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IB League 2020 - Campus Case Study

Background
As of June 2020, Zee Entertainment Enterprises Ltd. (“Zee”) which engages in provision of various services in
the Media & Entertainment (“M&E”) sector has lost ~75% of its share value vs. June 2018, and has
underperformed the BSE Sensex index significantly. Market has identified enunciated risks to the business
model primarily due to a shift in industry advertising spending to digital channels and increasing competition
from large tech/media companies (both global and domestic). The company has faced several other issues over
the last 18 months, including high levels of promoter debt, share pledges and director resignations etc.

Advertising revenue growth has been weak over the past couple of quarters led by macro weakness. Onset of
Covid-19 has weakened global GDP growth rates further and potentially elongated the macro recovery cycle,
which moderates growth rates in this segment. Moreover, the traditional business has seen some market share
shaved off over the past few months with increased competition and alternative mediums for marketing /
advertising activities. While the management assumes a minimal impact from the virus outbreak, the potential
implementation of New Tariff Order 2.0 in FY2021 could have a bearing on subscription revenue.

With the recent reconstitution of the board of directors, the new board wants to use the current pandemic as an
opportunity to embark on a journey of creating a one-stop M&E brand with full service offerings for consumers
across the broader sector. In that regard, they are keen to explore by venturing into Cinemas sub-sector which
they believe is attractive and could add potential synergies to their existing businesses. Given the Cinemas
space has been witnessing consolidation globally coupled with the significant entry barriers in place, the board
would prefer to enter the sector through an M&A rather than making a greenfield investment.

Situation Overview

Given the recent developments, the Zee Board has appointed your team “STG Financial Advisors” in order to
provide your assessment to them on the below:
 Evaluate between 2 potential opportunities in the Cinemas space namely PVR and INOX- the Board is
very particular that Zee Entertainment needs to be the surviving entity

Zee has had initial high level discussions with the key controlling shareholders at PVR as well as INOX and both
of them have indicated initial interest to pursue the proposed transaction subject to the following requirements:
 Family / founding shareholders continue to be a part of the merged entity
 Appropriate board / governance rights
 Certainty of funding and execution

As a financial advisor, you need to educate your client by focusing on both the qualitative and quantitative
aspects of the potential deal in terms of:
 Strategic rationale for the deal
 Choosing the ideal opportunity – PVR vs. INOX
 Fair valuation to be paid
 Structuring the merger - equity vs. cash / debt
 Funding strategies including relevant financial risks involved

While you have been provided a list of key focus areas / considerations, as a financial advisor, you should be
prepared to do additional research and analysis in order to be in a better position to provide the best
recommendation to your client and answer any additional questions.
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IB League 2020 - Campus Case Study

Guidelines for presentation

Please prepare your case analysis in the form of a presentation with a maximum of 15 slides (excludingsection
dividers) - upto 10 slides in the main book and upto 5 slides in the appendix. A suggested outline is as follows:

A Executive summary (1 slide)

 Summary of your proposal (include only key points from your analysis)

B Comparative analysis of PVR vs INOX (3-4 slides)

 Qualitative aspects
 Operating metrics
 Business plan (key to focus on identifying key operating drivers and building the forecast plan)
 Independent fair valuation - use valuation methodologies such as comparable companies, precedent
transactions, discounted cash flow and other methods (as applicable)
 Describe all qualitative and quantitative assumptions used in valuation of PVR vs INOX, e.g.
justification of trading comparables and precedent transactions selected for the valuation exercise

C Strategic rationale for the merger (1-2 slides)

 Rationale for the chosen target
 Benefits and key considerations for the current target shareholders to agree for the merger
 Potential opportunities to grow the combined business including quantifying potential synergies (if any)

D Preliminary merger analysis (2-3 slides)

 Structuring the deal
 Funding strategies along with relevant financial risk exposures (if applicable)
 Accretion / dilution analysis

E Appendices (in addition to the main book - maximum 5 slides)

 Industry overview illustrating key trends
 Company profiles
 Any supporting materials (e.g. related to valuation, financial risks involved etc.)

