Zee Ent: Value unlocked… - Views on News from Equitymaster

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Zee Ent: Value unlocked…

Oct 8, 2007

In the previous article we provided an overview of the business operations of Zee Entertainment. In this article we shall have a look at the demerger process of the erstwhile entity Zee Telefilms, the value unlocked and provide an overview of the businesses of the different demerged companies. The demerger
The company Zee Telefilms demerged into four independent companies Zee Entertainment (broadcasting), Zee News (News Broadcasting), WWIL (MSO operations), Dish TV (DTH services) last year.

Rationale for Demerger
Zee Telefilms was operating in different businesses, which had a different regulatory environment and also very different competition and industry structures. A clear-cut leadership and direction for the growth of these different businesses was required which was difficult in case the company was not demerged. Tax inefficiencies were creeping in resulting in higher operating costs. Bringing all operational activities together under a suitable corporate structure with an undivided focus was the best way of unlocking shareholder value.

Value unlocked
A shareholder holding 100 shares in Zee Telefilms on the record date received 100 shares in Zee Entertainment, 45 shares in Zee News, 50 shares in demerged WWIL, 57 shares of Dish TV. The table below illustrates how a shareholder holding 100 shares of Zee Telefilms before the demerger gained from the demerger process. A shareholder’s 100 shares in erstwhile Zee Telefilms were worth Rs 34,100 before the demerger. The total value of his holdings catapulted to Rs 40,633 from the earlier Rs 34,100 a net gain of Rs 6,533.

Value unlocked from 100 shares of Zee Telefilms…
Value of 100 shares of Zee Telefilms(Pre Demerger) 34,100
Post Demerger shareholder received  
100 shares of Zee Entertainment 27,200
45 shares of Zee News 1,548
50 shares of WWIL 6,040
57 shares of Dish TV 5,845
Total value of the holdings post demerger 40,633
Gain from the demerger process 6,533

We shall now provide an overview of the businesses of the different demerged companies.

  • Zee Entertainment: We provided an overview of the operations of Zee Entertainment in the previous article.

  • Zee News: It is the largest news and regional channel network in India in terms of reach. The total news market is estimated at Rs 5.4 bn out of which the Hindi news market is Rs 4.2 bn. Zee News is the only Hindi News pay channel. Zee Marathi is the genre leader in Maharashtra and Zee News is the strong number two in North and in Metros. It is focused on linguistic markets through news and entertainment, which is approx. 40% of viewership. News and regional channels are witnessing increasing viewer-ship and advertisement share, which would benefit the company. Besides this the rollout of CAS and DTH would help the company to increase its subscription revenues going forward.

  • WWIL: WWIL is the largest Multi system operator (MSO) in India. It offers digital cable (CAS), analog cable services in alliance with the local cable operators (LCO’s). It is present in the 43 cities of India. It operates through a set of more than 4,000 local franchisee operators. It plans to rollout in 66 cities within 3 years The potential market for MSO’s is huge in India. There are expected to be 89 m homes connected to cable by 2011 (except DTH). The ARPU is expected to be Rs 470 and the operating margin is expected to be 25% translating into an industry operating margin of Rs 125 bn.

  • DISH TV: Dish TV is India’s largest direct-to-home (DTH) player with a subscriber base of 2.2 m. It is present in 4,300 towns across India, with more than 400 distributors and more than a 30,000-strong dealer network. In addition to rapid subscriber addition, Dish is looking to increase the ARPU by offering value-added services like movies-on-demand and gaming. Competition for Dish TV is on the rise, with Tata Sky offering marketing and consumer subsidies. Entry of new players such as Sun TV, Reliance and Bharti would significantly increase the competitive intensity. By 2012, the market for DTH services is expected to escalate to 25-30 m, from about 5 m currently. The DTH business requires long gestation periods for DTH operators to break even on their investments.

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