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1/23

Investment Thesis in Indian Media Sector

January 3, 2013

Team The Pirates of Vastrapur

arti!a Mitta" # P $sho! Varadhan # Shu%hra &hosh


2/23

Structure of the Presentation

Identify key sectortrends & growth

drivers

Identify key leversfor investments

Benchmarkingplayers and sector

factor scores

Opportunities,Future forecasts &Recommendations

P"ayer 'enchmar!in( )pportunity Matri*

+rivers of pastand present

Investment +ea"s

Investment "imate,ha""en(es and

o%servations

Investment Thesis support - .ustification


3/23

The present investment "imate is /avoura%"e, supported %y stron( (roth

despite recession

Current market size stands at IR !"# $illion, with %,print and films contri$uting !'( of the volume

)ear "*#" saw a #"+( C-.R over "*##, which is$ound to see a push in the future

/igital advertisements 0 1ocial 2edia, /irect to 3ome4/%35 are growing fast, are still much $ehind % & print

%he market would continue en6oying investor supportowing to the change in the preference of audience 07esternization & favoura$le political climate

/igital growth is likely to outclass all other mediachannels and is likely to overtake Out of home andRadio advertising $y "*#

% & print would continue as most dominant ad media

8 Investment climate is positive and it is supported $y astrong C-.R of 9+#!( ):o:) despite recession, hencethis growth rate is impressive

8 %, print and films have continuously $een thedominant forces among all types of media channel

8 In print media regional players are dominant forces

istorica"

&roth

Trends

urrent

Scope

/uture

/orecasts

#

"

;

i

ii

i

ii

i

ii

iii

0

10

20

30

9.18

%

2009 2010 2011 2012

CAG

R

Media Industry Historical Y-O-Y

Growth

1.21%

11.07%

11.66%

12.77%

iii

iii

Source: FICCI KPMG Report, 2013

Current (2012)

Forecasted (2017)

e!e"#s#on F#!$Pr#nt

e!e"#s#on F#!$Pr#nt

Anim

atio

n&

VFX

Gam

ing

Dig

italA

dve

ti!ing

0

"0

100

32.10%

22.#0%

1".80

%


4/23

Ta"ent onstraint

ompetitive

riva"ry

Ta* and

e(u"atory

concerns

4ac! of 5ua"ity ta"ent a

%i( issue particu"ar"yin animation, (amin(

and advertisin(

han(in( audience taste

demands creativity

i(h (roth sectors aree*cessive"y c"uttered

vi6 TV, print and +i(ita"

'ut, for fe sectors the

pie itse"f is increasin(

7( &amin( and +T

/i"ms, +i(ita" andadio si(nificant"y

affected %y ta* c"auses

$ccess to /+I "imited,

ith as "itt"e as 289

sta!e in adio : TV

1

2 3

M(mt

Idea" investment areas ou"d %e ones that offer hi(h (roth, are

re"ative"y non;cyc"ica" and have re"ative"y sta%"e, competitive ta"ent poo"

'ut, reativity and audience en(a(ement is an issue, the industry is far %ehind

estern media in severa" aspects and chan(in( audience tastes is a cha""en(e

ii ii

i i

i

ii


5/23

m an*ious a%out the future?

+iscretionary Spendin( p"ans

over ne*t 12 months


6/23

$"00

0

"0

0

1000

1"00

2000

78#

1#99

71"

1667

1681360

$307

2009$102010$

112011$

12

2012$

13

Print Media Investment Trends

"eadin( to .udicious"y chosen investment dea"s in Media : 7ntertainment

Source: Ind#astat'co$

#00

#"0

"00

""0

2009$10

2010$

11

2011$

122012$

13

#"6

#89

33

"32

#3"32 0

Investment in Lakhs

Rising =iteracy Rates

3igh penetration & loyalty of the %.

