Project Milestone
Draft Valuation Report
21 February 2012
B S R & Co.
Valuation of
Multi Screen Media Private Limited
Draft Valuation Report
B S R & Co.
21 February 2012
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 1 of 30
s
Contents
1
Background
2
2
Scope and Limitations of Work
4
3
Sources of Information
6
4
Historical Financial Information
7
5
Forecast Financial Information
11
6
Valuation Methodology and Approach
23
7
Valuation
24
8
Conclusion
28
B S R & Co.
1
Project Milestone
Draft Valuation Report
21 February 2012
Page 2 of 30
Background
1.1 Overview
1.1.1 Sony Pictures Entertainment, Inc. (“SPE” or “the Client”) is based in Culver City, California. SPE
produces and distributes films and television programming content. It also engages in operation of
studio facilities for production services. Multi Screen Media Private Limited (“MSMPL” or “the
Company”) is an indirect subsidiary of SPE. SPE, through SPE Mauritius Holdings Limited
(Mauritius) and SPE Mauritius Investments Limited (Mauritius), owns 42 per cent and 20 per cent
equity stake in MSMPL respectively.
1.1.2 MSMPL operates as a television channel operator in India and internationally. Atlas Equifin Private
Limited (“Atlas”), an Indian private limited company, holds 12.11 per cent of the shares in MSMPL.
1.1.3 SPE (directly or through its subsidiaries) intends to buy 12.11 equity stake in MSMPL from Atlas
(“Transaction”). This involves transfer of shares from a resident to a non-resident Indian which is
governed by the Guidelines issued by RBI and shall be in accordance with the Notification No. FEMA
20/2000-RB dated 3 May 2000.
1.1.4 In this connection, SPE has requested B S R & Co., Chartered Accountants (“B S R”), to carry out a
valuation of equity shares of MSMPL as on 31 July 2011 (“Valuation Date”) based on the new pricing
guidelines with respect to issue of shares including preferential guidelines vide Notification No. FEMA
205/2010-RB dated 7 April 2010 and RBI circular RBI/2009-10/445 A. P. (DIR Series) Circular No.49
dated 4 May 2010 (“FEMA Guidelines”) (“Valuation”).
1.2 Company Overview
1.2.1 MSMPL was formerly known as Set India Private Limited. The Company was founded in 1995 and is
based in Mumbai, India.
1.2.2 MSMPL operates the following five television channels:

Sony Entertainment Television (“SET”), a Hindi general entertainment television channel.

MAX, a channel that airs Hindi movies and special events such as cricket matches, film award
functions, etc.

SAB, a Hindi channel focused on comedy programs.

PIX, a channel that airs Hollywood movies.

MIX, a Hindi music channel.
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Draft Valuation Report
21 February 2012
Page 3 of 30
1.2.3 MSM Satellite (Singapore) Pte Ltd (“MSM Singapore”) is a 100 per cent subsidiary of MSMPL. The
intellectual property rights of all the programming content (films, television serials, special events) is
owned by MSM Singapore. MSMPL functions as an agent of MSM Singapore. The services provided
by MSMPL to MSM Singapore include marketing of advertising spots, distribution of the five
television channels and collection of advertising and subscription revenue. MSMPL get commission
for providing these services to MSM Singapore.
1.2.4 MSMPL is a part of the network of channels distributed by MSM Discovery Private Ltd (“MSM
Discovery”), a joint venture between MSMPL and Discovery Communications India (“DCI”).
MSMPL and DCI are partners in 74:26 ratio in MSM Discovery.
1.2.5 MSM Discovery distributes satellite channels for the following:

MSMPL - SET, MAX, SAB, PIX and MIX

DCI - Discovery, Discovery Travel & Living, Animal Planet

Other third parties - AXN, ANIMAX, MTV, VH1, NICK, NDTV 24X7, NDTV India, NDTV
Profit, Headlines Today, AajTak, Tez and COLORS.
1.2.6 Subscription revenue of MSM Discovery after paying third parties is shared between MSMPL and DCI
in the ratio of 69:31 for CAS and Non CAS platform and in the ratio of 83:17 for Direct to Home
(“DTH”) platform.
1.3 Basis of Valuation
1.3.1 For the proposed Transaction, a valuation of MSMPL as at 31 July 2011 is carried out. To comply with
FEMA Regulations, the Valuation is carried out using Discounted Cash Flow (“DCF”) method.
1.3.2 The Management has provided us the consolidated business plan of MSMPL for the period 1 August
2011 to 31 March 2016 (“Forecast Period”).
1.3.3 The Consolidated Income Statement and the Consolidated Balance Sheet of the following entities is
provided by the Management (“Consolidated Financial Statements”) for the Forecast Period:

Multi Screen Media Private Ltd.

MSM Satellite (Singapore) Pte Ltd.

