FINANCIAL MANAGEMENT 1

ASSIGNMENT
Risk-Return Analysis and Valuation
Of
Zee Entertainment Enterprises Limited

Zee
Submitted To :

Submitted By :

Professor Moid. U Ahmad

Study Group 8
PGDM-SM (2015-2017)

Entertainment
Enterprises

Group Members :
1.Sanchit Tiwari (PGSF1540)
2.Shubham Arora (PGSF1557)
3.Rupali Chaturvedi (PGSF1538)

Media and Entertainment Industry 4.Mazharul Arfin (PGSF1559)

The Indian Media and Entertainment (M&E)
industry is a sunrise sector for the economy and
is making high growth strides. Proving its
resilience to the world, the Indian M&E industry
is on the cusp of a strong phase of growth,
backed by rising consumer demand and
improving advertising revenues.

5.Sharad Gupta (PGSF1560)

6.Shivam Mishra (PGSF1555)
7.Kumar Rohit (PGSF1552)

The industry has been largely driven by increasing digitisation and higher
internet usage over the last decade. Internet has almost become a mainstream
media for entertainment for most of the people.
The Indian Media and Entertainment industry is on an impressive growth path.
The revenue from advertising is expected to grow at a CAGR of 13 per cent and
will exceed Rs 81,600 crore (US$ 12.29 billion) in 2019 from Rs 41,400 crore
(US$ 6.24 billion) in 2014.

About Zee Entertainment Enterprises Limited (ZEEL)

Zee Entertainment Enterprises Limited is one of India's leading television,
media and entertainment companies. It is amongst the largest producers and
aggregators of Hindi programming in the world, with an extensive library
housing over 210,000+ hours of television content. With rights to more than
3,500 movie titles from foremost studios and of iconic film stars, ZEEL houses
the world's largest Hindi film library.
Through its strong presence worldwide, ZEEL entertains over 959+ million
viewers across 169 countries.
The ZEEL stable owns an integrated range of businesses. All of these in
singularity adhere to the content-to-consumer value chain model of media and
entertainment business. ZEEL is a pioneer in every aspect of content
aggregation and distribution through traditional media like satellite and cable
and new media like the internet, in India.

Board Of Directors of ZEEL

Name

Designation

1. Subhash Chandra

Chairman

2. Ashok Kurien

Director

4. Punit Goenka Managing

5. M Lakshminarayanan

Director & CEO

Executive VP & CS

6. Sunil Sharma

Director

7. Subodh Kumar

Non-Executive Director

8. Neharika Vohra

Director

9. Manish Chokhani

Director

10. Manish Chokhani

Additional Director

13. M Y Khan

Additional Director

ZEELs Services and Brands

Pioneer of the television entertainment industry in India, ZEEL's well-known
brands include Zee TV, &TV, Zindagi, Zee Smile, Zee Anmol, Zee Cinema,
&pictures, Zee Action, Zee Classic, Ten Sports, Ten Cricket, Ten Action, Ten
Golf, Zee Cafe, Zee Studio, Living Foodz, Zee Salaam, Zing, ETC Bollywood
and ZQ. The company also has a strong offering in the regional language
domain with channels such as Zee Marathi, Zee Talkies, Zee Bangla, Zee
Bangla Cinema, Zee Telugu, Zee Kannada and Zee Tamil. The company has a
strong bouquet of HD channel which includes Zee TV HD, & TV HD, Zee
Cinema HD, &pictures HD, Zee Studio HD and Ten HD.

ZEELs Financials For The Year 2014-2015

Revenue
Total revenue increased by ` 5,091 million, or 11% from ` 46,024 million
in FY 2014 to ` 51,115 million in FY 2015 on account of higher
broadcasting income.
Revenue from Operations
Operating revenue increased by ` 4,620 million or 10% from ` 44,217
million in FY 2014 to ` 48,837 million in FY 2015. Overall growth was
witnessed in advertisement revenues of ` 2,802 million i.e. 12% to `
26,603 million in FY 2015 as against ` 23,801 million in FY 2014.
Subscription Revenue has reduced by ` 87 million from ` 18,022 million
in FY 2014 to ` 17,935 million in FY 2015.
Other Income
Other income increased by ` 471 million or 26% from ` 1,807 million in
FY 2014 to ` 2,278 million in FY 2015. Increase in other income is
mainly on account of interest income by ` 201 million and profit on sale
of treasury investment of ` 269 million.
Expenditure
Total Operational expenditure increased by ` 4,125 million or 13% from `
32,174 million to ` 36,299 million. This increase in cost is attributable to
higher content costs as well as the increase in Administrative &
Marketing Spends.
Operational Cost / Cost of Goods
Operational cost has increased by ` 705 million to ` 21,393 million in FY
2015 as against ` 20,688 million in FY 2014. The overall increase in
operational cost is mainly attributable to increase in cost on acquisition
and amortization of programming and sports content as well as launch of
new channels.

