Last week, you have mentioned, you do not have holdings in Zeae. Now you are stating that you have investments. Have you entered after this 10% fall ? If so, i assume you must have more insight and what about your comparative study among Zee, Star, Sony regarding inventory increase due to media content and corresponding amortization expense in P&L account ?
No I have not yet made any investments and thatās what I saidā¦I am not biased due to investmentsā¦
I just went through all the happenings of Zee Entertainment in last 24 monthsā¦to see what exactly did go wrong hereā¦ And I feelā¦ All big players are eyeing the crown jewel of Essel group Zee Entertainment to get the promoters exit desperately because they know that Punit Goenka is not going to give control easily and so is being draggedā¦right ā¦leftā¦
.upā¦downā¦
I do feel Zee may have lot more volatility going ahead butā¦I donāt doubt the Zee group businessā¦
I will post my detailed reads/observation hereā¦ And yes I have not taken your comments personally at allā¦
We all here are to learnā¦ Letās get to more details hereā¦
Cheers
Infact this looks like a solid investment at cheap valuations. But when you see management conduct over last couple of years. It inspires zero confidence. I am more worried that they have not been able to find a strategic investor for largest media asset in such a large market.
One way to look at Zee:
Market cap 13500 cr (approx)
Avg PAT : 1900 cr (past 3 years)
So if you were to buy the entire business today for 13500 cr, you would breakeven in about 7 years. Does not matter what the promoter did or didnt to before today.
This is what a strategic investor is looking at. That makes zee an attractive target.
Its all about waiting out the storm.
Disc: invested
I believe as we speak, the tussle is going on between financial investors and promoters. Investors are pushing for more transparency, more housekeeping and cleaning up of the books. Puneet and his team are naturally reluctant to do so in one lot. But they have started acting on it and outcome was recent announcement that Zee is changing, more disclosures, more transparency and in turn more provisions and more losses disclosed etc. One pointer towards that the 2 delays in Mar 20 conference call (which in first place was declared one day before or on the same day of results). and consequent delay in declaring the results. It seems it was not decided how much "dirt"needs to disclosed in Mar 20 quarter.
Based on my experience with similar promoter based companies changing hands, I guess it will be few more quarters before all old issues are taken care of. So much more pain in store for the financials. Hence I donāt expect the stock to run away unless promoters negotiate their way out of this company while keeping their head held high. If that happens, the stock will jump in hope of a new beginning as the Zee franchise is very strong and lof of strategic investors would be interested in investing.
Disclosure - a tracking position taken in pre-covid days and hence continue to hope for better tomorrow 
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Interesting management interview
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Highlights from the management commentary
ļ® Earnings guidance: The management expects double-digit revenue growth
in FY22 (over FY20) and EBITDA margin of over 25%.
ļ® Cash flow: It is aiming at a FCF/PAT conversion of 50% in FY22.
ļ® Aggressive on ZEE5 and content: The company is intensifying its content
and movie release line up on ZEE5. It has also revised its pricing to INR499
annually (from INR999 earlier) to drive subscriber growth.
ļ® Sugarbox: The management is scaling down its investment in Sugarbox
against its earlier commitment on account of a delay in the rollout of
projects and effects from the COVID-19 pandemic.
How can this partnership with TVF help Zee grow?
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Zee Entertainment Q1FY22 Earnings call notes
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During the quarter, our television business suffered from a double whammy on account of pandemic. As audiences were confined to their homes, they were spending more time watching television. We continue to produce ā production of our original shows by moving the shoots to cities, which have relatively lesser levels of restrictions and to resorts, which increased our production cost even as the advertising revenue dipped.
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Another important development for this quarter was that the Bombay High Court delivered the long awaited judgment on NTO 2.0. The court has struck down 1 of the twin conditions requiring broadcasters to build bouquets in a fashion that none of the channels included in it is priced more than 3x the average per channel. Besides these, all other conditions were deemed legally valid and new regulations are to be implemented within 6 weeks from the date of judgment. The industry forum and some broadcasters have moved to the Supreme Court challenging the order. While we are awaiting the verdict, we have parallelly started working on the revised pricing. As we have previously discussed, the implementation of NTO 2.0 can cause disruption for a quarter or 2, but once it settles, we are confident of reverting to subscription revenue growth .
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During the quarter, we continued to be Indiaās #2 TV entertainment network. The viewership share for the quarter dropped to 17%. However, we have already seen a sharp recovery in the month of July.
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On the cost side, see, it is like ā we are following exactly the same policies for recognition of cost, which has been in force for several years. So when it comes to movie, it is direct-to-digital release kind of a movie. So whatever cost is there, that will be amortized over a period of 5 years in equal monthly installments. And there are some costs of Radhe, which is relating to music rights. It will be also an amortized 50%, 25% over 25%. And the satellite also will be amortized over ā satellite rights will be amortized over 5 years .
