DRAFT
FOR DISCUSSION ONLY
Investment in Maa TV
Presentation to the Investment Committee
July 24th, 2012
DRAFT July 10th, 2012
DRAFT
Executive Summary
• SPE has an opportunity to expand beyond its current focus on Hindi-speaking markets and
acquire a controlling stake in Maa TV, a bouquet of regional Telugu channels
• Maa TV has grown rapidly and has recently overtaken ETV to become the #2 channel in Andhra
Pradesh
• Acquisition of Maa TV will provide strategic benefits to both SPE and to Sony
−
Improves competitive positioning and brings SPE one step closer to a national India footprint
−
Capitalizes on the growth in ad revenues for Southern regional language channels that are growing faster than
Hindi channels and diversifies ad revenue to regions that aren’t affected by the same factors that affect the Hindi
market
−
Andhra Pradesh is the 2nd largest regional C&S market in India and is expecting to grow at a 14%-16% CAGR
for ad revenue and 23%-25% CAGR for subscription revenue through 2015
−
Provides a platform for the regional rollout of MSM franchises such as SAB and MIX
• SPE is seeking approval to acquire a majority stake in Maa TV for INR 6.1BN ($111MM) with INR
5.9BN ($107MM) payable in FYE13 and INR 200MM ($3.6MM) payable in FYE15
• NPV of $23MM, IRR of 17% and payback period of 11 Years
• Acquisition will be funded out of SPE/SPT cash flow
2
DRAFT
SPT Networks Growth Strategy
•
•
•
•
The Indian TV market is critical to the continued success of SPT Networks
–
India is expected to be one of the top 3 world economies by 2050, is currently the 3rd largest TV audience in the world
and is adding ~9MM TV households annually
–
The media industry in India is forecast to grow at a 15% CAGR through 2016; television is expected to be a primary
driver of this growth, with an expected 17% CAGR over the same period
Regional channels are key factors to ongoing success in India
‒
Higher forecast growth in ad and subscription revenues, higher per capita incomes and greater combined viewership
than the Hindi regions
‒
Zee and Star (News Corp) currently own 6 and 12 regional channels, respectively; SPE owns 1
–
Adding regional channels to TheOneAlliance1 partnership would strengthen our distribution bouquet, making it a more
compelling offering in all parts of the country
SPE’s existing India operations will drive strong growth in Maa TV
–
MSM will manage Maa TV’s operations, narrow the pricing gap with its main regional competitor and realize efficiencies
through economies of scale (i.e. decreased programming costs(2) and higher ad rate growth)
–
Maa TV’s ad rates are lower than its #2 market position would suggest (INR 2,300 effective rate versus INR 8,200 for
the #1 regional channel)
Investment in Maa TV is consistent with SPT’s growth strategy and is highly strategic
to future growth and profitability
1
TheOneAlliance is a channel distribution joint venture with Discovery Communications
will be able to provide Maa TV with access to its large content catalog to be dubbed into regional languages. Maa TV already purchases programming from MSM (in FYE12
Maa TV purchased CID for INR 18MM)
(2)MSM
3
DRAFT
Overview of Maa TV
• Maa TV operates 4 channels in Andhra Pradesh, the second largest regional ad market in India
– Maa TV (GEC), Maa Music, Maa Movies and Maa Gold (formerly Maa Junior)
• Maa TV, the flagship channel, is currently the #2 channel in Andhra Pradesh, after recently passing
ETV in ratings
• From FYE09 to FYE11 Maa TV’s revenue increased by over 60% due primarily to increased sellout
and higher advertising rates; EBITDA more than doubled over the same period
• Current shareholders are N. Prasad (67.2%), local actors (30.7%) and key employees participating in
ESOP plan (2.1%)
• Maa TV has 400 employees
Revenue
($MMs)
25
23
15
5
5
19
20
EBITDA
($MMs)
6
4
4
14
3
2
10
2
5
1
-
FYE09
FYE10
FYE11
FYE09
Note: Historical period is shown with unadjusted EBITDA and has been restated using a constant FX rate of 55 INR:USD
FYE10
FYE11
4
Maa offers a unique opportunity to the Sony Group
SPE

Regional platform: Maa is the last significant regional platform which can be used to organically
build the SPE Regional presence in different states (Karnataka, Tamil Nadu, Kerala) and leverage
existing brand franchises such as SAB and MIX; upside of those opportunities have not been
included in the financials

Diversification and competitive position: Telugu market is faster growing than the Hindi national
market and is more self contained than the Hindi market

Distribution: Strengthens TheOneAlliance distribution bouquet by adding regional channels and
making it a more compelling offering in all parts of the country

Efficiencies: Ad sales, distribution infrastructure and management services to be provided by
MSM over time
SONY

Sony brand exposure: With a careful migration to Sony branding, Maa offers an opportunity to
expand the Sony brand presence with a deep penetration of small town India in the 3 rd richest
state where there is 90%+ cable & satellite penetration and hence a ready market for Sony
electronics