Employee Benefit Expenses

Employee cost increase by ` 603 million, or 15 %, from ` 3,895 million in

FY 2014 to ` 4,498 million in FY 2015.
Other expenses
Administrative and Other expenses increased by ` 2,817 million or 37%
from ` 7,591 million in FY 2014 to ` 10,408 million in FY 2015. The
increase is mainly on account of higher spend on advertising and
marketing cost incurred by the Company.
Operating Profit
Operating profit increased by ` 495 million, or 4%, from ` 12,043 million
in FY 2014 to ` 12,538 million in FY 2015. The operating margin is at
26% for FY 2015. The increase in operating profit is mainly attributable
to increase in broadcasting revenue during the year which is partially
offset by increase in operating costs i.e. higher investment in content and
marketing spends to build the business.
Profit Before Tax
Profit before tax increased by ` 849 million or 6% from ` 13,191 million
in FY 2014 to ` 14,040 million in FY 2015.
Provision for Taxation
Provision for taxation reduced by ` 6 million to ` 4,285 million in FY
2015 from ` 4,291 million in FY 2014.
Net Profit After Tax for the year
Profit after tax for the year increased by 10% to ` 9,775 million from `
8,921 million. The Net Profit margin has remained static at 20% in FY
2015 as compared to FY 2014.

Zee Entertainment
Rf=0.072092
Beta=1.11
Year

Close Price

Market Return

(Ri-R)^2

2010
2011
2012

147.05
118.05
220.9

-0.197211833
0.871241

0.217284388
0.362783477

2013
2014
2015

276.55
380.75
396.7

0.251923947
0.376785391
0.041891005

0.000289066
0.011633669
0.051544845

Market
Return=

0.401103305
CAPM (Ke)= 0.072092+1.11*(0.2689259020.072092)=0.29057763
Income Per Share's FV
Share Return
(29.06%)
2.25
2
2
1.5
2
4

0.6435354
45

Average=

0.160883861
(Ri-R)^

-0.18361
0.888183
Market Risk=
0.258714

0.21488
0.369959
0.000451
0.010832
0.051776

0.384017
0.052397

Sum=
Average=

Sum=

0.268925902

0.647898
Market
Return=

0.27994

0.161974
CAPM(Ke)=0.072092+1.11*(0.279940.072092)=0.302803 (30.28%)

Market
Risk=

Growth Rate
1
0.333333
-0.25
0
Sum(1+0.33333-.25+0)=1.083333
G Value (1.0833333/4)=0.270833
Bond Value=4/(Ke-G Value)
Bond Value (4/(0.302803-0.270833))=125.1303

0.40246

Interpretations
Beta
Beta is a measure of the volatility, or systematic risk, of a security or
a portfolio in comparison to the market as a whole. Beta is used in
the capital asset pricing model (CAPM), a model that calculates
the expected return of an asset based on its beta and expected market
returns.
ZEELs Beta is 1.1 which means that this company has historically been
10% more volatile than the market.
So, if the market moves up by 1%, ZEELs stock prices will rise by 10%.
Risk Free Rate or Rf
The risk-free rate represents the interest an investor would expect from an
absolutely risk-free investment over a specified period of time.
In practice, however, the risk-free rate does not exist because even the
safest investments carry a very small amount of risk. In our case, Rf is
7.2% which means that an investor is expecting a minimum of 7.2%
return on his investments.
Expected Return or Ke
CAPM or Ke helps the investors to calculate risk and what type of return
they should expect on their investment.
ZEELs ke is approximately 30% which means that the investors are
expecting a return of 30% on their investments in ZEELs shares and 30%
is the rate of return required by this firm.
Market Risk
Also known as systematic risk, it refers to the possibility for an investor
to experience losses due to factors that affect the overall performance of
the financial markets.
In our case, investors will bear a risk of 27% if they invest in the stocks
of ZEEL.

Dividend Per Share

DPS is the profit received per share of a company. In our case, income
per share for the year 2015 is 4 Rs, which means that the investors have
earned a profit of 4 Rs on a share of face value of 1 Rs.
Dividend Growth Rate
The annualized percentage rate of growth that a particular
stock's dividend undergoes over a period of time. The time period
included in the analysis can be of any interval desired and is calculated by
simply taking a simple annualized figure over the time period.
In our case, the dividend growth rate for the year 2015 is 100% which
means that the dividend on each share has doubled up.