MSM Discovery Private Ltd. (to the extent of 74 per cent share of MSMPL)
These financial statements are presented in section 5.3.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 4 of 30
2
Scope and Limitations of Work
2.1
B S R has been appointed by SPE to carry out a valuation of the equity shares of the Company as at 31
July 2011 (“Valuation Date”) based on the pricing guidelines with respect to issue of shares including
preferential guidelines vide Notification No. FEMA 205/2010-RB dated 7 April 2010 and RBI circular
RBI/2010-11/13 A. P. (DIR Series) Circular No.49 dated 4 May 2010.
2.2
B S R has not independently verified the information based on which this report (“Report”) is
prepared.
2.3
B S R has carried out a desktop review of the financial information and underlying management
assumptions provided by the management of SPE (“Management”) for the valuation analysis of the
Company. The financial information and underlying assumptions also form part of the representation
letter signed by SPE. This information has been solely relied upon by B S R for the Valuation of the
Company.
2.4
This Report is based on and relies solely on the management business plan prepared by the
Management of SPE for the period 1 August 2011 to 31 March 2016 (“Management Business Plan”).
B S R has read, analyzed and discussed but not independently verified the financial projections and
underlying data and assumptions in the preparation of the Management Business Plan and accordingly
provides no opinion on the factual basis of the same. If there were any omissions, inaccuracies or
misrepresentations of the information provided by the Management, this may have a material effect on
our findings.
2.5
Our work did not constitute an audit of the financial statements and accordingly, we do not express any
opinion on the truth and fairness of the financial position as indicated in this Report. Our work did not
constitute a validation of the financial statements of the Company, and accordingly, we do not express
any opinion on the same. If there were any omissions, inaccuracies or misrepresentations of the
information provided by the Management, this may have a material effect on our findings.
2.6
The realisation of the projections in the Management Business Plan, based on which the Report has
been prepared, is dependent on the continuing validity of the assumptions on which they are based.
The Report cannot be directed to provide an assurance about the achievability of these financial
projections. Since these projections relate to the future, actual results are likely to be different from the
forecast results because events and circumstances do not occur as forecast, and the differences may be
material.
2.7
Although we have read, analysed and discussed the information relating to the Company, prepared and
provided to us by the Management for the purpose of making the Report, we have not commented on
the appropriateness of or independently verified the assumptions or information provided to us, for
arriving at the financial projections of the Company.
2.8
For our analysis, we have relied on published and secondary sources of data, whether or not made
available by SPE. We have not independently verified the accuracy or timeliness of the same.
2.9
Neither B S R nor any of its affiliates are responsible for updating this Report because of events or
transactions occurring subsequent to the date of this Report.
2.10
B S R has not considered any finding made by other external agencies in carrying out this Valuation.
B S R & Co.
2.11
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Draft Valuation Report
21 February 2012
Page 5 of 30
This Report is prepared on the basis of the sources of information listed in section 3. B S R has relied
upon written representation provided by the Management that the information contained in the Report
is materially accurate and complete, fair in its manner of portrayal and therefore forms a reliable basis
for the Valuation.
B S R & Co.
3
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Draft Valuation Report
21 February 2012
Page 6 of 30
Sources of Information
This Report is prepared on the basis of the sources of information as follows:
3.1
Unaudited Consolidated Financial Statements for MSMPL for the period 1 April 2009 to 31 March
2011.
3.2
Provisional un-audited Consolidated Financial Statements for MSMPL for the period 1 April 2011 to
31 July 2011.
3.3
Management Business Plan of MSMPL for the period 1 August 2011 to 31 March 2016.
3.4
Publicly available information and information from secondary sources.
3.5
In addition to the above information, we also held discussions with the following key members of the
Company based on the instruction from SPE:

Nitin Nadkarni – Chief Financial Officer, Multi Screen Media Private Ltd

Pramod Nair – Senior Vice President – Finance and Accounting, Multi Screen Media Private Ltd