Submission Format
 The participating teams should submit their analysis of the case in a single Microsoft PowerPoint file
(landscape format) and a single Microsoft Excel file.
 Format for PowerPoint file submission:
 File naming syntax: The IB League 2020_<Campus name>_<Team name>
 Presentation length: Maximum 15 slides (guidelines as per above)
 Font: Arial (Minimum font size acceptable: 8)
 Format for Excel file submission:
 Relevant and exhaustive calculations and other supporting analysis should be submitted in a
single Microsoft Excel file with multiple tabs as necessary
 File naming syntax: The IB League 2020_Support file_<Campus name>_<Team name>
 Currency used across the analysis should be INR and unit in millions except for share price
 Mention sources and references as necessary
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In addition to operational and financial information from relevant company websites, please go through the
below links which have some additional information in the context of the merger:

Additional useful information

 Annual reports
 https://www.zeeentertainment.com/investors/investor-overview/
 https://www.pvrcinemas.com/corporate
 https://www.inoxmovies.com/Corporate.aspx?Section=2

 Please refer to publicly available broker reports to get a better understanding of the underlying businesses
and guidance for building near-term future forecasts:
 https://trendlyne.com/research-reports/stock/1537/ZEEL/zee-entertainment-enterprises-ltd/
 https://trendlyne.com/research-reports/stock/1087/PVR/pvr-ltd/
 https://trendlyne.com/equity/634/INOXLEISUR/inox-leisure-ltd/

Additional information for modeling assumptions

 Fair value share price at which Zee Entertainment Board is willing to issue equity shares is Rs.170 / share

 Transaction close date: March 2021

 For annual interest rate calculations, consider a base rate of 6% p.a. plus margin as indicated in the table

Year ending leverage Base rate: 6% p.a.

Leverage grid
Margin
(L: Gross Debt / EBITDA)
L <= 1.0x 1.50%
1.0x < L <= 1.5x 2.00%
1.5x < L <= 2.0x 2.50%
2.0x < L <= 2.5x 3.00%
2.5x < L <= 3.0x 3.50%
L > 3.0x 4.00%

 Transaction considerations:

 Assume transaction funding on EV basis (debt and cash free basis)

 Maximum pro-forma debt capacity for raising debt funding: 3.0x net debt / PF LTM EBITDA

 Minimum cash balance: assume same as latest cash balance for Zee as of June 2020

 No mandatory schedule for annual debt repayment. However, debt must be paid down in case there is
excess cash (post operating, investing and interest payment outflows and taking into consideration
minimum cash balance)
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Selected Precedent Transactions

% EV EV / EV/
Date Acquiror(s) Target
stake (USDm) Revenue EBITDA

19-Dec-19 Pacific Equity Partners Village Roadshow 100% 752 1.1x 12.8x
MBK Partners; Mirae Asset PT Graha Layar Prima
18-Nov-19 15% 286 20.5x 79.6x
Daewoo Tbk; CJ CGV
2-Sep-19 Kinepolis MRJ Group 100% 152 1.9x 8.5x
Cinemas (18 US-based
13-Jun-19 EPR Properties 100% 270 n/a 6.4x
cinemas)
22-Oct-18 Vue Ent. CineStar 100% 254 n/a n/a
AMC Entertainment
14-Sep-18 AMC Entertainment 19% 421 1.2x 7.7x
Holdings
12-Aug-18 PVR SPI Cinemas 72% 128 n/a 13.9x

6-Feb-18 Alibaba Wanda Film 13% 10,276 5.0x 23.5x

28-Nov-17 Cineworld Regal Entertainment 67% 5,869 1.8x 10.3x

KB Asset Mgmt.; Shinhan BNP
17-Apr-17 Megabox 19% 496 2.7x 13.4x
Paribas Asset Mngt.
1-Mar-17 Gaumont Gaumont SA 39% 131 2.1x n/a

18-Jan-17 Warburg Pincus PVR 14% 946 3.2x 17.9x

17-Jan-17 AMC Entertainment Nordic Cinema Group 100% 959 1.8x n/a
City Ent. (Orange Sky
17-Jan-17 Nan Hai 100% 478 4.0x n/a
Golden Harvest Cinemas)
28-Jul-16 Cineworld Group Empire Cinema 100% 123 n/a 10.4x

16-Jul-16 AMC Entertainment Odeon & UCI 100% 1,175 1.2x 9.5x

16-Apr-16 CJ CGV Mars Ent. 100% 800 n/a 11.9x

1-Mar-16 AMC Entertainment Carmike Cinemas 100% 1,114 1.5x 8.8x

Impression Wonders Arts
4-Jul-15 Sanxiang Co 100% 383 16.8x n/a
Development
26-Jun-15 Dalian Wanda Group Wanda Cinema Line 3% 357 14.1x 75.6x

