Sector update
|
10 October 2012
Media
Motilal Oswal Media Sector Conference 2012
Serious intent from government/regulator driving digitization progress; continued
friction among participants a risk factor
Key takeaways:
Serious intent of government and regulator remains the
most important factor driving the progress on mandatory
digitization.
While the transition to mandatory digitization could be
relatively smooth in Mumbai/Delhi, Chennai/Kolkata
remain uncertain due to the slow progress at Arasu/
political issues.
Industry structure is far from settled; 30 new MSOs have
surfaced in Delhi over the past few months, thus disrupting
large MSOs' plans.
We believe execution is the biggest challenge due to
continued friction among various participants -
broadcasters, MSOs and LCOs.
In our view, LCOs remain the weak link in the digitization
process. Lack of adequate incentive for LCOs can hamper
progress as customer ownership solely rests with them.
On the advertising front, ad growth in first half was likely
restricted to 7-8% YoY. Ad environment continues to be
challenging, with lower-than-expected activity considering
the upcoming festive season.
Valuation and view:
While digitization remains a 'game-
changer' event for TV broadcasting/distribution sector,
we believe valuations are largely full. This leaves little
margin of safety in case of any disappointments. We
believe broadcasters (Zee Entertainment and Sun TV)
Comparative valuations: Broadcasting
Rating
ZEEL
Neutral
Sun TV Buy
Dish TV Neutral
CMP Mcap
EV
(INR) (USDb) (USDb)
195
352
83
3.5
2.6
1.7
3.4
2.5
1.8
P/E (x)
FY12 FY13E FY14E
33.0
20.0
NA
27.8
19.3
NA
23.0
17.5
265.9
are better placed to benefit from the digitization, given
expected improvement in subscription revenues,
without any incremental investments.
We have a
Neutral rating on Zee and Dish TV and a Buy rating on
Sun TV.
EV/EBITDA (x)
FY12 FY13E FY14E
23.7
9.7
19.0
19.7
9.2
15.0
16.1
7.9
11.5
EV/Sales (x)
FY12 FY13E FY14E
5.8
7.7
4.8
4.9
7.1
4.2
4.3
6.1
3.4
RoE (%)
FY12 FY13E FY14E
17.5
26.3
NA
18.3
24.7
NA
19.3
25.1
NA
Presenting …
Report dated 10 Sep 2012
Run-up To Digitization
Digitization is a 'game-changing' event for the entire pay-TV
value chain. In our note
"All eyes on digitization; positive across
value chain"
dated September 10, we had presented key
takeaways from three major parts of the value chain - Broadcaster (Zee
Entertainment), DTH operator (Dish TV), and Content provider (Balaji Telefilms) -
based on presentations and management interactions at Motilal Oswal 8th Annual
Global Investor Conference, 2012. In the following note
"Digitization: An LCO
perspective"
dated September 20 we focused on the local cable operator's
perspective on digitization based on our interactions with Cable Operators
Federation and several LCOs across metros.
In this note, we present takeaways from
Motilal Oswal Media Sector Conference
attended by a diverse group of participants: Balaji Telefilms (leading content
provider), Cable Operators Federation of India-COFI (LCO Association), Hinduja
Ventures (National MSO), Network 18 group (leading TV broadcaster), OMD
(communications agency with global operations) and Reliance Broadcast Network
(national FM radio and niche TV network).
Report dated 20 Sep 2012
1
Shobhit Khare
(Shobhit.Khare@MotilalOswal.com); +91 22 3982 5428
Investors are advised to refer through disclosures made at the end of the Research Report.