Ashish Vardhan – Vice President - Finance, Multi Screen Media Private Ltd

Deepak Oza – Senior Manager – FP&A, Multi Screen Media Private Ltd
The above information has been provided to us by the Management.
B S R & Co.
4
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Draft Valuation Report
21 February 2012
Page 7 of 30
Historical Financial Information
4.1 Consolidated Historical Income Statements of MSMPL
INR m illion
FYE 31 March
Revenue
Advertising
y-o-y growth
Subscription
y-o-y growth
Others
y-o-y growth
Total Revenue
y-o-y growth
Expenses
Amortisation
y-o-y growth
Direct costs
% of revenue
Employee costs
y-o-y growth
Operating & administration costs
y-o-y growth
Sales & marketing costs
% of revenue
EBITDA
EBITDA Margin
Depreciation
EBIT
EBIT Margin
Finance costs/gains
Other income
PBT
PBT Margin
Tax
PAT
PAT Margin
Minority Interest (MI)
PAT after MI
PAT Margin
Source: Management
2010
2011 31-Jul-11
12 m ts 12 m ts
4 m ts
11,312
5,678
239
17,230
6,572
4,554
26%
1,083
2,166
1,963
11%
890
5%
114
777
5%
949
220
48
4%
859
(812)
-5%
59
(871)
-5%
10,841
-4%
6,682
18%
508
112%
18,030
5%
10,766
NA
2,581
NA
228
NA
13,575
NA
4,215
-36%
5,120
28%
1,444
33%
2,302
6%
1,889
10%
3,060
17%
89
2,971
16%
336
106
2,741
15%
1,500
1,240
7%
48
1,192
7%
5,873
NA
2,125
16%
575
NA
1,094
NA
928
7%
2,980
22%
24
2,956
22%
(183)
91
3,230
21%
792
2,438
18%
13
2,426
18%
B S R & Co.
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Draft Valuation Report
21 February 2012
Page 8 of 30
4.1.1 Advertising revenue comprises advertising income from programs and films broadcasted in India and
in international regions such as UK, US, Canada, Africa and Middle East. Advertising revenue also
includes advertising income from cricketing events such as Indian Premier League (“IPL”), India-New
Zealand series, etc.
4.1.2 IPL matches for FY 2010 were held in April 2009 and May 2009 (total 60 matches) and IPL matches
for FY 2011 were held in March 2010 (29 matches) and April 2010 (31 matches). Therefore FY 2010
includes revenue from 89 matches and FY 2011 includes revenue from only 31 matches. Due to this
situation, revenues for FY 2010 were higher than revenues for FY 2011. Revenues for period ended 31
July 2011 include revenues for the entire IPL season (72 matches) held in April 2011 and May 2011.
4.1.3 Subscription revenues comprises income from CAS, Non CAS and DTH operators in India and
international regions such as UK, US, Canada, Australia, Africa, Middle East and Pakistan.
Subscription revenues increased by 18 per cent from INR 5,678 million in FY 2010 to INR 6,682
million in FY 2011.
4.1.4 Other income comprises wireless income, service fee from Channel 8, distribution income, syndication
income and international events income.
4.1.4.1
Wireless income pertains to income generated from messages, calls received during telecast
of reality shows like Kaun Banega Crorepati, X-Factor etc. It also includes income from
download of videos and clips of shows from You Tube.
4.1.4.2
Service fee is received for providing selling and accounting services to Channel 8, a regional
Bengali channel.
4.1.4.3
Distribution income is for distribution of channels to SAARC countries.
4.1.4.4
Syndication income pertains to the revenue from syndicating movies and programs in the
regional and international market.
4.1.4.5
International event income pertains to advertising and sponsorship revenue from
international events like BAFTA awards.
4.1.5 EBITDA margin was 5 per cent in FY 2010 and increased to 17 per cent in FY 2011. This is mainly on
account of lower amortisation expenses as a percentage of revenue in FY 2011. Amortisation expenses
were lower in FY 2011 mainly because IPL matches for FY 2011were partly held in FY 2010.
4.1.6 Finance costs comprise foreign exchange gain/loss and interest on term loan and working capital loan.
There is a gain in period ended 31 July 2011 mainly on account of foreign exchange fluctuation.
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Draft Valuation Report
21 February 2012
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4.2 Consolidated Historical Balance Sheets of MSMPL
INR m illion
FYE 31 March
2010
2011 31-Jul-11
Sources of funds
Share capital
114
114
114
Share premium
4,871
4,871
4,871
Reserve & surplus
(4,573) (3,400)
(883)
Accumulated other comprehensive income/(loss)
(780)
(849)
(1,049)
Loans
10,911 14,140
13,676
Total
10,544 14,876
16,729
Application of funds
Fixed assets
145
132
132
Unamortised films
2,845
3,449
3,332
Unamortised sports
4,485
1,964
Capital w ork in progress
125
130
Intangible assets
466
458
454
Investment
6
3
2
Net w orking capital
Current assets
Cash and bank balance
1,165
2,151
5,231
Inventory
898
1,268
1,352
Accounts receivable
5,785
3,432
8,126
Loans and advances
3,470
4,739
4,689
11,318 11,590
19,397
Less: Accounts payable
1,837
2,325
1,715
Less: Provisions
2,399
3,042
6,968
4,236
5,367
8,682
Net current assets
7,083
6,223
10,715
Total
10,544 14,876
16,729
Source: Management
4.2.1 Term loan includes a dollar loan amounting to INR 575 million as on 31 July 2011 from Standard
