Hello fellow ValuePickrs,
Starting off a thread to discuss Zee, a household company in India. Surprised to see this is not discussed yet in the forum.
Zee has 35+ channels in India with a viewership share of ~18%. It also has 35+ channels in rest of the world. It has also been venturing into various businesses like Digital subscription, Zee Studios, Zee Music Company, live ticketing…
Its revenue mostly comes either from Advertising (63%) or Subscription (30%) and it is venturing into other businesses like producing movies, owning music rights, hosting live / theatrical events.
Most of Zee’s revenues are derived from here through advertisements of subscription of Zee’s channels by DTH companies or Cable operators.
Zee TV, their flagship channel is one of the top channels in India. Their regional channels like Zee Telugu, Zee Kannada, Zee Bangla are also top channels in their respective regions. Zee channels typically fall in Top-3 channels in the region they are operating.
Zee also possesses niche channels focussing on urban population like &TV, Zing…
Before concluding that Internet will take over TV, it is important for us to remember that still TV is not properly penetrated in India (~66%). Zee believes that it will be ‘TV with Digital’ in India’s near future instead of ‘TV vs. Digital’.
FMCG companies are the top advertisers in Indian TVs and India being a third world country, FMCG is not properly penetrated yet (remote areas) and this can lead to increased ad spending by these companies.
While penetration of Digital OTT players is rising fast in Urban areas, penetration of TV households in rural areas is fast rising. See below link.
TV Advertising revenues seem to be in a long-term growth story (checking up with Digital once a year is still a good caution) due to this rural penetration and top players like Zee will not miss it.
Coming to subscription revenues, DTH players which are mostly present in urban areas are facing strong competition from OTT players. Since DTH players are mainly used by middle to high income families, they can mostly afford OTT platforms and people using OTT prefer to stick with it due to its flexibility and the ability to binge-watch. This can put DTH companies out of business (as they are unaffordable in rural areas) which implies a drop in subscription revenues for Zee. This can be visible in Zee’s revenue contribution trend too.
Note: Fall in subscription revenue in 2018 is attributed to sale of sports business (TEN Sports) which is mainly subscription driven.
We all know the rise digital media is in, with Jio’s disruption.
ZEEL has launched ZEE5, their online platform for content viewing. Their content seems more complete compared to Prime Video / Netflix which seems to be targeting on English speaking audience. ZEE5 also has soap operas and not just movies. ZEE5 already has 5+ crore subscribers while Prime India has 1 crore and Netflix India has only 50 lakhs.
ZEEL management believes that there are too many OTT players currently in the market and Zee expects consolidation in this space as consumer’s experience can get cumbersome if he has to get subscription from multiple OTT players. With ZEE5 having different genres of content,
Zee Music Company (ZMC) is another initiative towards digital side which is discussed further below. Performance of ZEE5 should be monitored if one is interested in ZEEL for the long-term.
Zee has very good movies on its resume like Sairat, Rustom, Secret Superstar. FY17 was really good for Zee while FY18 was average. The focus seems to be on storyline. Zee identified that digital rights and international box office revenues are improving the economics of movie producing and hence ventured into this area. With around 160 crores movie revenues per year, this still seems to be a small part of Zee’s business.
Zee Music Company:
The music industry is set on boom with digital disruption. 65% of the industry revenues are from digital streaming now. ZMC is acquiring rights of songs from top films (music-wise) like Half Girlfriend, Secret Superstar, Baahubali… The industry is only of 1800 crores size which is much less than Zee’s annual revenues. And Zee has 14% market share in the digital streaming.
This industry is expected to be of the 6500 crores and also expected to grow fast. Zee’s event called Wicked Weekends is apparently India’s longest party marathon. I personally don’t like Zee diversifying into this industry as this falls more into a different orthogonal form of entertainment.
Zee Promoter Group’s i.e. Essel Group’s companies were alleged to have executed / associated with some transactions with Nityank Infrapower and a group of shell firms whom the SFIO is currently probing. This allegation was made by Wire.
However, Shubhash Chandra, Zee promoter, denied those allegations and came back on Wire with a defamation law suit.
He also came up with a good apology letter as he finds it difficult to clear his dues in other Essel group’s companies like Essel Infra. The promoter group plans to sell 50% of its already small stake (42%).
TRAI came up with a la carte based pricing for TV channels. I expect low income households in the rural areas to subscribe only to the base pack for FTA channels. Zee’s subscription income needs to be monitored in the coming time.
Debt Ratio - Low - 0.3
Current and quick ratios - High - 2+
ROCE - High - 25%+
ROE - High - ~20%
PAT Margins - High - ~20%
- TV penetration in Rural India is growing strong. 100% Electrification is only going to help here. This should increase the revenues for top TV channels like ZEE
- Strong financial ratios - ROCE, ROE, Margins, D/E…
- ZEE5 seems to be getting good traction even though it is competing with huge dinosaurs like Prime and Netflix
- Increasing presence in related fast growing sectors with tailwinds - Zee Studios, Zee Music Company, Zee Live
Negatives / Alerts Summary:
- Essel Group’s other companies like Essel Infra are unsuccessful causing the promoter family to fall into huge debts. This is causing the promoters to pledge their shares in the company
- Promoters’ ambition to run too many businesses and failing in couple of them causes me some discomfort
- Company is diversifying into too many verticals. We should ensure that capital is being deployed efficiently by monitoring vertical specific financials (if we get data)
- Low promoter holdings (~42%) which can get even lower with promoters planning for a stake sale to clear their dues
- With OTT players good traction in India, DTH players are already feeling the heat. With new TRAI regulations, one should keenly observe the impact on subscription revenues
On the light of recent developments, the stock is swinging wildly. I’ll let you assign your own fair P/E multiple to this company
Encouraging fellow members to take the discussion further. Will keep adding more info as I read up more.
Disclosure: Not a buy / sell recommendation. Not invested. Just started exploring. Noob investor.