Media Sector Conference 2012
Balaji Telefilms
Key Takeaways
Company Represented By:
Mr Tanuj Garg, CEO
Motion Pictures
Balaji Telefilms Ltd
occupies
a dominant space in the
television content creation
space, with the No.1 show
on Indian television to its
credit and all its shows
being among the top 50 on
television. From a
television content provider,
Balaji has diversified into
fields like motion pictures,
internet and mobile
applications.
Digitization to increase bargaining power:
Balaji commands a premium over
other content providers given its established track record. Company’s revenue
per hour of commissioned programming stands at INR2m. Digitization holds
the potential to strengthen the bargaining power of stronger production houses
vis-à-vis broadcasters, as content would be the key differentiator in a highly
competitive digitized environment which will support transmission of 500
channels.
Plan to increase shows to 7 from present 5:
Balaji presently has five shows on
air in the Hindi speaking markets -
Pavitra Rishta
(Zee TV),
Bade Achee Lagte
Ho
(Sony TV),
Parichay
(Colors TV),
Kya Hua Tera Vada
(Sony TV) and
Gumrah
Season II
(Channel V). Company plans to air more shows, including a historical
on a top Hindi GEC.
Movie business capital employed to be within INR1.5b:
Efforts in the movie
business would be a mix of development of concepts for in-house productions
(e.g.
Once Upon a time in Mumbai Again),
co-productions (e.g.
Shootout at
Wadala, Lootera)
and signing of key talent i.e. directors and writers. In the
movie business, strategy is to remain involved in the creative process with in-
house productions. The capital employed for this business has been fixed by
the board at INR1.5b. Balaji Motion Pictures released
Kya Super Kool Hain Hum
in 2QFY13 on July 27, 2012 and is expected to release at least one more major
film in 2012-13 and four films in 2013-14.
Balaji Telefilms: Trend in commissioned programming hours and rates
Valuation summary
Year
End
3/09A
3/10A
3/11A
3/12A
Net Sales PAT
(INR m) (INR m)
3,375
1,592
1,922
1,878
5
63
-11
204
EPS
(INR)
0.1
1.0
-0.2
3.1
EPS
Gr. (%)
NM
NM
NM
P/E
(X)
-
-
-
17.6
P/BV
(X)
-
-
0.9
RoE
(%)
0.1
1.7
-0.3
5.2
RoCE
(%)
-1.3
-3.4
-1.8
-1.0
EV/
Sales
-
-
0.8
EV/
EBITDA
-
-
NM
10 October 2012
2

Media Sector Conference 2012
Cable Operators Federation of India (COFI)
Key Takeaways
Company Represented By:
Ms Roop Sharma, President
Digitization success in Chennai/Kolkata remains uncertain given the slow
progress at Arasu/political issues:
There are risks to achievement of optimum
digitization level before the deadline in Chennai and Kolkata. While the state-
run Arasu cable has been facing procedural delays, political issues remain at
the forefront in Kolkata given likely lack of support from the state government.
LCO business model faces threat in digitized environment:
MSOs and
broadcasters continue to enter fixed-fee deals even in a digitized environment,
while LCOs would be required to pay on per subscriber basis under DAS (Digital
Addressable System). Hence, the LCO business model is threatened as there
would be inadequate incentive for LCOs to run their business at a 35% revenue
share. This is not an ideal situation for the cable TV value chain as LCOs manage
the critical last-mile.
Questions on level of ‘under reporting’:
The almost 50% downward revision in
metro analog subscriber estimates by the government led to a much higher
estimate of achieved seeding v/s earlier. However, this also indicates that the
‘under reporting’ by LCOs is substantially lower than generally perceived by
industry participants.
COFI
is a national level,
registered, non-profit
organization, with its head
office in New Delhi and
executive members spread
across India. It enjoys the
membership of more than
23,000 cable operators
(>1,200 in Delhi). COFI
represents the interest of
LCOs as a member of the
government's task force on
digitization.
Significant change in govt est of analog cable homes (m)…
Mumbai
Kolkata
Delhi
Chennai
Total
Revised Estimate
3.6
3.6
4.2
2.0
13.4
Earlier estimate
1.9
2.0
2.5
0.5
6.8
% Change
-48.3
-45.2
-41.4
-74.6
-49.2
Source: Company, MOSL
…results in much better achievement for Phase I digitization status (September 2012)
House
Holds
(m)
TV
penet-
ration
(%)
85
61
88
95
80
TV
HHs
(m)
DTH
subs
(m)
Cable
TV
HHs
(m)
1.6
1.6
2.1
0.4
5.7
20%
pro-
vision
for 2nd
TV
0.3
0.3
0.4
0.1
1.1
Cable
TV
subs
(m)
STB
insta-
lled
(m)
STB
seeding
achieved
(%)
Mumbai
Kolkata
Delhi
Chennai
Total
2.7
3.3
3.3
1.1
10.4
2.3
2.0
2.9
1.1
8.2
0.7
0.3
0.9
0.6
2.6
1.9
2.0
2.5
0.5
6.8
Source:
1.8
95
1.3
67
1.3
53
0.3
49
4.7
68
Company, MOSL
10 October 2012
3