Chartered Bank in India. The Company has availed this loan at an interest rate of 4.95 per cent and
plans to repay the loan by the end of FY 2012. Other term loans amounting to INR 12,589 million as
on 31 July 2011 pertain to the loan borrowed in Singapore. The Company has availed this dollar loan
at an interest rates ranging from 2.0 per cent per annum to 3.9 per cent per annum. The Company has
taken non refundable zero interest dollar loan amounting to INR 511 million as on 31 July 2011from
SPE. The loan is expected to remain constant during forecast period.
4.2.2 Fixed assets comprises computers, decoders, leasehold improvements other plant and machinery.
Decoders are installed with cable operators for decoding the satellite signal. Other plant and machinery
consists of uplinking/ downlinking equipments and other studio equipments.
4.2.3 Unamortised films and sports pertains to amount paid by MSMPL to acquire licence to broadcast
films/ sports events which will be amortised in future as and when they are broadcasted. Unamortised
sports balance decreased from INR 4,485 million in FY 2011 to INR 1,964 million for period ended 31
July 2011 primarily due to part of the licence fees for IPL held in April 2011 – May 2011 was not paid
as on 31 July 2011.
4.2.4 Intangible assets as of 31 July 2011 pertain to the goodwill on acquisition of SAB TV.
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Draft Valuation Report
21 February 2012
Page 10 of 30
4.2.5 Program inventory includes films and other programs which are not yet capitalised/expensed.
Inventory also includes blank tapes.
4.2.6 Cash and bank balance and sundry debtors increased for the period ended 31 July 2011 as compared to
FY 2011 mainly on account of cash received/receivable for IPL season of FY 2012 that ended in May
2011.
4.2.7 The number of days outstanding for debtors remained at 86 days of total revenue in FY 2011. The
advances to suppliers remained at 6 per cent of programming & production cost and film acquisition
cost during FY 2010 and FY 2011.
4.2.8 The program inventory remained at approximately 16 per cent of total programming and production
cost excluding programming cost for IPL series during FY 2010 and FY 2011.
4.2.9 Accounts payable remained in the region of 90 to 105 days of expenses incurred for non IPL business
during FY 2010 and FY 2011.
4.2.10 Provisions increased from INR 3,042 million as on 31 March 2011 to INR 6,968 million as on 31 July
2011, primarily due to IPL Licence fees payable at the end of the IPL season.
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Draft Valuation Report
21 February 2012
Page 11 of 30
Forecast Financial Information
5.1 Historical and Forecast Financials
5.1.1 Historical and Forecast Consolidated Profit and Loss Statements of MSMPL
INR m illion
FYE 31 March
Revenue
Advertising
y-o-y growth
Subscription
y-o-y growth
Others
y-o-y growth
Total Revenue
y-o-y growth
Expenses
Amortisation
y-o-y growth
Direct costs
% of revenue
Employee costs
y-o-y growth
Operating & administration costs
y-o-y growth
Sales & marketing costs
% of revenue
EBITDA
EBITDA Margin
Depreciation
EBIT
EBIT Margin
Finance costs/gains
Other income
PBT
PBT Margin
Tax
PAT
PAT Margin
Minority Interest (MI)
PAT after MI
PAT Margin
Source: Management
2010
2011 31-Jul-11
12 m ts 12 m ts
4 m ts
11,312
5,678
239
17,230
6,572
4,554
26%
1,083
2,166
1,963
11%
890
5%
114
777
5%
949
220
48
4%
859
(812)
-5%
59
(871)
-5%
2012
2012
2013
2014
2015
2016
8 m ts 12 m ts 12 m ts 12 m ts 12 m ts 12 m ts
10,841
-4%
6,682
18%
508
112%
18,030
5%
10,766
NA
2,581
NA
228
NA
13,575
NA
7,549
NA
4,693
NA
193
NA
12,435
NA
18,316
69%
7,274
9%
421
118%
26,011
44%
19,649
7%
7,564
4%
444
5%
27,656
6%
22,057
12%
8,005
6%
489
10%
30,551
10%
25,299
15%
8,385
5%
537
10%
34,221
12%
29,023
15%
8,611
3%
571
6%
38,204
12%
4,215
-36%
5,120
28%
1,444
33%
2,302
6%
1,889
10%
3,060
17%
89
2,971
16%
336
106
2,741
15%
1,500
1,240
7%
48
1,192
7%
5,873
NA
2,125
16%
575
NA
1,094
NA
928
7%
2,980
22%
24
2,956
22%
(183)
91
3,230
21%
792
2,438
18%
13
2,426
18%
1,760
NA
4,581
37%
1,037
NA
1,980
NA
1,493
12%
1,585
13%
180
1,404
11%
189
1,215
10%
868
347
3%
347
3%
7,633
81%
6,706
26%
1,611
12%
3,075
34%
2,421
9%
4,564
18%
204
4,360
17%
331
4,029
15%
1,660
2,369
9%
2,369
9%
7,541
-1%
7,237
26%
1,785
11%
3,353
9%
2,589
9%
5,152
19%
167
4,985
18%
326
4,659
17%
1,618
3,041
11%
3,041
11%
8,622
14%
7,778
25%
2,016
13%
3,662
9%
2,829
9%
5,644
18%
192
5,453
18%
290
5,163
17%
1,775
3,387
11%
3,387
11%
9,766
13%
8,439
25%
2,248
11%
3,996
9%
3,114
9%
6,658
19%
243
6,415
19%
227
6,188
18%
1,991
4,197
12%
4,197
12%
11,117
14%
9,313
24%
2,499
11%
4,361
9%
3,429
9%
7,485
20%
293
7,192
19%
121
7,071
19%
2,193
4,879
13%
4,879
13%
5.1.1.1
The Management has estimated that advertising revenue will grow at a CAGR of 22 per cent
from INR 10,841 million in FY 2011 to INR 29,023 million in FY 2016.
5.1.1.2
Advertising revenue is expected to increase by 69 per cent in FY 2012 mainly on account of
