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Investment Thesis in Indian Media Sector
January 3, 2013
Team The Pirates of Vastrapur
arti!a Mitta" # P $sho! Varadhan # Shu%hra &hosh
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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
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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
%
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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
$ccess to /+I "imited,
ith as "itt"e as 289
sta!e in adio : TV
1
2 3
M(mt
Idea" investment areas ou"d %e ones that offer hi(h (roth, are
re"ative"y non;cyc"ica" and have re"ative"y sta%"e, competitive ta"ent poo"
'ut, reativity and audience en(a(ement is an issue, the industry is far %ehind
estern media in severa" aspects and chan(in( audience tastes is a cha""en(e
ii ii
i i
i
ii
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m an*ious a%out the future?
+iscretionary Spendin( p"ans
over ne*t 12 months
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$"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$usters and 1uperhitsrising, leading to multi:crore profits
i
ii
iii
ore +rivers
autious investment is on the rise, prime focus is on di(ita" and fi"m industry oin( to
their past (roth fo""oed %y print
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+i(iti6ation is ta!in( off at a very fast pace "eadin( rise to neer media avenues
Source: FICCI KPMG Report, 2013
3uge .overnment support owing to tracking ease
21O economics likely to see a huge improvement
ery attractive addressa$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
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hi"e traditiona" media is sti"" (oin( stron( ith stron( %ase in re(iona" mar!ets
Source: FICCI KPMG Report, 2013
$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 $e opened up soon
i
ii
iii
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4eadin( to a sur(e of dea"s in the Media and 7ntertainment Sector in 2012
1Source: PC, Sector Forecast, Med#a *nterta#n$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$ition
=arger media houses to ride on consolidation
i
ii
iii
iv
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urrent /+I Investment caps in Media Sector
Thou(h cha""en(ed ith a idened (ap in s!i""s, the present po"itica" scenario
thros open a p"ethora of opportunities to improve the investment c"imate
Source: FICCI KPMG Report, 2013
0%
"0%
100%
1"0%
"'(
"'(
";(
#**(
Adveti!in
g'oad(a!tin
g)C*! F+ Radio
,e-!ae!
&
/eiodi(al!
'(
?9(
"'("'(
Co:production treaties
Rationalization of entertainment ta
.overnmentDs formal support to encourage formalskill development and training
>hase ; licences to facilitate Radio operations
?. rollouts to facilitate OO3 media consumption
i
ii
iii
urrent Measures of &overnment Support
iv
v
Ta* 'enefits for Industry P"ayers
2ultiple cinema theatres given specialta holiday for up to years
%amil adu and 2aharashtra arestrongly in favour of multiple growths$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
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'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 Industry Rating
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
8 Overall Industry Rating
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'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
P"ayer )ur atin(1Important Trends Aif anyC
1
2
3
)ut of ome Media A))C
P"ayer )ur atin(1Important Trends Aif anyC
1
2
3
Industry Insi(ht
Industry Insi(ht
1Rat#n&s are a -unct#on o- $ar/et s#e, +#stor#ca! &rot+ rate and proected &rot+ rate
8 2ore concentration in 2etros and tier
# cities+8 .radual movement towards mo$ile
$ased gaming due to the advent ofsmart phones 0 nearly * million
8 =ow =ife cycles & repetitive nature of.ames and -pps
8 Overall Industry Rating
Reliance@ntertainment
1everal film line ups and professionalmanagement leading to a strong top line
H% 2otion>ictures
%ie:up with /isney 1tudios & crossdistri$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 Overall Industry Rating
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
8 Overall Industry Rating
1ony Comp@ntertainment
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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
"#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%)
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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 $"" these factors indicate a stron( investor environment toards investin( inthe sector
8 Top 3 sectors to atch out for /i"m, TV and Print
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$ppendi*
Team The Pirates of Vastrapur
arti!a Mitta" # P $sho! Varadhan # Shu%hra &hosh
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$ppendi* 1
ey transactions in 2012 ; Source Mer(ermar!et, '"oom%er(, Venture Inte""i(ence
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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
8 Reliance Broadcast 0
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
8 Reliance Broadcast 0
ery 3igh8 Verdict RB J E% J 1%
i
ii
iii
iv
8 1un % 0 ery 3igh
8 Eee % 0 3igh
8 Reliance Broadcast 0
2oderate to 3igh8 Verdict 1% J E% J RB
i
ii
iii
iv
$n idea" choice of a stoc! ou"d %e one that has moderate ris! appetite and
commands hi(h de(ree of confidence from sta!eho"ders for hi(h performance
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Investment onsideration Va"uation
4i5uidity
AHuic! atioC
#
4i5uidity
Aurrent
atioC
"
7arnin( per
share
;
)peratin(
Profit
?
8 1un % 0 ?+!9
8 Eee % 0 "+*
8 Reliance Broadcast 0?+'?
8 Verdict 1% J RB J E%
i
ii
8 1un % 0 ?+!9
8 Eee % 0 ?+""
8 Reliance Broadcast 0"+?#
8 Verdict 1% J RB J E%
Inso"vency Measure Shareho"ders> profit +e%t service a%i"ity
Mu"tip"es estimate
8 Sun TV
8 @ee TV
8 e"iance 'roadcast
i
ii
iii
iii
iv
i
ii
iii
iv
8 1un % 0 #+;?
8 Eee % 0 '+"
8 Reliance Broadcast 04"+9'5
8 Verdict 1% J E% J RB
i
ii
iii
iv
8 1un % 0 ;?+9?
8 Eee % 0 "9+9*
8 Reliance Broadcast 0"!+;"
8 Verdict 1% J E% J RB
i
ii
iii
iv
Tar(et Price 7stimate1
1Procedure +as een dep#cted #n ppend#. 1
4imit Variation
#+" Rs, ;!+#; K share Rs+ +"! K share
#+#
#+*!
Rs+ "9!+*; K share
Rs+ #+9; K share
Rs+ #+? K share
Rs+ #+*; K share
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$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
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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
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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 Reliance Broadcast 0
8 Verdict E% J 1%J RB
i
ii
8 1un % 0 ery .ood
8 Eee % 0 ery .ood
8 Reliance Broadcast 0
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
8 Reliance Broadcast 0
2oderate in favour8 Verdict EB J 1% J RB
i
ii
iii
iv
8 1un % 0 2oderate
8 Eee % 0 2oderate
8 Reliance Broadcast 0
=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
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Investment onsideration 7stimatin( eturn
eturn on
Bet