups and all major languages, as can be seen from
the various TV channels it operates.

Analysing the companys financial statements in comparison to its competitors, we find that ZEE
has the following strengths and weaknesses

The firms fixed assets are less compared to its competitors, which leads to lower
Depreciation costs, and hence higher Operating Profit. The less fixed assets might be due
to the firm depending on temporary or rental assets (for its production programmes).

However, the firm has huge operational costs, when compared to its main competitor SUN
TV network. This is the reason for lower Gross Profit Margin when compared to SUN TV.
Even though the Net Sales of ZEE is 150% of that of SUN TV, the net profit is just above
100% (~107%).

Profitability in relation to sales:

profitability in relation to sales we looked at the three types of margins gross profit margin, operating profit
margin and profit margin for all three companies.Sun network has high gross profit margin than ZEE ltd and Sun
has low operating costs compared to ZEEL .Thus ZEE has slightly lesser Operating Profit Margin and Net Profit
margin compared to Sun.We can say that Sun is more efficient than Zee limited.

Gross profit margin

Operating profit
margin

1
0.8
0.6

zee

0.4

sun

0.2

tv18

1
zee

0.5

sun
0

2014 2013 2012 2011 2010

2014 2013 2012 2011 2010

tv18

-0.5

Profit margin
0.5
zee
0

sun
2014

2013

2012

2011

2010

tv18

-0.5

Liquidity:

To assess the liquidity of the three companies we will consider two ratios current ratio and quick ratio. We observe
that ZEE limited has lower quick ratios over the years and higher current ratio compared to Sun. This might be a
concern for ZEEL. But it has strong long term growth prospects that can help offset the effects of lower liquidity
ratios the company might be able to fund its short term liabilities by borrowing on favorable terms given its long
term prospects.

Current ratio

Quick ratio

7
6
5
4
3
2
1
0

7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00

zee
sun
tv18

2014

2013

2012

2011

2010

zee
sun
tv18

2014

2013

2012

2011

2010

Profitability in relation to investments:

we used ratios Return on Assets(RoA) and Return on Equity(RoE) to compare the profitability with respect to
investments.We see that Sun has consistently higher RoA than Zee ltd.But zee ltd higher RoE.Thus we can say that
Sun has more profitability as observed earlier.

ROA

ROE

0.4

15

0.3
0.2

Zee

0.1

sun

0
-0.1

tv18
2014

2013

2012

2011

2010

10

Zee

sun
tv18

0
2014

2013

2012

2011

2010

-5

-0.2

Efficiency:

To compare the efficiency, we looked at 2 ratios Inventory Turnover, Receivables Turnover.We see that Sun
consistently has higher Inventory and Receivables Turnover rations where as Zee ltd has low inventory ratio but its
receivable turnover are as high as that of sun (Higher receivable and inventory turnover is good).We can observe
that zee ltd has lower efficiency than Sun.

2012

2011

4.647

2013

2.645

2014

2.760

4.009
5.590
3.083

TV18

3.440
4.121
3.498

0.939

9.775

1.133

2011

Sun

3.720
3.634
3.505

2012

Zee
4.060
3.779
4.214

2013

269.333

TV18

3.489

0.968

1.887

1.097

1.677

1.260

2014

RECEIVABLE
TURNOVER

7.355

Sun

190.204

Zee

183.000

346.056

365.082

INVENTORY TURNOVER

2010

2010

Capital Expenditure
The Capex for Zee is higher than that of
Sun in the past two years which is
evident from the above facts as for Sun
dividend payout is higher which means
it does not have capital as much as Zee
has for expenditure, whereas for TV18
the Capex has been higher than Zee
and Sun in the past years except in
2014 as they have not been giving
dividends.

CAPEX

2014

2013

2012

423

278.95

78.27

624

TV18

278.95

Sun

91.5

278.95

357.7

-435

278.95

615.3

1862

Zee

2011

Dividend Payout

0.520833333

0.446428571

0.339558574

0.538854226

0.293542074

0.547866205

0.297619048

SUN

0.310559006

ZEE

DIVIDEND PAYOUT
0.251572327

As Dividend payout for Sun is higher as compared

to Zee it wants to spur investors' interest so that
they are willing to pay out unreasonably high
dividend percentages.

But these dividend rates can't be sustained very

long because the company will eventually need
money for its operations and hence they might
reduce in future but a reduction in dividends paid
is looked poorly upon by investors, and the stock
2014
2013
2012
2011
2010
price usually depreciates as investors seek other
dividend-paying stocks.
As Dividend payout for Sun is higher as
Compared to Zee it wants to spur investors' interest so that
they are willing to pay out unreasonably high dividend percentages.

But these dividend rates can't be sustained very long because the company will eventually need money for its
operations and hence they might reduce in future but a reduction in dividends paid is looked poorly upon by
investors, and the stock price usually depreciates as investors seek other dividend-paying stocks.
Zee on the other hand has a stable dividend payout ratio which indicates a solid dividend policy by the company's
board of directors whereas that of Sun is seen fluctuating.
Note: For TV18, its earning per share was in negative and hence it has not been used for comparison with Zee
Book Value & Sales growth
Sales growth is an important indicator of a company's health and ability to sustain its business.
For Zee it is seen that the sales growth has been higher in 2011 than in the following years which implies that sales
has almost been constant in the years following 2011.

2014

2013

Zee

2011

2010

TV18

0.164201452
0.034284186
0.2051764

2014

2013

0.015668203
-0.086468335

0.198682723
0.153585458
0.158316315

21.89

51.13

60.54
28.99

29.69

21.47

2012

Sun

65.1

TV18

67.12

sun

31.23

19.95

35.14

41.33

73.41

zee

0.74228868

SALES GROWTH

BOOK VALUE

2012

0.696982968
0.378993699
0.34084507

Book value gives us the measure of all companys assets and we can see that the book value of Zee has been
increasing gradually over the past 4 years and for sun it has been constantly higher than Zee which implies Sun has
assets of higher value than Zee

2011