increase in revenue during IPL season and introduction of new shows on SET. Further, the
revenue growth is expected to decline to 7 per cent in FY 2013 as the Management expects
B S R & Co.
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Draft Valuation Report
21 February 2012
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that the number of matches in IPL season will reduce to 60 matched in FY 2013 as compared
to 72 matches in FY 2012 on account of legal issues with new IPL teams, Kochi and Pune.
5.1.1.3
Subscription revenue is estimated to grow at a CAGR of 5 per cent from INR 6,682 million
in FY 2011 to INR 8,611 million in FY 2016. This is based on feedback from MSM
Discovery team and uncertainty around the growth potential of the DTH platform.
5.1.1.4
The year on year revenue growth rate is expected to stabilize at 15 per cent during FY 2015
and FY 2016.
5.1.1.5
The EBITDA margin is expected to increase from 17 per cent in FY 2011 to 20 per cent in
FY 2016 on account of lower direct cost and amortisation as a percentage of revenue.
5.1.1.6
The average income tax rate during Forecast Period is 35 per cent.
5.1.2 Projected Consolidated Balance Sheet of MSMPL
INR m illion
FYE 31 March
2010
2011 31-Jul-11
2012
Sources of funds
Share capital
114
114
114
114
Share premium
4,871
4,871
4,871
4,871
Reserve & surplus
(4,573) (3,400)
(883)
(535)
Accumulated other comprehensive income/(loss)
(780)
(849)
(1,049) (1,049)
Loans
10,911 14,140
13,676 13,062
Total
10,544 14,876
16,729 16,463
Application of funds
Fixed assets
145
132
132
366
Unamortised films
2,845
3,449
3,332
3,119
Unamortised sports
4,485
1,964
5,804
Capital w ork in progress
125
130
130
Intangible assets
466
458
454
454
Investment
6
3
2
2
Net w orking capital
Current assets
Cash and bank balance
1,165
2,151
5,231
2,441
Inventory
898
1,268
1,352
1,479
Accounts receivable
5,785
3,432
8,126
3,578
Loans and advances
3,470
4,739
4,689
4,413
11,318 11,590
19,397 11,911
Less: Accounts payable
1,837
2,325
1,715
2,302
Less: Provisions
2,399
3,042
6,968
3,022
4,236
5,367
8,682
5,324
Net current assets
7,083
6,223
10,715
6,587
Total
10,544 14,876
16,729 16,463
Source: Management
5.1.2.1
2013
2014
2015
2016
114
114
114
114
4,871
4,871
4,871
4,871
2,506
5,893 10,091 14,969
(1,049) (1,049) (1,049) (1,049)
11,836 10,048
6,778
511
18,278 19,877 20,805 19,417
403
3,625
6,093
130
454
2
416
4,090
6,609
130
454
2
379
4,548
6,606
130
454
2
293
4,949
6,566
130
454
2
3,451
1,526
3,982
4,587
13,547
2,921
3,054
5,976
7,571
18,278
3,823
1,602
4,324
4,635
14,383
3,152
3,054
6,207
8,176
19,877
3,992
1,694
4,793
4,690
15,170
3,429
3,054
6,483
8,686
20,805
1,991
1,820
5,276
4,758
13,845
3,767
3,054
6,821
7,023
19,417
The management expects to incur the following capital expenditures during the forecast
period:
 INR 1,236 million for purchase of computers, decoders and other plant & machinery. This
expenditure is included in fixed assets.
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Draft Valuation Report
21 February 2012
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 INR 4,478 million in FY 2012 on account of IPL license fees paid to BCCI. The same is
expected to increase to INR 7,576 million per annum by the end of FY 2016. This
expenditure is included in unamortised sports.
 INR 2,180 million in FY 2012 on account of acquisition of new film rights for MAX and
PIX channel. The same is expected to increase to INR 3,902 million per annum by the end of
FY 2016. This expenditure is included in unamortised films.
5.1.2.2
Loans and advances are mainly on account of advances to suppliers, fixed deposit with the
High Court, prepaid expenses and security deposits.
5.1.2.3
The accumulated other comprehensive income/ (loss) amounting to INR negative 1,049
million mainly pertains to exchange rate difference on consolidation of balance sheet.
5.1.2.4
Investments pertain to the investment in BEN-SET Limited, a company incorporated in
United Kingdom. Management has represented that both the JVs are on the verge of
termination. Therefore these investments are considered at cost.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 14 of 30
5.2 Key assumptions that form the basis for the Projected Financial Statements
are given below.
Revenue assumptions:
5.2.1 Advertising revenue
INR m illion
FYE 31 March
Advertising Revenue
Domestic
y-o-y growth
International
y-o-y growth
Total Advertising Revenue
y-o-y growth
Source: Management
5.2.1.1
2010
2011 31-Jul-11
12 m ts 12 m ts
4 m ts
2012
2012
2013
2014
2015
2016
8 m ts 12 m ts 12 m ts 12 m ts 12 m ts 12 m ts
11,021
7,290
NA
259
NA
7,549
NA
292
11,312
10,501
-5%
340
16%
10,841
-4%
10,641
NA
125
NA
10,766
NA
17,932
146%
384
48%
18,316
69%
19,233
7%
416
8%
19,649
7%
21,606
12%
451
8%
22,057
12%
24,810
15%
489
8%
25,299
15%
28,493
15%
530
8%
29,023
15%
Advertising revenue for domestic:
 Domestic advertising revenues pertain to advertising for telecast of programmes and cricket
events.
 Domestic advertising revenues are estimated to increase by 146 per cent in FY 2012
primarily on account of the following reasons.

