MOSL: ZEE ENTERTAINMENT (Buy)-Acquires 9X Media, expands music portfolio-Additional channels to contribute 5% of domestic ad revenue

​ZEE ENTERTAINMENT: Acquires 9X Media, expands music portfolio; Additional channels to contribute 5% of domestic ad revenue

(Z IN, Mkt Cap USD7.8b, CMP INR523, TP INR630, 20% Upside, Buy)

• ​Zee has acquired 9X Media’s six music channels for INR1.6b (1x FY17 sales).
  
• 9X Media holds ~26% share in the music ad market.
  
• The acquisition allows Zee to widen its TV portfolio and also provides channels to market its own music/movie production.
  
• We maintain our Buy recommendation for Zee, with a TP of INR630

Has acquired 9X Media’s six music channels for INR1.6b in cash

Zee announced the acquisition of 9X Media’s six music channels for INR1.6b, which will be paid in cash. These six channels across four languages – 9XM (Latest Bollywood), 9X Jalwa (Evergreen Hindi), 9X Jhakaas (Marathi), 9X Tashan (Punjabi), 9XO (English), and 9X Bajao (Hindi Classics) – will allow Zee to expand its portfolio from the current 33 channels to 39 channels.

Acquired portfolio to contribute 5% of domestic ad revenue

9X Media’s FY17 revenue at INR1.6b is equivalent to 5% of Zee’s domestic ad revenue and 2% of its consolidated revenue. At the EBITDA level, 9X Media had a loss of INR51m in FY17. EBITDA margin was 7% in FY16, which turned negative to -3% in FY17. Over the next 2-3 years, revenue growth coupled with cost synergies should drive margin accretion.