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So see, we had, like I indicated earlier also, revised payment plan has been agreed with Dish, and we have been recovering monies from Dish as per the agreed payment terms. So this quarter also, we have received money as per the agreed payment terms. The amount outstanding which was there as of March ā sorry, the outstanding as on March '20 was INR 5.8 billion, which came down to INR 4.5 billion on March 21. And as we stand on 31st July, it is down to INR 3.7 billion. As I said earlier, we would be recovering all the old outstanding by the end of FY '22 .
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ZEE5
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our new strategy for ZEE5 is showing early signs of success on expected lines. This quarter, we launched 2 big properties, Radhe and the much-awaited episode of Friends: The Reunion. This led to a sharp jump in app users in the MAU base. The strong content push along with better user experience is resulting in improved Net Promoter Score and top-of-the-mind recall for ZEE5 in a crowded market. We have built a very strong content lineup for ZEE5, and we are confident of building further on these improvements.
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ZEE5 has been expanding in global markets over the past year, starting with the APAC. This quarter, we launched in the United States, the largest market over South Asian thus far. Zee has had a long association of over 2 decades with the United States market, bringing to our viewers the best of Indian entertainment through our channels. With ZEE5, we now look to offer this audience as well as the younger demographics, access to a much deeper and wider choice of content, premium content with our [ new shows ]. We are delighted to note the response we have received and we are confident that the United States would become an important revenue driver for ZEE5 in the years to come.
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Now coming to ZEE5. Global MAUs and DAUs for the month of June were 8.2 million and 7.1 million, respectively. With a monthly engagement of 190 minutes during the quarter, ZEE5 is building momentum on all key metrics. Annual pack subscribers now make up more than 40% gross additions every month, highlighting the increasing traction on the platform .
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The revenue and EBITDA loss of ZEE5 for the quarter was INR 1.1 billion and INR 2 billion, respectively.
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this will be the peak investment year for ZEE5 in terms of losses. And as the revenue growth starts to come in, you will see losses coming out, although next year, maybe only marginally low. But the year after that, you start to see significant shrinkage in that.
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on annual pack, we would be recognizing revenue on a daily basis . So letās say, if it is INR 365, every day we accrue only INR 1. Now this movie got released in the middle of the quarter and people subscribed, say, over the next 15, 20 days. So a full reflection also of the subscription revenue is not there in the quarter of people who joined ZEE5 because of, say, Radhe. And that revenue, we will continue to see in the coming quarters .
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So currently the digital paying subscriber base in India, as various reports have put it out, is ranging between 40 million to 50 million individuals or connections. And this is projected to grow in the next 5 years to anywhere between 180 million to 220 million. And Zee would be targeting at least a similar market share as we target in our [ &tv ] industry. Itās 20% to 25% market share we should be targeting [ during a ] 5-year perspective.
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Advertisement
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the recovery in the advertising market is slower than anticipated. Advertisers are waiting for the risk of potential third wave to abate before they start raising their spends. However, we remain confident that as and when sense of normalcy returns and fear of lockdown recedes, advertising spend would bounce back as the underlying demand for inventory remains healthy. Our confidence stems from the fact that in the previous year, once the COVID-19 surge was behind us, we saw an instantaneous jump in advertising spends. Despite slower recovery in our advertising revenues, we have decided to continue to invest in both of our core businesses that is broadcast and digital, given the large opportunity in front of us .
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So most of the decline that youāre seeing in the revenue against the FY '20 comes from largely yield. Itās not coming from inventory fill levels.
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Broadcasting
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In broadcast space, our primary focus is to improve our market share in Hindi, Marathi and Tamil markets with the launch of new shows, high-impact, nonfiction and increase the number of hours.
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We will be launching 30-plus new shows in quarter 2 alone across the network.
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Zee Music Company continued to be second most subscribed Indian music channel on YouTube and the label witnessed 80% growth in YouTube videos on a Y-on-Y basis.
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We have prioritized 3 critical markets, which is Hindi general entertainment, Marathi entertainment as well as Tamil entertainment are the key priorities for the coming quarter or for the current quarter, and thatās where the significant investment for the company is going to go. The 30-plus shows that we talked about, of course, are spread beyond these 3 channels as well. But a significant part of that 30-plus shows is on these 3 geographies or channels that you are referring to.
