MOSL: ANNUAL REPORT THREADBARE (ART) | ZEE ENTERTAINMENT-Earnings to cash flow conversion deteriorates
ANNUAL REPORT THREADBARE (ART) | ZEE ENTERTAINMENT: Earnings to cash flow conversion deteriorates
- Zee’s FY18 annual report highlights a muted EBITDA growth of 8% to INR20.8b. However, earnings to cash flow conversion remained weak at 67% with an increase in cash conversion cycle to 371 days (FY17: 261 days). This is primarily due to (i) an increase in inventory (primarily movie rights) from INR16.8b in FY17 to INR26b, and (ii) higher advances of INR9.2b, 12% of net worth (FY17: INR8.7b). Zee’s aggressive accounting on amortization of media content continued. We believe aggressive investment in movie rights acquisition may lead to higher front-ending of profits. Acquisition of the balance 49% stake in JV—India web portal, has led to a re-measurement of gains to INR1.6b, and recognition of goodwill of INR2.6b and intangibles of INR1.1b. Non-core assets stood at INR34.1b (45% of net worth), yielding returns of 4.3%, which dragged RoCE to 25.9% despite a high RoIC of 35.5%.
- Muted revenue and EBITDA growth; PBT rises: Reported revenue growth remained muted at 4% to INR67b (15% growth adjusted for sports business divested), with (a) advertisement revenue growing 14% (FY17: 9%) and (b) subscription revenue declining 11%. EBITDA margin increased 115bps to 31.1%, but PBT before exceptional items grew by 30% to INR21.8b due to an increase in other income (led by re-measurement gains on investments in India Web portal of INR1.6b), which contributes 20% (FY17:13%) to PBT and a decrease in fair valuation loss on financial instruments to INR68m (FY17: INR2205m)
- Higher amortization period for media content continues: Zee amortizes the cost of film rights equally over 60 months, while it amortizes program rights other than that of realty shows, chat shows and sports shows (which are expensed on telecast) over three financial years, depending on management estimates of future revenue potential. We believe a higher amortization period leads to front-ending of profits, as significant revenue is realized on initial telecast. Zee invested heavily in programing rights (primarily movies) during FY18.
Zee Entertainment Enterprises is an integrated media and entertainment company engaged in broadcasting and content development, production and distribution of films via satellites. Co. is engaged in Hindi entertainment and movies; English content programming; sports channels and programming; religious and alternate lifestyle programming; music channels; special interest channels; and high definition channels with varied programming in over 169 countries globally. Also, on Zee Bollyworld channel, Co. dubbs or subtitles movies and series in English, French, Arabic, Russian, Mandarin and Melayu- Bahasa.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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