9-Jun-15 Global City Global City Holding NV 42% 266 7.2x 39.7x

1-Jun-15 AMC Entertainment Hoyts Group 100% 777 0.9x 9.5x

21-May-15 J Contentree Korea Multiplex 96% 361 n/a 8.7x

Jiangsu Sparkle Roll
13-Aug-14 Songliao Automobile 100% 377 5.6x 19.1x
Cinema
10-Jan-14 Cineworld Group Cinema City Holding 100% 926 n/a 11.0x
Alberta Investment;
10-Jun-13 Vue Ent. 100% 1,455 3.0x 11.6x
OMERS PE
29-Nov-12 PVR Cinemax India 100% 125 2.4x 26.5x

10-Jul-12 Vue Holdings CinemaxX AG 95% 248 1.0x 6.7x

20-May-12 Dalian Wanda AMC Entertainment 100% 2,640 1.0x 7.2x

Doughty Hanson & Co;
8-Nov-10 Vue Ent. 100% 728 2.1x 11.3x
Existing Management
Sources: Company filings, HSBC analysis 7 PUBLIC
Note: FX (USD1 = INR75)
Selected Precedent Transactions (cont’d)

% EV EV / EV/
Date Acquiror(s) Target
stake (USDm) Revenue EBITDA

14-Mar-19 Woongjin Woongjin Thinkbig 43% 207 0.8x 9.4x

Jiangxi Publishing;
20-Feb-19 Ciwen Media 15% 138 2.7x 13.8x
Huazhang Tiandi Media
9-Dec-18 Alibaba Alibaba Pictures 4% 160 8.0x n/a

31-Oct-18 Longshine Technology Ysten Technology 96% 506 3.0x n/a

25-Oct-18 Jiangyin Binjiang Yangtze Zhongnan Red Culture 28% 157 3.8x 28.6x
Hathway Cable &
18-Oct-18 Reliance Industries 51% 622 4.8x 21.8x
Datacom
18-Oct-18 Reliance Industries DEN Networks 78% 368 2.7x 13.2x
Melco Resorts &
Melco Resorts &
10-Sep-18 Entertainment 27% 208 1.7x 6.3x
Entertainment
(Philippines)
Zhaoxun Media
30-Jul-18 Luenmei Quantum 100% 337 6.8x n/a
Advertising
Focus Media Information
19-Jul-18 Alibaba 10% 2,222 11.4x 25.3x
Technology
10-Jul-18 Hangzhou Lianluo Dynamic Winning 51% 210 1.7x n/a
Langfang City Natural Gas;
10-Jul-18 Tibet Tourism 20% 164 36.3x n/a
Xinao Holding
26-Jun-18 Wanda Film Holding Wanda Media Co 83% 845 3.3x n/a
Beijing Qianxian Shidai Chinese Universe
26-Jun-18 5% 133 1.1x 8.2x
Investment Publishing
7-Jun-18 Dalian My Gym Education My Gym China Co 100% 516 15.2x 30.7x
Lai Sun Development ;
27-May-18 eSun Holdings 40% 728 2.6x n/a
Transtrend Holdings
17-May-18 Kakao Corp Kakao M Corp 24% 507 3.5x 15.9x

7-May-18 Shanghai Hushang Equity Beijing Sun Shine Culture 100% 115 2.8x 20.9x
Infore Investments Holding;
21-Mar-18 Beijing Hualubaina 18% 284 4.3x 28.4x
Ningbo Puluofei
12-Mar-18 Tencent Holdings New Classics Media 28% 524 7.2x n/a
DMG Entertainment &
31-Jan-18 Anxin Trust 6% 216 11.3x 28.3x
Media
17-Jan-18 CJ O Shopping Co CJ E&M Corp 100% 4,653 2.8x 12.0x

20-Nov-17 Omnijoi Media Chongqing Dinv Ares 80% 108 6.3x n/a

27-Oct-17 Nantong Metalforming Beijing All Ways Media 70% 154 7.2x 11.9x

29-Sep-17 HappiGo Home Shopping Hunantv.com 100% 2,762 10.1x n/a

22-Sep-17 Wuhan Donde Technology Wuhan DDMC Culture 17% 125 9.4x 27.8x

22-Sep-17 Keyne Holdings Nine Express 32% 133 62.8x n/a

10-Aug-17 ChineseAll Digital Publishing Shanghai MorningTec 80% 186 8.0x n/a

13-Jul-17 Wuhan DDMC Culture Co Super Sports Media 100% 500 4.8x n/a

Sources: Company filings, HSBC analysis 8 PUBLIC

Note: FX (USD1 = INR75)
Selected Precedent Transactions (cont’d)