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Zee stock has grossly underperformed the markets for over more than a year. And it increasingly looks like a value buy at the current price. But is it really so? I decided to take a close look at the numbers. The single most prominent number in Zee Balance Sheet is its Inventories. Inventories comprises of Acquired content, Produced Content and Raw Stock. This inventory consists of various categories of content which is amortised/ written off in different ways as per their accounting policy prevalent for last several years. So the Content Inventory is basically: Op Stock + Cost of New Content (acquisition+production)- Amortised Value= Cl Stock. In this equation, the figure representing amortised value is very important because that determines the amount written off in P&L and thus impacts the bottom line.
Since this is the raw material that Zee has, it is pertinent to look at the Sales generated by the Inventories. Let us take a look at the numbers for last 5 years.
| Mar-17 | Mar-18 | Mar-19 | Mar-20 | Mar-21 | |
|---|---|---|---|---|---|
| Inventories | 1696 | 2628 | 3850 | 5348 | 5403 |
| Sales | 6434 | 6686 | 7934 | 8130 | 7730 |
| Inventory Turnover | 3.79 | 2.54 | 2.06 | 1.52 | 1.43 |
It is very clear that even as the inventories have risen, sales has not kept pace with it. This has led to a decline in return ratios:
| Mar-17 | Mar-18 | Mar-19 | Mar-20 | Mar-21 | |
|---|---|---|---|---|---|
| ROCE | 24% | 26% | 27% | 14% | 14% |
One reason, I can think of, that this has happened is that Zee has aggressively invested in new content for its OTT channel Zee5, which has not generated commensurate revenue. Zee5 was launched in FY18. And the drop in Inventory turnover from then on is immediately perceptible. We do not have the break-up of content value for the TV channels and OTT separately to actually know this.
As more and more OTT channels come up, value of old content diminishes drastically. So, even as it is carried on the books, increasing the capital employed in business, the income potential is reduced. I feel that the Company needs to relook at its inventory accounting policy to keep up with the times and recognise the reduced earning potential. Whenever it happens, the P&L for that year is sure to take a hit. Alternatively, Zee5 has to start generating increasingly higher revenue to justify the investments. Either way, Zee5 is going to be the key to the Companyās fortunes going forward.
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Mr R Gopalan, independent director was appointed the chairman of ZEEL in August 2020. He is a former bureaucrat (IAS) who was finance secretary of GOI. Recently one Ms Swetha Gopalan aged 37 years, has been appointed as an independent director in Zee Media Corp. Just wondering if the two persons are related. Can somebody pls check and confirm?
BTW, latest promoterās stake in some Zee group companies is as follows.
ZEEL: 3.99%
Zee Media: 8.52%
Zee Learn:21.69%
Dish TV: 5.93%
Siti Networks: 6.1%
Invesco Developing Markets Fund having around 18% holding in the company , has asked for the resignation of the board.
Also Mr. Manish Chokhani and Mr. Ashok Kurien has already resigned.
Looks like a silent coup is happening in the company and new management will be coming.
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Maybe they should have Zee5 in a separate subsidiary. That will help investors get a clearer picture of traditional TV biz.
Zee5 revenue is likely to be 450-500cr this year. Is there any valuation method. Netflix is valued at 10xSales.
I must say news of two directors resigning and third one on target have brought altogether new life in Zee Entertainment stock which was purely shorters stock since longā¦
AGM is going to be an eventful day I am sure.
Company will have multiple re-rating and can be a acquisition target as well if largest shareholders are able to turn the tables in their favour. They waited and watched for quiet a time before taking this action and so I am assuming this time they definitely have plans to make the big change as required.
No doubt there will be a downside of this as effectively management is in favour of Puneet and Shareholders not ā¦
Disclosure: Was invested ā¦exited todayā¦ But watching it closely
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I did attend the AGM and it was total Bullshit. Most of the shareholders were reading from a script and apparently they had no question to ask because the management is so good.
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Normally RJ makes through analysis and invests.
He has made huge investments of 50 lakh shares.
Any value unlocking opportunities need to be studied.
That sounds like a lot to us but Itās not huge for RJ. Its not even 1% of his portfolio. Itās not uncommon for him to take such bets
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Zee AGM update
I attended AGM and it was same old boring thing where minority investors were praising management by saying we are invested in Zee since the day Shubhash ji started the firmā¦we are with you and all those typical drama which people above 60 are hired for in AGMs to read out ā¦
Our MD & CEO didnāt discuss much on Invesco event and plainly refused of having any corporate governance issues.
EGM is supposed to be held in 21 days from receipt of largest shareholders request and record date should be no less than 7 days of EGM. So letās expect the EGM soon.
Our MD & CEO have started meeting institutions to get some support I thinkā¦ Letās see how everything goes ā¦
Disc- Not invested ā¦ Tracking
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