Media Sector Conference 2012
Hinduja Ventures
Key Takeaways
Company Represented By:
Mr Ashok Mansukhani,
Director
Mr Subhashish Mazumdar,
SVP - Marketing & Customer
Relations, IMCL
Hinduja Ventures
is a part of
the Hinduja group which
provides a wide range of
products and services in
over 50 countries across
three core areas: Global
investments, investment
banking and international
trading. Hinduja Ventures'
subsidiary IndusInd Media
and Communications Ltd
(IMCL) is one of the top 3
MSOs in India with an
estimated subscriber reach
of 8.5m across 34 cities.
Apart from media segment,
the company has real
estate and treasury
operations.
Expect smooth transition in Delhi/Mumbai; possible hiccups in Chennai/
Kolkata:
The company believes that the transition to mandatory digitization in
phase I is likely to be smooth in Delhi and Mumbai. However, it acknowledged
that there could be hiccups in the Chennai and Kolkata markets. None of the
national MSO has a presence in the Chennai market.
MSOs adequately funded for phase I; might require funding for phase II and
beyond:
National MSOs are largely interested in phase I and II (~25m subs) and
partly in phase III. While MSOs are well funded for phase I due to lower
subscriber base and incremental nature of investments, external funding would
be required for phase II and beyond.
Industry structure far from settled:
The cable industry is undergoing rapid
transformation led by mandatory digitization resulting in attempts by several
players to realign. Around 30 new MSOs seem to have sprung up in Delhi over
the past 6 months, thus disrupting large MSOs’ plans.
Expect ~25% ARPU hike, post digitization:
Current ARPU in Mumbai is estimated
at ~INR180 which is expected to increase to INR220-230 (after tax) post
digitization. The industry is considering various collection models, including
pre-paid.
Estimated per sub valuation for listed MSOs
Hinduja Ventures
CMP (INR)
Shares o/s (m)
Mcap (INRb)
Net Debt (INRb)
EV (INRb)
Subscriber reach (m)
EV/subscriber (INR)
476
20.6
9.8
-1.6
8.2
8.5
968
Hathway
224.3
142.9
32.1
1.82
33.9
8.7
3,893
Siti Cable
Den Networks
21
170
453
130
9.7
22.1
2.8
-1.1
12.5
21.0
10
11
1,249
1,908
Source: Company, MOSL
Valuation summary
Year
End
3/09A
3/10A
3/11A
3/12A
Net Sales PAT
(INR m) (INR m)
2,789
3,054
4,336
5,385
468
606
866
1,005
EPS
(INR)
22.8
29.5
42.1
48.9
EPS
Gr. (%)
29
43
16
P/E
(X)
-
-
-
9.7
P/BV
(X)
-
-
1.3
RoE
(%)
7.6
9.8
12.9
13.7
RoCE
(%)
0.6
-1.1
9.7
14.1
EV/
Sales
-
-
1.5
EV/
EBITDA
-
-
4.2
10 October 2012
4

Media Sector Conference 2012
OMD
Key Takeaways
Company Represented By:
Ms Samhita Bakre,
Vice President
Optimum Media Direction
(OMD)
is an integrated
communications agency
delivering media and
marketing solutions
globally. The company was
launched in France with
the unification of BBDO,
DDB and TBWA media
operations in 1996. OMD
India began operations in
2007 and has offices in
Mumbai, Delhi, Bangalore,
Chennai and Ahmedabad.
Ad environment continues to be challenging:
2012 is turning out to be a
relatively sluggish year. Despite the onset of festive season, there has been no
meaningful increase in the ad rates this season, as of now. In a normal year,
there is ~15% upswing in ad rates 6 weeks prior to Diwali.
Second quarter has been challenging for ad spends:
After a sluggish July and
August (which displayed weak seasonality for the first time in the past 3-4
years), there was some improvement in spends during September, but it was
less-than-expected. Industry also witnessed pronounced seasonal weakness
this year due to lower spends by sectors like telecom which have been
generally immune to seasonal factors.
Advertisers spending cautiously:
While the ad spends continue to grow,
advertisers have improved their focus on ‘RoI’ and are spending judiciously to
maximize value.
India TV ad growth (% YoY)
TV ad revenue (INR b)
Source: Company, MOSL
10 October 2012
5