% EV EV / EV/
Date Acquiror(s) Target
stake (USDm) Revenue EBITDA
BlueFocus Communication;
7-Jul-17 Madhouse Inc 16% 118 1934.3x n/a
Lanhan (Shanghai)
Landing International
15-Jun-17 Landing International 14% 165 2.0x n/a
Development
Jiangxi Juwang
1-Jun-17 Sunwave Communications 100% 205 3.2x n/a
Technology
Anhui Xinke; Xian Mengzhou Dream Factory Cultural
15-Feb-17 70% 127 13.8x n/a
Movie & TV Cultural Communication
Sunac China; Tianjin Jiarui Leshi Internet Information
13-Jan-17 9% 875 3.6x 100.3x
Huixin & Technology
26-Dec-16 Shanghai Golden Bridge AirMedia Group 19% 108 2.9x n/a
Melco International Melco Crown
15-Dec-16 13% 3,346 2.5x 14.2x
Development Entertainment
30-Nov-16 Overseas Chinese Town Yunnan Tourism Co 25% 1,084 19.0x 102.1x
JoongAng Resort; Shanghai
12-Nov-16 Bokwang Co 64% 150 3.4x n/a
Yuyuan Tourist Mart
11-Nov-16 Dish TV India Videocon D2H 100% 1,272 2.8x 9.2x
Guangdong Xinhua
5-Nov-16 Southern Publishing 45% 141 1.0x n/a
Issuing
Chongqing New Century
20-Oct-16 Giant Investment 5% 742 229.2x 258.6x
Cruise
30-Sep-16 Golden Hope Genting Hong Kong 17% 421 0.7x n/a
Beijing Jetsen Technology; Xingjiyuan Television
29-Sep-16 35% 110 9.1x n/a
Jetsen Century Cultural Cultural
9-Sep-16 CITIC Guoan Henan Cable TV 25% 250 5.8x n/a
16-Aug-16 MGM Resorts MGM China 5% 323 4.0x 16.2x
12-Aug-16 Great Wall Pan Asia Armada Holdings 98% 265 38.7x 51.4x
10-Aug-16 China Internet Plus Beijing Enlight Media 6% 361 21.5x 67.4x
Shanghai Guanda Visual
3-Aug-16 Simei Media 100% 134 5.4x n/a
Culture
JD.com; Tencent Holdings;
6-Jun-16 Bitauto Holdings 10% 150 2.1x 24.6x
Baidu Inc
Beijing Herun Detang
3-Jun-16 Dalian Zeus Entertainment 96% 112 2.4x n/a
Cultural
Melco Crown
4-May-16 Melco Crown 10% 801 2.5x 91.7x
Entertainment
11-Jan-16 Kakao Corp Loen Entertainment 76% 1,555 6.7x 30.2x
11-Dec-15 Alibaba SCMP Group 100% 266 1.7x n/a
Shanghai SynaCast
31-Oct-15 Suning Cultural Investment 68% 408 4.8x n/a
Media
Leshi Internet Information
30-Oct-15 China Bridge Capital 5% 503 6.1x 308.5x
& Technology
30-Oct-15 China Minsheng Emerson Pacific 33% 158 5.6x 14.7x
Focus Multimedia
31-Aug-15 Hedy Holding Co 100% 29,771 25.3x n/a
Technology
Zhejiang SeecoMedia
22-Jul-15 Shenzhen Capstone 100% 642 46.9x n/a
Culture
Sources: Company filings, HSBC analysis 9 PUBLIC
Note: FX (USD1 = INR75)
Trading Comparables