Regional and vernacular marketscontinue to defy gravity

i

ii

iii

ore +rivers

+i(ita" Media Investment Trends /i"m Industry Investment Trends

/igitization 4/%35 is a $ig fund puller

Increase in % channels, niche seg

>olitical environment is highlysupportive of more investments

i

ii

iii

ore +rivers

Increasing disposa$le income

iewerships continuously rising

o+ of Block$usters and 1uperhitsrising, leading to multi:crore profits

i

ii

iii

ore +rivers

autious investment is on the rise, prime focus is on di(ita" and fi"m industry oin( to

their past (roth fo""oed %y print


7/23

+i(iti6ation is ta!in( off at a very fast pace "eadin( rise to neer media avenues


3uge .overnment support owing to tracking ease

21O economics likely to see a huge improvement

ery attractive addressa$le market $ase 4!!million5

i

ii

iii

Prime Inferences

0

10

20

30

#0

"0

60

70

108.17

%

CAG

R

83.97%

C

AG

R

6

1"

26

"0

88

2010$112011$

122012$

13

2013$

1#201#$

1"

Past and /orecasted +i(iti6ation Trends

ore Insi(hts

>olitical environment strongly in favour of growth

"*#? .overnment highly likely to support the move -venues for I>% are likely to $e opened up soon

i

ii

iii

ey P"ayers to atch out for Tata S!y, @ee +ish TV, $irte" +i(ita" TV

and e"iance 'i( TV

Ma.or 'oosts from +i(iti6ation

@nhanced a$ility to monetize content

.reater transparency

@Auita$le revenue share across the value chain

=ower $urden of carriage fees

Increased a$ility to invest in differentiated andsophisticated content

i

ii

iii

iv

v


8/23

hi"e traditiona" media is sti"" (oin( stron( ith stron( %ase in re(iona" mar!ets


$dvertisin( evenues Ain IB %i""ionC

0

20

#0

60

80

10

0

120

1#0

160

##+*(

!+'(

"**! "*#" "**! "*#" "**! "*#" "**! "*#" "**! "*#"

#*+!9(;+##(

;+9*(

%

>RI%

R-/IO OO3 /I.I%-=

Ma.or Trends : /orecasts

Stron( (roth in TV, radio : print >rint 2edia 0 India an outlier >hase ; licenses 0 a strong $oost 1trong loyalty towards newspapers

Macro;economic indicators Rising =iteracy Continued ur$anization .rowing consumption Increasing disposa$le income

e(iona" +ominance >rint & % continues to go regional

owing to saturation in metros

@ample 0 Bennett Coleman & Co+Ds @i1homoy, Eee Cinema Bangla, 1taralsha, 1andesh %, .u6arat 1amachar% ews

1

2

3

>olitical environment strongly in favour of growth

"*#? .overnment highly likely to support the move

-venues for I>% are likely to $e opened up soon

i

ii

iii


9/23

4eadin( to a sur(e of dea"s in the Media and 7ntertainment Sector in 2012

1Source: PC, Sector Forecast, Med#a *nterta#n$ent, 2013, Cr#s#! Researc+, Med#a *nterta#n$ent, 2013

2 co$pre+ens#"e !#st o- dea!s #s pro"#ded #n ppend#. 1

0

"00

1000

1"00

2000

373 35

!!"5

##

!$!7

!5#!

%& M'(

Investment Trends in M:71

0

"00

1000

1"00

2000

)3 *+7,

!$!7

*#+,

!5#!

*35,

'ased on Investor Type'ased on Vo"ume

+$!! +$!+ +$!$ +$!! +$!+

Trends in Ta*ation

+irect Ta*ation Indirect Ta*ation

3eadline corporate taremains the same

1ervice ta eemptionw+r+t+ copyright in

cinematographic films

Ma.or Investment +ea"s in ecent Past2

$c5uisition of Sta!es

o"e of Private 75uity

1ony 2edia;"( stake in

2ulti 1creen 2edia

-ditya Birla .>"+( stake in

=iving 2edia

etwork #!G ;9 m /eal

@enadu %

i

ii

iii

= Capital -sia#+!"( stake

>R Cinema

1tandardChartered >@

#+!"( stake >rime Focus=imited

i

ii

Industry poised to grow 4$oth organic & inorganic5

/eals are epected to $e driven $y epansion &consolidation plans

>layers in television, $roadcasting and distri$utionmay witness significant transaction activities to fundtheir growth am$ition

=arger media houses to ride on consolidation

i

ii

iii

iv


10/23

urrent /+I Investment caps in Media Sector

Thou(h cha""en(ed ith a idened (ap in s!i""s, the present po"itica" scenario

thros open a p"ethora of opportunities to improve the investment c"imate


0%

"0%

100%

1"0%

"'(

"'(

";(

#**(

Adveti!in

g'oad(a!tin

g)C*! F+ Radio

,e-!ae!