Revenue for FY 2011 is from 31 IPL matches and revenue from FY 2012 is from 72 IPL
matches.

New shows like Kaun Banega Crorepati, Bade Achchhe Lagte Ho, Saas Bina Sasural are
expected to perform well in FY 2012 based on their GRP.

MSMPL launched the MIX channel in September 2011 which is expected to contribute
INR 237 million to the advertising revenue in FY 2012.
 The Management has assumed that the number of matches from FY 2013 onwards will
reduce to 60 matches per season.
 The year on year growth in domestic advertising revenues is expected to stabilise at 15 per
cent in FY 2015.
5.2.1.2
Advertising revenue for International:
 International advertising revenues pertain to revenue from international markets such as
USA, UK, Canada, Africa and Middle East. The average agency commission considered for
international markets is 12.5 per cent of gross advertising revenue.
 The US, UK and Middle East business centre are expected to contribute 37 per cent, 18 per
cent and 38 per cent respectively to the total international advertising revenue in FY 2012.
 The year on year growth in international advertising revenue is expected to stabilise at 8 per
cent in FY 2013.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 15 of 30
5.2.2 Subscription revenue
INR m illion
FYE 31 March
Subscription Revenue
Domestic
y-o-y growth
International
y-o-y growth
Total Subscription Revenue
y-o-y growth
Source: Management
2010
2011 31-Jul-11
12 m ts 12 m ts
4 m ts
4,263
1,415
5,678
5,365
26%
1,317
-7%
6,682
18%
2,101
NA
479
NA
2,581
NA
2012
2012
2013
2014
2015
2016
8 m ts 12 m ts 12 m ts 12 m ts 12 m ts 12 m ts
3,647
NA
1,046
NA
4,693
NA
5,748
7%
1,525
16%
7,274
9%
5,978
4%
1,585
4%
7,564
4%
6,351
6%
1,654
4%
8,005
6%
6,659
5%
1,726
4%
8,385
5%
6,809
2%
1,802
4%
8,611
3%
5.2.2.1
Non CAS and DTH are expected to contribute 43 per cent and 45 per cent respectively to the
total domestic subscription revenues.
5.2.2.2
Management expects subscription revenues from DTH and Non-CAS to grow at a CAGR of
7 per cent and 3 per cent respectively during FY 2012 to FY 2016.
5.2.2.3
UK business centre and US business centre are expected to contribute 32 per cent and 49 per
cent to the total international subscription revenue.
5.2.2.4
In FY 2012, the Hindi general entertainment channel “Colors” has been added to the
subscription pack for US and Canada. This will contribute to the increase in international
subscription revenues by 16 per cent in FY 2012.
5.2.2.5
The subscription revenue growth in the international market is expected to stabilize at a year
on year growth rate of 5 per cent from FY 2014 to FY 2016.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 16 of 30
5.2.3 Other income
INR m illion
FYE 31 March
Other Incom e
Other income
y-o-y growth
Expense Recovery
y-o-y growth
Total Other Incom e
y-o-y growth
Source: Management
2010
2011 31-Jul-11
12 m ts 12 m ts
4 m ts
447
447
392
-12%
146
538
20%
288
NA
29
NA
317
NA
2012
2012
2013
2014
2015
2016
8 m ts 12 m ts 12 m ts 12 m ts 12 m ts 12 m ts
166
NA
90
NA
256
NA
454
16%
119
-18%
573
6%
476
5%
133
12%
609
6%
521
10%
149
11%
669
10%
566
9%
169
14%
735
10%
614
9%
173
3%
787
7%
Other Income
As discussed earlier in the Report, other income comprises wireless income, service fee from Channel
8, distribution income, syndication income and international events income.
5.2.3.1
Wireless income is expected to grow at 10 per cent per annum during Forecast Period.
5.2.3.2
Service fee from Channel 8 is expected to grow at 14 per cent per annum during forecast
period.
5.2.3.3
Distribution income from SAARC countries is expected to grow at a CAGR of 13 per cent
from FY 2011 to FY 2016.
5.2.3.4
Syndication income is expected to grow at a CAGR of 4 per cent from FY 2011 to FY 2016.
Expense Recovery
5.2.3.5
The Company also carries out marketing and sales of AXN and ANIMAX. The expense
recovery income is a percentage of fees received for providing these services to AXN and
ANIMAX.
5.2.3.6
The Company offers AXN and ANIMAX channels along with bouquet of its own channels.
It incurs some sales & marketing, salaries & incentives, general & administration expenses
for providing these services. The Company recovers these expenses, from AXN and
ANIMAX, by adding approximately 10 per cent mark-up on all expenses incurred.
5.2.4 Discounts/ Bad debts: It is calculated as percentage of revenues. It also includes some discounts
offered to agencies on advertising revenue. The discounts/ bad debts are expected to remain stable at
approximately 0.6 per cent of revenue during Forecast Period. This is in line with the average
discounts/ bad debts as a percentage of revenue for FY 2010 and FY 2011.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 17 of 30
Expense assumptions:
5.2.5 Amortisation Expense
Amortisation expense includes amortisation on films and sports (cricket, football cup).
Film amortisation expense:
Amortisation of films acquired for MAX is calculated based on amortisation policy of the Company as
follows:
5.2.5.1
Category A - Cost of film more than USD 500,000: 45 per cent of the film cost is amortized
in first six months and balance amount is amortised over the remaining life of the license
agreement.
5.2.5.2
Category B - Cost of acquisition between USD 100,000 to USD 500,000: 25 per cent of the
film cost is amortized in first six months and balance amount is amortised over the remaining
life of the license agreement.
5.2.5.3
Category C - Cost of acquisition less than 100,000 USD: Cost of the film is amortised over
the remaining life of the license agreement.
5.2.5.4
Films for PIX channel are amortised within one year of their acquisition.
Cricket amortisation expense:
5.2.5.5
Cricket amortisation is mainly on account of licence fees paid to BCCI for telecast rights of
the IPL series.
5.2.6 Direct costs:
INR m illion
FYE 31 March
Direct costs
Program m ing & Production
% of revenue
Source: Management
2010
2011 31-Jul-11
12 m ts 12 m ts
4 m ts
4,554
26%
5,120
28%
2,125
16%
2012
2012
2013
2014
2015
2016
8 m ts 12 m ts 12 m ts 12 m ts 12 m ts 12 m ts