Market Enterprise EV / Operating

EV / Revenue1 EV / EBITDA1 P / E1
Cap Value Cashflow 1
Company name USDm USDm FY'21E FY'22E FY'21E FY'22E FY'21E FY'22E FY'21E FY'22E
Walt Disney 216,721 279,438 3.9x 3.4x 26.0x 18.0x 47.0x 27.1x 84.7x 33.7x
Netflix 248,297 259,411 10.0x 8.5x 53.5x 40.4x 56.5x 42.1x 77.1x 56.6x
Viacom CBS 15,548 36,882 1.4x 1.3x 7.7x 7.1x 8.2x 7.6x 6.5x 5.5x
Vivendi 32,054 35,409 1.9x 1.8x 13.4x 11.9x 16.0x 14.0x 21.6x 18.5x
Discovery 13,959 29,285 2.8x 2.6x 7.4x 7.2x 8.0x 7.7x 6.8x 6.3x
Fox Corp 15,496 20,351 1.7x 1.6x 8.2x 8.0x 9.3x 8.9x 11.8x 10.7x
Omnicom Group 11,706 16,308 1.2x 1.2x 8.5x 7.8x 9.0x 8.3x 11.7x 10.3x
Interpublic Group 6,647 11,308 1.5x 1.4x 9.6x 8.6x 11.3x 10.3x 12.9x 10.8x
AMC 480 10,797 3.5x 2.2x (75.6x) 19.4x (33.2x) 33.5x (0.2x) (1.5x)
Nexstar 3,799 10,792 2.5x 2.4x 6.5x 6.6x 7.3x 7.3x 6.2x 6.4x
News Corp 7,036 8,629 1.0x 1.0x 9.4x 8.0x 18.9x 14.5x 64.5x 36.6x
Cineworld 942 8,311 2.8x 2.0x 8.0x 5.6x 10.7x 7.0x (8.1x) 3.6x
Clear Channel
448 7,124 3.5x 3.2x 29.3x 16.6x 53.1x 25.2x (0.8x) (1.7x)
Outdoor
Tegna 2,335 6,557 2.5x 2.3x 8.3x 8.2x 8.8x 8.8x 6.6x 6.2x
Wanda Cinema 5,791 6,411 4.1x 2.5x 27.1x 12.6x 37.1x 14.4x 180.6x 22.7x
RTL Group 5,090 6,219 0.9x 0.9x 5.4x 4.7x 7.1x 6.1x 9.2x 7.9x
Gray Television 1,377 5,486 2.5x 2.4x 7.8x 7.8x 8.7x 8.7x 7.2x 7.1x
Lions Gate 1,731 4,936 1.4x 1.2x 11.4x 9.5x 12.5x 10.3x (29.9x) (520.0x)
ITV PLC 3,430 4,696 1.3x 1.2x 6.9x 5.8x 7.9x 6.6x 7.6x 6.2x
WWE 3,936 4,616 4.4x 4.0x 16.8x 14.5x 24.5x 36.2x 34.5x 26.9x
Cinemark 1,533 4,219 2.4x 1.5x 37.9x 7.9x (598.5x) 14.0x (5.9x) 16.9x
AMC Network 1,365 4,109 1.5x 1.5x 6.1x 5.9x 6.8x 6.6x 4.8x 4.3x
CJ CGV 516 3,148 2.8x 2.0x 14.9x 8.6x 61.7x 15.2x (3.4x) (105.0x)
Kinepolis 1,233 2,178 4.3x 3.1x 16.3x 11.3x 21.3x n/a 49.0x 16.2x
Cineplex 380 1,847 2.7x 1.7x 15.4x 7.1x 24.8x 8.5x (2.7x) (103.4x)
Hengdian 1,901 1,736 5.7x 3.8x 33.0x 17.1x 33.0x 17.1x 488.9x 45.6x
SUN TV 2,039 1,626 3.8x 3.1x 5.9x 5.1x 7.6x 6.8x 11.2x 10.1x
TFI 1,134 1,414 0.6x 0.6x 4.1x 3.3x 12.2x 7.5x 16.1x 9.6x
Jinyi 771 712 3.5x n/a 23.1x n/a n/a n/a (31.4x) n/a
Shanghai Film 975 706 7.0x n/a 185.9x n/a (89.3x) n/a (92.4x) n/a
Major Cineplex 432 455 2.5x 1.5x 13.1x 6.3x 29.4x 9.0x (50.6x) 15.7x
IMAX China 543 441 5.0x 3.4x 11.0x 6.1x 27.6x 9.4x 41.6x 13.1x
DB Corp 196 225 1.0x 0.8x 6.4x 3.6x 8.3x 4.2x 16.3x 5.9x
Jagran Prakashan 153 166 0.8x 0.6x 5.1x 2.8x 6.1x 3.0x 14.3x 5.3x
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Notes: Market data as on 10th July 2020; FX (USD1 = INR75)
1. All f inancials calendarised to March
Sources: Factset, Company Filings
Disclaimer

This Investment Banking Case Study Competition (“IB League 2020”) is open for students of
2021 batch only. The information in the case study is provided for illustrative purposes only and
doesn’t reflect HSBC or its affiliates’ views on the case or the company mentioned here in.
Participating in this case study does not result in a job or internship offer or create an obligation
on HSBC or its affiliates to provide a job or internship offer to students in any manner
whatsoever.

Under no circumstances shall HSBC have any liability for a) any loss, damage or other injury in
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The contest is run by STG Bangalore.

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