&

/eiodi(al!

'(

?9(

"'("'(

Co:production treaties

Rationalization of entertainment ta

.overnmentDs formal support to encourage formalskill development and training

>hase ; licences to facilitate Radio operations

?. rollouts to facilitate OO3 media consumption

i

ii

iii

urrent Measures of &overnment Support

iv

v

Ta* 'enefits for Industry P"ayers

2ultiple cinema theatres given specialta holiday for up to years

%amil adu and 2aharashtra arestrongly in favour of multiple growths$oosting the film industry

%ier:" cities such as >une, ashik+,Coim$atore etc+ pose maimum growthopportunities owing to the clutter in

metros

i

ii

iii

Positive /orei(n Investment Sentiment

udiciously chosen investments are onthe rise

>rivate eAuity players have a perfecttime to evaluate cash strapped mediasectors and provide them the muchneeded funds for unlocking their value

%he political scenario is favoura$le,driven $y favoura$le policy measures

i

ii

iii


11/23

'enchmar!in( "eadin( p"ayers

/M adio

P"ayer )ur atin(1

Radio 2irchi1

Important Trends Aif anyC

/ou$le digit growth for last ; years,advertising rates same, volume high

Industry Insi(ht

Radio City2 olume advertising has $een the key

Big F232o$ile radio, a huge hit, huge shareof local advertising appro+ (

Te"evision

P"ayer )ur atin(1Important Trends Aif anyC

1

2

3

PrintP"ayer )ur atin(1Important Trends Aif anyC

1

2

3

Industry Insi(ht

Industry Insi(ht

1Rat#n&s are a -unct#on o- $ar/et s#e, +#stor#ca! &rot+ rate and proected &rot+ rate

8 o growth in private F2 since "**'auctions, delay in >hase III $idding,hampering the profita$ility $adly

8 Hnavaila$ility of freAuencies in 2etrocities 0 a $ig issue, no measures evenin >hase III auctions

8 Overall Industry Rating

E@@ =td=anding Rights in China, "nd -ra$icChannel 0 -lwan

1H %Consolidation of content & $roadcastingplatform with a huge market share locally

1%-R %1tagnant .rowth and poor Auality ofcontent has undervalued this company

%OIersatile Content for all set of readersand a reader $ase of +' 2illion

/ainik argan7ith 3igh penetration providesopportunity to reach highest reader $ase

2alayala

2anorama

Regional print media targeting highest

spending classes, hence attractive ad rates

8 /igitisation as part of /-1 thoughincreases the infrastructure cost, willreduce the carriage cost

8 Investors $elieve that Contentgeneration is under invested anddigitisation will $oost the same+


8 Overall readership coming down with aindustry growth of only +;(+

8 Industry relying mostly on -d $asedrevenue rather than circulation

8 Inherent advantages resulting inincreased attention span



12/23

'enchmar!in( "eadin( p"ayers

&ames and $nimation

P"ayer )ur atin(1

2ilestoneInteractive

1

Important Trends Aif anyC

Financing Independent -pp and .amedeveloping teams to nurture creativity

Industry Insi(ht

3ungama/igital 2edia

2Create differentiating content and epectrevenues from fair price ecosystem

3 =eader in Console $ased gaming withma6or focus on %ier # & " cities

/i"ms


1

2

3

)ut of ome Media A))C


1

2

3

Industry Insi(ht

Industry Insi(ht

1Rat#n&s are a -unct#on o- $ar/et s#e, +#stor#ca! &rot+ rate and proected &rot+ rate

8 2ore concentration in 2etros and tier

# cities+8 .radual movement towards mo$ile

$ased gaming due to the advent ofsmart phones 0 nearly * million

8 =ow =ife cycles & repetitive nature of.ames and -pps


Reliance@ntertainment

1everal film line ups and professionalmanagement leading to a strong top line

H% 2otion>ictures

%ie:up with /isney 1tudios & crossdistri$ution of IntDl & Bollywood movies

@rosInternational

%rend of =ow Budget, 3igh 1tory movieswith huge marketing spend

>erceptInnovation in understanding the mind setof customers is the key point

%imesInnovative

ew Infra >ro6ects are opening avenuesfor %ransit OO3

//B 2udra

2a

/epends on %ourism & Retail industry for

sustaining OO3

8 /igital /istri$ution 0 /igitization of( of 1creens & !* ( of films aredistri$uted digitally