4,581
37%
6,706
26%
7,237
26%
7,778
25%
8,439
25%
9,313
24%
5.2.6.1
Direct costs comprise programming cost, events cost, on-air promotion and post production
cost. These costs are expected to increase at a CAGR of 13 per cent from FY 2011 to FY
2016.
5.2.6.2
Costs pertaining to SET are expected to contribute around 63 per cent to the total direct costs
in FY 2012. Beyond FY 2013, there will be higher direct costs on account of IPL
(introduction of HD technology), SAB and MIX. Therefore contribution of SET to the total
direct cost will reduce to 54 per cent in FY 2016.
5.2.6.3
The programming and production cost is expected to remain at an average of 25 per cent of
total revenue during forecast period. This is in line with the past years.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 18 of 30
5.2.7 Operating & administration costs
INR m illion
FYE 31 March
Operating & adm inistration costs
Broadcasting expenses
y-o-y growth
Carriage expenses
y-o-y growth
General & administartion expenses
y-o-y growth
Total Operating & adm inistration costs
y-o-y grow th
Source: Management
5.2.7.1
2010
2011 31-Jul-11
12 m ts 12 m ts
4 m ts
682
810
674
2,166
624
-8%
1,021
26%
657
-3%
2,302
6%
332
NA
446
NA
316
NA
1,094
NA
2012
2012
2013
2014
2015
2016
8 m ts 12 m ts 12 m ts 12 m ts 12 m ts 12 m ts
436
NA
1,007
NA
538
NA
1,980
NA
768
23%
1,453
42%
854
30%
3,075
34%
784
2%
1,622
12%
947
11%
3,353
9%
827
5%
1,784
10%
1,051
11%
3,662
9%
873
6%
1,963
10%
1,160
10%
3,996
9%
924
6%
2,159
10%
1,278
10%
4,361
9%
Broadcasting expenses:
 Broadcasting expenses pertains to fixed rent paid for transponder and uplinking and
downlinking of programmes through satellite.
 Broadcasting expenses are expected to increase by 23 per cent in FY 2012 on account of 12
additional matches to be held in IPL series and launch of the channel MIX.
5.2.7.2
Carriage expenses:
 Carriage expenses are expected to increase by 42 per cent in FY 2012 due to launch of the
MIX channel. From FY 2014 to FY 2016, carriage expenses are expected to grow at 10 per
cent per annum.
5.2.7.3
General & administration expenses:
 The general and administration expenses pertain to expenses incurred for cricket insurance,
bank guarantee charges, establishment expenses, communication expenses, staff cost and
other office administration expenses.
 These expenses are expected to increase by 30 per cent in FY 2012 on account of higher
number of IPL matches as compared to FY 2011. Beyond FY 2013 these expenses are
expected to grow at 8 per cent per annum.
5.2.8 Sales & marketing costs
INR m illion
FYE 31 March
Sales & m arketing costs
Marketing expenses
% of revenue
Dealer incentives
% of revenue
Total Sales & m arketing costs
% of revenue
Source: Management
2010
2011 31-Jul-11
12 m ts 12 m ts
4 m ts
1,546
9%
417
2%
1,963
11%
1,409
8%
480
3%
1,889
10%
728
5%
200
1%
928
7%
2012
2012
2013
2014
2015
2016
8 m ts 12 m ts 12 m ts 12 m ts 12 m ts 12 m ts
1,066
9%
427
3%
1,493
12%
1,794
7%
627
2%
2,421
9%
1,945
7%
644
2%
2,589
9%
2,118
7%
711
2%
2,829
9%
2,337
7%
777
2%
3,114
9%
2,581
7%
848
2%
3,429
9%
B S R & Co.
5.2.8.1
Project Milestone
Draft Valuation Report
21 February 2012
Page 19 of 30
Marketing costs:
 The sales & marketing expenses are expected to remain stable at 9 per cent of total revenue
from FY 2012 to FY 2016, which is in line with the past years.
 As per an agreement with AXN and ANIMAX, the Management recovers the expenses
incurred on account of marketing, promotion, general & administration and salaries for these
channels by adding 10 per cent mark-up on total expenses incurred.
5.2.8.2
Dealer incentives:
 The dealer incentives are expected to remain at 2 per cent of revenue during forecast period
in line with the past years.
5.2.9 Employee costs
INR m illion
FYE 31 March
Em ployee costs
Salaries
y-o-y growth
Incentives
y-o-y growth
Total Em ployee costs
y-o-y growth
Source: Management
2010
2011 31-Jul-11
12 m ts 12 m ts
4 m ts
898
186
1,083
1,108
23%
337
81%
1,444
33%
336
NA
239
NA
575
NA
2012
2012
2013
2014
2015
2016
8 m ts 12 m ts 12 m ts 12 m ts 12 m ts 12 m ts
897
NA
140
NA
1,037
NA
1,233
11%
379
12%
1,611
12%
1,365
11%
419
11%
1,785
11%
1,543
13%
474
13%
2,016
13%
1,720
11%
528
11%
2,248
11%
5.2.9.1
The salaries are expected to increase on an average by 11 per cent during the Forecast
Period.
5.2.9.2
The incentives pertain to the bonus and other monetary incentives provided to the
employees. The year on year growth of incentives is in line with the year on year growth of
salary cost.
1,912
11%
586
11%
2,499
11%
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 20 of 30
5.2.10 Working capital: Working capital is forecasted based on the following assumptions:
INR m illion
FYE 31 March
Current Assets
Debtors
days outstanding
Loans and Advances
y-o-y growth
Advances to suppliers
% of programming & film acquisition cost
Program Inventory
% of programming cost
Programs & Tapes on Hand
y-o-y growth
Total Current Assets
Current Liabilities
Accounts payable
days outstanding
Accrued Liabilities
y-o-y growth
Total Current Liabilities
Net Working Capital
Increase/(Decrease) in w orking capital
% of revenue
Source: Management
2010
5,785
202
3,470
2011 31-Jul-11
2012
2013
2014
2015
2016
3,432
86
4,269
23%
471
6%
813
16%
455
81%
9,439
8,126
3,978
0%
711
0%
865
0%
487
0%
14,167
3,578
75
3,952
0%
461
6%
995
16%
484
0%
9,470
3,982
75
3,995
0%
592
6%
1,037
16%
489
0%
10,096
4,324
75
3,995
0%
640
6%
1,113
16%
489
0%
10,560
4,793
75
3,995
0%
695
6%
1,205
16%
489
0%
11,178
5,276
75
3,995
0%
763
6%
1,331
16%
489
0%
11,854
4,236
2,325
105
3,042
27%
5,367
1,715
6,968
129%
8,682
2,302
75
3,022
0%
5,324
2,921
90
3,054
0%
5,976
3,152
90
3,054
0%
6,207
3,429
90
3,054
0%
6,483
3,767
90
3,054
0%
6,821
5,917
1,506
34%
4,072
(1,845)
23%
5,484
1,412
40%
4,146
(1,338)
33%
4,120
(27)
15%
4,353
234
14%
4,694
341
14%
5,033
339
13%
647
15%
251
10,153
1,837
91
2,399
5.2.10.1 Debtor days outstanding are expected to decrease from 86 days in FY 2011 to 75 days in the
Forecast Period based on Management focus on implementing a better collection policy. All