Integration of hardware/content: Over time, implementation of one-click exclusive access to
Maa’s library content on various hardware products like Sony Bravia TVs and Sony mobile phones
supports premium pricing for these products

On the ground presence: Maa on the ground activities can be used to showcase Sony products
5
and give it a leadership profile in the Andhra Pradesh market
DRAFT
Maa TV Deal Status
• Drafts of the Shareholder SHA and SPA have been given to sellers
• SPE to acquire 52.3% of Maa TV for a total purchase price of INR 6.1BN ($111M),
representing an enterprise value of INR 11.2BN ($204MM)
– SPE will acquire 51% of fully-diluted equity at close for INR 5.9BN (~$107MM) by purchasing shares
from existing shareholders and assuming or repaying $9MM in debt
– Additional 1.3% to be purchased in FYE15 from employee stock option holders for INR 200MM
(~$3.6MM)(1)
– Purchase price derived as 23x reported FYE12 EBITDA of INR 482MM ($8.8MM).(2)
• Maa TV performance year-to-date is on budget; FYE13 Q1 EBITDA is INR 138MM ($2.5MM)
• In terms of FYE13, multiple of acquisition is 19.8x EBITDA vs. 23.3x trailing
• SPE will have a call option on the 47.7% minority position beginning on the 5th
anniversary of closing
– Call option will be for fair market value, determined by mutual agreement, or by independent valuation if
agreement cannot be reached
– If SPE does not exercise its call by the 7th anniversary of closing, minority shareholders can force a sale
of 100% of the company to a third party
(1) Purchase price calculation based on multiple of FYE14 EBITDA
(2) EBITDA figures presented reflect adjustments due to FYE12 non-operating income items
Assumed FX rate of 55 INR:USD
6
DRAFT
Third Party Valuation
• Deloitte Touche Tohmatsu (D&T) was engaged to value Maa TV
• SPE’s proposed purchase price is at the low end of the value that SPE or another strategic buyer is
expected to derive from this acquisition of Maa TV
Independent Fair Market Value Range – 100% Value
Comps
Public/Trans
($MMs converted from INR
at 55 INR:USD)
260
DCF
Weighted
Overall
Value
29.2x
$257
26.7x
240
$235
220
$208
200
180
160
23.6x
$195
Proposed SPE
enterprise value
($204MM) for 100%
22.2x
19.1x
$168
$144
140
16.4x
120
Source: Deloitte Valuation
• At SPE’s proposed price of $111MM (including $9MM debt assumption) for 52.3%, SPE’s estimated
post-tax IRR is 17% and payback is 11 years
Notes: These comparables do not include ETV that would be considerably higher. Transaction comp includes Asianet-Star acquisition, adjusted for time
since close. Public comps include Sun TV and Zee TV, both of which have operations in Andhra Pradesh
7
Assumed FX rate of 55 INR:USD
DRAFT
Financial Impact to SPE
EBIT Impact
•
Acquiring a controlling interest will allow SPE to consolidate Maa TV and is expected to increase SPE’s EBIT by over $20MM
per year by FYE17
Jan-Mar
(a)
EBIT before Purchase Price Amort
Less: Purchase Price Amortization
Incremental Annual EBIT to SPE
(4.0)
(1.7)
FYE14
13.8
(15.4)
(1.6)
Cumulative EBIT to SPE
(1.7)
(3.2)
($MMs)
FYE13
2.3
Fiscal Years Ending March 31
FYE15
FYE16
19.4
28.0
(13.1)
(11.2)
6.3
16.8
3.0
19.8
FYE17
32.2
(9.1)
23.0
Total
95.7
(52.9)
42.8
42.8
Cash Impact
Jan-Mar
($MMs)
FYE13 (a)
Cash Flow Before Dividends
(0.3)
Minority Dividends(b)
Cash Flow to SPE after Minority Dividends
Less: Purchase Price
(0.3)
(107.4)
Net Cash Flow to SPE
Cumulative Cash Flow to SPE
Fiscal Years Ending March 31
FYE14
FYE15
FYE16
FYE17
1.9
7.4
13.2
16.9
Total
39.1
0.0
1.9
0.0
7.4
(3.6)
6.3
6.9
8.0
8.8
14.3
24.8
(111.0)
(107.7)
1.9
3.8
6.9
8.8
(86.3)
(107.7)
(105.8)
(102.0)
(95.1)
(86.3)
0.0
Cumulative cash flow break even estimated at 11 years
(a) Assumes
(b) it
December 31, 2012 close
is our intent to not pay dividends until $10MM in working capital is achieved on the balance sheet, after which dividends will be paid on 100% of cash available
8
DRAFT
Maa TV Financial Summary
(US$ MMs)
FYE11
FYE12
FYE13
Post-Acq
FYE13 (a)
FYE14
FYE15
FYE16
FYE17
FYE12-FYE17
CAGR
43.1
52.5
65.8
75.2
23%
20%
22%
25%
14%
8.8
10.8
12.1
13.4
22%