8 Regional film Industries are strugglingdue to video piracy, whereasBollywood thrives due to economies ofscale


8 ery few Organised >layers due toentry $arriers+

8 Other @volving media providesplatform for integrating OO3 withthem+ /igital OO3 providesopportunity for /ata -nalytics to 6ustifyROI to clients mainly in transitsegment


1ony Comp@ntertainment


13/23

4o

i(h

4o i(hMar!et /actor Score

Strate(ic/itScore Percentage of factors in

favour of entry

Percentage Share against

entry

Films &

Animations

Highest growth,

acquisitions would

reduce fragmentation

Television

Highest Market Size

Favourable DH !olicies

would be a big !ush

OOH

Still needs time to mature,

minuscule growth rate

Print

"#tremely fragmented,

strong regional

com!etition

Radio

Phase $$$ auction likely to

!ush u! the sector growth

Te"evision, /i"ms and $nimations and Print form the top 3 investment %rac!ets

%ased on a %enchmar!in( ana"ysis of mar!et forces and strate(ic fit

Market Factor Score = f (Market Size (50%), Growth Rate (50%)

Strategic Fit Score = f (Degree of Operating Leerage (!0%), Degree of financia" Leerage (!0%), Goern#entpo"ic$ faora&i"it$ ('0%), Market Frag#entation ('0%)


14/23

Summary of Investment Thesis

8 Investment environment is favoura%"e, hoever cautious investment i"" %e !ey

8 Stron( (roth in the Media Sector despite recession in the past, trend is "i!e"yto %e continued in the future

8 Industry is "i!e"y to see a ave of conso"idation, particu"ar"y in TV and printmedia here "ar(e p"ayers i"" mar! re(iona" entry throu(h ac5uisitions

8 Po"itica" environment is hi(h"y supportive of investments in M : 7 sector, ta*re(u"ation "as have started easin( up, thou(h s"o"y

8 +i(iti6ation is on the rise ridin( on stron( (overnment po"icies

8 This imp"ies a sur(e in Private 75uity capita" is e*pected, ith sma"" re(iona"p"ayers stron("y in the need of funds and corporate mana(ement

8 This opens up neer avenues for fund a""ocation, hich are %ound to %e asuccess in the near future ith a diversified portfo"io

8 $"" these factors indicate a stron( investor environment toards investin( inthe sector

8 Top 3 sectors to atch out for /i"m, TV and Print


15/23

$ppendi*

Team The Pirates of Vastrapur

arti!a Mitta" # P $sho! Varadhan # Shu%hra &hosh


16/23

$ppendi* 1

ey transactions in 2012 ; Source Mer(ermar!et, '"oom%er(, Venture Inte""i(ence


17/23


18/23

Investment onsideration Mana(ement

Propensity

to (o for

ris!y pro.ect

#

Past Trac!

ecord

"

4eadership

a%i"ities

;

Sta!eho"der

onfidence

?

8 1un % 0 Conservative

8 Eee % 0 Conservative

8 Reliance Broadcast 0

-ggressive8 Verdict RB J 1B J E%

i

ii

8 1un % 0 ery .ood

8 Eee % 0 ery .ood


2oderately good8 Verdict 1% J E% J RB

is! $ppetite Invo"vement 7n(a(ement

iii

iv

i

ii

iii

iv

8 1un % 0 3igh

8 Eee % 0 3igh


ery 3igh8 Verdict RB J E% J 1%

i

ii

iii

iv

8 1un % 0 ery 3igh

8 Eee % 0 3igh


2oderate to 3igh8 Verdict 1% J E% J RB

i

ii

iii

iv

$n idea" choice of a stoc! ou"d %e one that has moderate ris! appetite and

commands hi(h de(ree of confidence from sta!eho"ders for hi(h performance


19/23

Investment onsideration Va"uation

4i5uidity

AHuic! atioC

#

4i5uidity

Aurrent

atioC

"

7arnin( per

share

;

)peratin(

Profit

?