Media Sector Conference 2012
Reliance Broadcast Network
Key Takeaways
Company Represented By:
Mr Tarun Katial, CEO
Mr Asheesh Chatterjee, CFO
Reliance Broadcast Network
Ltd (RBNL)
is a multimedia
entertainment
conglomerate with play
across radio, television,
intellectual property, out-
of-home and television
production. It is part of the
Reliance group and
specializes in creating and
executing integrated media
solutions for brands.
Several structural improvements in radio business:
There have been several
structural improvements in radio business like multiple frequencies for one
operator, policy to allow hub-and-spoke model, music royalty issue getting
sorted out, Government allowing telecast of news and current affairs on private
FM channels and expected increase in FM radio reach, post the phase III
auctions.
Lower carriage fee to aid margins:
Big-CBS channels target a niche audience
with focus on the top 6 metros where the carriage fee has been high. However,
the company is witnessing significant decline in carriage fee which would aid
profitability of this business. RBNL’s regional Hindi offerings have thick local
flavor with original programming hours of ~10/week and focus on local
advertising that contributes ~40% of the ad revenue for these channels.
Revenue growth to be strong; external debt at INR1.5b:
Top line growth is
expected to remain strong across segments. Total debt on books is INR3b, of
which external debt is INR1.5b, while balance INR1.5b is quasi-equity from
promoters. The company may need to raise funds for phase III expansion.
Reliance Broadcast buiness mix
Source: Company
Valuation summary
Year
End
3/10A
9/10A
3/11A
3/12A
Net Sales PAT
(INR m) (INR m)
1,807
1,084
1,371
3,000
-761
-294
-245
-1,130
EPS
(INR)
-16.5
-3.7
-3.1
-14.2
EPS
Gr. (%)
NM
NM
NM
P/E
(X)
-
-
-
NM
P/BV
(X)
-
-
3.5
RoE
(%)
NM
NM
NM
NM
RoCE
(%)
NM
NM
NM
NM
EV/
Sales
-
-
1.8
EV/
EBITDA
-
-
NM
10 October 2012
6

Media Sector Conference 2012
TV 18 Broadcast
Key Takeaways
Company Represented By:
Mr Raghav Bahl, Founder
and Editor, Network 18
Mr B. Saikumar,
Group CEO, Network 18
Mr Sarbvir Singh, Head-
Investments, Network 18
TV 18 Broadcast
is a leading
television network in India
with presence across news,
entertainment (Viacom 18),
filmed entertainment
(Viacom18 Motion Pictures)
and factual entertainment
(AETN-18). Through its
rights issue, the company
is raising funds to 1)
acquire 100% stake in ETV
regional news channels,
50% stake in ETV non-
Telugu GECs and 24.5%
stake in ETV Telugu
channels and 2)
deleverage the balance
sheet. TV 18 and Viacom18
have also launched a
strategic joint venture
called IndiaCast, a multi-
platform 'content asset
monetization' entity
mandated to drive
domestic and international
channel distribution,
placement services and
content syndication for the
bouquet of channels from
TV 18,Viacom 18 and other
broadcasters.
Net rights issue proceeds to be utilized for ETV acquisition and retiring debt:
Total proceeds from the rights issue would be INR26.25b (net) which will be
utilized for ETV’s acquisition (INR19.25b) and retiring debt. Current consolidated
debt is ~INR11b, which includes standalone debt of ~INR8b and share of debt
in Viacom 18 at ~INR3b. The company would be repaying ~INR7b debt at the
standalone level.
Digitization to drive the swing in net subscription revenue:
Net subscription
revenue (subscription revenue less carriage and placement fee) remains the
largest swing factor for profitability improvement. During FY12, company had
negative net subscription revenue with estimated overall subscription revenue
of ~INR3b and carriage and placement fee at ~INR4b. Company is expected to
break-even in net subscription revenue in the current fiscal.
Advertising trends remain sluggish:
Industry growth in the first half was
restricted to 7-8% YoY implying one of the worst growth rates in recent years.
Advertising is likely at its lowest ebb and can only improve incrementally.
Network18 Group Structure
Network18 Media &
Investments Limited
Source: Company
10 October 2012
7

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