23%
12%
10%
47.5
57.8
71.0
80.6
21%
22%
23%
14%
Jan-Mar
Stub Period
Ad Revenue
19.3
27.2
35.8
41%
32%
6.6
7.3
29%
10%
22.8
31.4
39.2
23%
38%
25%
6.0
5.9
8.8
9.4
11.3
10.3
2.8
2.6
12.6
15.0
14.0
20.7
15.2
29.3
16.9
33.5
26%
30%
26%
26%
32%
36%
41%
42%
Depreciation
0.8
Purchase Price Amortization (c)
1.1
1.0
0.2
4.0
1.1
15.4
1.3
13.1
1.4
11.2
1.4
9.1
EBIT
5.1
8.3
9.3
(1.7)
(1.6)
6.3
16.8
23.0
22%
26%
24%
-17%
-3%
11%
24%
29%
3.1
4.9
5.7
(2.6)
(6.2)
(0.1)
7.5
12.4
(1.1)
(0.3)
1.9
7.4
13.2
16.9
Growth
Subscription Revenue
5.1
Growth
Net Revenue
Growth
Total Operating Expenses
Adjusted EBITDA(b)
Margin
Margin
Net Income
Cash Flow
8.9
1.8
9.8
15%
21%
14%
29%
23%
21%
All years for fiscal years ending March 31st in Indian GAAP and exclude expected MSM inter-company transaction, management service and representation fees
Excludes impact of proposed TRAI changes to television advertising guidelines
(a) Assumes December 31, 2012 close and excludes $5MM in estimated transaction costs; stub period amounts are included in FYE13 column
(b) Purchase Price of $204MM based on FYE12 reported EBITDA of $8.8MM, assumption of debt and ESOP share purchase; EBITDA adjusted here for changes to amortization policy in
FYE12; Company changed its amortization policy in FYE12 and adjustment upwards was largely effect of moving a portion of show amortization to previous year.
(c) Fair value analysis in progress. Purchase price amortization is estimated and may vary by >10%
9
DRAFT
Maa TV EBIT to Cash Flow Reconciliation
Jan-Mar
($MMs)
EBIT
FYE13
9.3
(b)
(a) Assumes
FYE13
(1.7)
Add: PPA
EBIT Before PPA
9.3
2.3
Interest
Taxes
Net Income
0.8
2.8
5.7
0.2
Add: Depreciation
Less: Cap Ex
Add: Programming Amort
Less: Programming Purchases
Add: Interest (net of Tax)
+/- Working Capital Changes
1.0
(1.7)
17.6
(22.9)
0.5
(1.3)
0.2
Cash Flow(c)
(1.1)
(a)
Fiscal Years Ending March 31
FYE14
FYE15
FYE16
FYE17
(1.6)
6.3
16.8
23.0
15.4
13.8
13.1
19.4
11.2
28.0
9.1
32.2
0.1
4.5
9.2
0.0
6.4
13.0
0.0
9.2
18.7
0.0
10.6
21.5
(0.3)
1.1
(2.9)
20.0
(25.0)
0.1
(0.6)
1.3
(2.5)
23.1
(27.6)
0.0
0.2
1.4
(1.3)
26.4
(30.4)
0.0
(1.7)
1.4
(1.3)
30.1
(33.4)
0.0
(1.5)
(0.3)
1.9
7.4
13.2
16.9
4.0
0.7
1.4
(0.4)
4.4
(5.7)
0.1
December 31, 2012 close
PPA analysis conducted by E&Y; intangibles include movie library, trade name, customer relationships, carriage agreements and supply agreements with useful lives of 3-10 years
(c) Based on 100% cash flow before dividends.
10
(b)
DRAFT
Regulatory Approvals
• This transaction is subject to regulatory approval by three different bodies
– Foreign Investment Promotion Board (FIPB)
– Reserve Bank of India (RBI)
– Ministry of Information and Broadcasting (MIB)
• Timing on regulatory approval is uncertain, but could be as little as 2 to 3 months
after signing, and although unlikely, as late as 1 year after signature
• We will need an additional FIPB approvals for 1.3% stake in FYE15 and 47.7% stake
in 5 years
• SPE purchase of 1.3% and 47.7% stakes will be conditioned on receiving FIPB approval
11
DRAFT
Risk and Mitigation
Risk
Mitigation
Downturn in Indian advertising market
MSM’s expanded footprint and premier client list
insulates against this better than Maa TV or MSM
stand-alone
Channel growth slower than expected
Key performance drivers relate to improving the
programming, advertising sales, and channels
distribution, which are areas of expertise of MSM
management
Difficulties integrating with MSM leads to operational
disruptions
MSM proposes to keep existing Management in place
and only slowly integrate Operations with the exception
of distribution
Evolving regulatory framework may reduce
advertising minutes
MSM management does not feel that the recent
recommendations by the TRAI will be implemented
SPE will need to receive FIPB approval to exercise
our call option after year 5
We know of no specific reason why the FIPB would not
approve the buy-up
12
DRAFT
Next Steps
• Seek approval from the Group Executive Committee
• Complete and execute long form documents
• Submit filings and obtain regulatory approvals
• Close
13