8 1un % 0 ?+!9

8 Eee % 0 "+*

8 Reliance Broadcast 0?+'?

8 Verdict 1% J RB J E%

i

ii

8 1un % 0 ?+!9

8 Eee % 0 ?+""

8 Reliance Broadcast 0"+?#

8 Verdict 1% J RB J E%

Inso"vency Measure Shareho"ders> profit +e%t service a%i"ity

Mu"tip"es estimate

8 Sun TV

8 @ee TV

8 e"iance 'roadcast

i

ii

iii

iii

iv

i

ii

iii

iv

8 1un % 0 #+;?

8 Eee % 0 '+"

8 Reliance Broadcast 04"+9'5

8 Verdict 1% J E% J RB

i

ii

iii

iv

8 1un % 0 ;?+9?

8 Eee % 0 "9+9*

8 Reliance Broadcast 0"!+;"

8 Verdict 1% J E% J RB

i

ii

iii

iv

Tar(et Price 7stimate1

1Procedure +as een dep#cted #n ppend#. 1

4imit Variation

#+" Rs, ;!+#; K share Rs+ +"! K share

#+#

#+*!

Rs+ "9!+*; K share

Rs+ #+9; K share

Rs+ #+? K share

Rs+ #+*; K share


20/23

$ppendi* 3 ; Va"uation

, V +a 13 +a 12 +a 11 +a 10 +a 09

,et /o4it 'e4oe a51013.9

#1026.32 11"".32 866.#2 666.1

,et Ca! Fom*eating A(tivitie! 83".77 867.6# 11#1.37 778.9" 611.##

,et Ca! !ed in4omnve!ting A(tivitie!

$#39.#6

$330.78 $"82.28 $66".2 $#0#.62

,et Ca! !ed in4omFinan(ing A(tivitie!

$382.22

$"77.66 $"06.99 $11".9# $188.08

,et de(ea!ein(ea!en Ca! and Ca!:;ivalent!

13.3" $#0.#7 "1.7 $2.19 18.7#

*ening Ca! & Ca!:;ivalent!

##.21 8#.68 32.98 3#."2 1".78

Clo!ing Ca! & Ca!:;ivalent!

"7."6 ##.21 8#.68 32.33 3#."2


21/23

Impact

Investment onsideration is!s

+escriptionType of is!

1 )r(ani6ationa"

is!s

2 Technica"

is!s

3 /inancia"

is!s

F Mar!et

is!s

G esource

is!s

=ack of @perience in the new $usiness space

>riority change in $usiness development

Hnpredicta$ility and insta$ility in technology

>roduct development compleity

Risks of -daptation of the new environment

Insufficiency of %echnical ecellence

@ceeding the $udget

3igh >roduction Costs 4Films, >rograms etc+5

3igh 2arketing, 1ales K /istri$ution Cost

%a and other Regulatory concerns

/ifficulty in /etermining Customer eeds

%hreat of 1u$stitution

Competition %hreats, Risks of >roduct Imitation

Incompetent 3uman Resource 2anagement

Insufficient %op 2anagement 1upport

=ack of proper channel communication in sales space

LowHi

hLow

Hi

h

Pro%a%i"ity


22/23

Investment onsideration ata"ysts

201F

7"ections

#

Po"icy

favoura%i"ity

"

&"o%a"

Mar!et

Scenario

;

e(u"atory

7ase

?

8 1un % 0 3ighly Lve

8 Eee % 0 3ighly Lve


8 Verdict E% J 1%J RB

i

ii

8 1un % 0 ery .ood

8 Eee % 0 ery .ood


2oderately good8 Verdict 1% J E% J RB

Po"itica" 7conomic 4e(a"

iii

iv

i

ii

iii

iv

8 1un % 0 In favour

8 Eee % 0 3igh in favour


2oderate in favour8 Verdict EB J 1% J RB

i

ii

iii

iv

8 1un % 0 2oderate

8 Eee % 0 2oderate


=ow to 2oderate8 Verdict 1% J E% J RB

i

ii

iii

iv

$ (ood stoc! shou"d have positive mar!et e*pectations post the 201F e"ections

mar!ed %y stron( positive mar!et movement and ease of re(u"atory po"icies


23/23

Investment onsideration 7stimatin( eturn

eturn on

Bet

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