debtors for IPL are expected to be received during the same financial year.
5.2.10.2 Loans and advances mainly includes prepaid expenses, fixed deposit with High Court,
security deposit etc. The loans and advances are expected to remain stable during forecast
period.
5.2.10.3 Advances to supplier are considered as 6 per cent of programming & production cost and
film acquisition cost in-line with FY 2011.
5.2.10.4 Program inventory is estimated at 16 per cent of total programming and production cost
excluding programming cost for IPL in line with the past years.
5.2.10.5 Programs & Tapes on hand includes blank tapes and some programs not capitalized. The
same is expected to remain constant during forecast period.
5.2.10.6 Account payables are estimated to be 75 days of the expenses excluding expenses incurred
for IPL business in line with FY 2010 and FY 2011.
5.2.10.7 Accrued liabilities: Mainly include provision for IPL and NZ cricket license fee, service tax
payable, deposits, employee advances, agency commission payable, program and music
license fee etc. The same is expected to remain constant at the FY 2011 level during forecast
period.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 21 of 30
5.2.11 Depreciation/Amortisation calculation
Depreciation as per companies act: Straight line method for the purpose of calculating book
depreciation as per the Companies Act
INR m illion
FYE 31 March
As per Com panies Act
Gross Block
Opening Gross Block
Additions
Sale
Closing Gross Block
Accum ulated depreciation
Opening balance
Depreciation
Closing balance
Net Block
Source: Management
2012
12 m ts
2013
12 m ts
2014
12 m ts
2015
12 m ts
2016
12 m ts
1,205
442
0
1,647
1,647
203
0
1,850
1,850
205
0
2,055
2,055
206
0
2,261
2,261
207
0
2,468
1,077
204
1,281
366
1,281
167
1,448
403
1,448
192
1,639
416
1,639
243
1,882
379
1,882
293
2,175
293
Depreciation Rates
Com panies Act
Computers
I R Ds
Plant & Machiney
Furniture and Fitting
Motor Vehicles
Office Equipments
Source: Management
Rates
25%
25%
25%
25%
25%
25%
5.2.11.1 The fixed assets comprise computers, decoders, other plant & machinery, furniture fixtures,
motor vehicles and office equipments.
5.2.11.2 The depreciation rate for all assets is considered at 25 per cent as provided by the
Management. This is in line with the Company’s accounting policy.
Amortisation of cricket rights
INR m illion
FYE 31 March
Opening Gross Block
Additions
Closing Gross Block
Amortisation
Net Block
2012
2013
2014
10 m ts 12 m ts 12 m ts
1,964
5,804
6,093
4,113
5,321
6,299
6,077 11,125 12,392
274
5,032
5,783
5,804
6,093
6,609
2015
2016
12 m ts 12 m ts
6,609
6,606
6,621
7,576
13,231 14,183
6,624
7,617
6,606
6,566
5.2.11.3 Opening balance comprises rights to broadcast matches of IPL and India versus New
Zealand series.
5.2.11.4 Amount paid every year pertains to the amount expected to be paid in accordance with the
BCCI contract.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 22 of 30
Amortisation of film rights
INR m illion
FYE 31 March
Opening Gross Block
Additions
Closing Gross Block
Amortisation
Net Block
2012
2013
2014
10 m ts 12 m ts 12 m ts
3,332
3,119
3,625
1,274
3,014
3,304
4,606
6,134
6,929
1,486
2,509
2,839
3,119
3,625
4,090
2015
2016
12 m ts 12 m ts
4,090
4,548
3,599
3,902
7,689
8,449
3,142
3,500
4,548
4,949
5.2.11.5 Opening balance comprises unamortised balance of films for MAX and PIX.
5.2.11.6 Additions pertain to the amount expected by the Management to be spent on acquiring new
films for MAX and PIX.
5.2.11.7 Amortisation policy for films is discussed in section 5.2.5.
B S R & Co.
6
Project Milestone
Draft Valuation Report
21 February 2012
Page 23 of 30
Valuation Methodology and Approach
6.1 Basis of Valuation
6.1.1 The Valuation has been prepared using the DCF method as per FEMA Regulations and values 100%
equity stake in Multi Screen Media Private Limited as at 31 July 2011.
6.2 Valuation Methodology
An overview of the DCF method is presented below:
6.2.1 Value is future oriented and accordingly the theoretically correct manner to assess value is to consider
the future earnings potential.
6.2.2 Under the DCF method, forecast cash flows are discounted back at an appropriate discount rate to the
present date, generating a net present value for the cash flow stream of the Company. A terminal value
at the end of the explicit Forecast Period is then determined and that value is also discounted back to
the valuation date to give an overall value of the Company. We have used the free cash flows to firm
(“FCFF”) to capture the value of the Company.
6.2.3 In a DCF analysis, the Forecast Period should be of such a length to enable the business to achieve a
stabilized level of earnings, or to be reflective of an entire operational cycle for more cyclical
industries.
6.2.4 The rate at which the future cash flows are discounted (“the discount rate”) should reflect not only the
time value of money, but also the risk associated with the business’ future operations. This means that
in order for a DCF to produce a sensible valuation figure, the importance of the quality of the
underlying cash flow forecasts is fundamental. The discount rate most generally employed for satellite
channel broadcasting and distribution companies is the Weighted Average Cost of Capital (“WACC”),
reflecting an optimal as opposed to the actual financing structure, which is applied to leveraged cash
flows and results in an Enterprise Value.
6.2.5 In calculating the terminal value, regard must be had to the business’ potential for further growth
beyond the explicit Forecast Period. The “constant growth model”, which applies an expected constant
level of growth to the cash flow forecast in the last year of the Forecast Period and assumes such
growth is achieved in perpetuity, is a common method.
B S R & Co.
7
Project Milestone
Draft Valuation Report
21 February 2012
Page 24 of 30
Valuation
The valuation of equity shares of the Company in accordance with the DCF method is explained in the
following paragraphs. We have used the cost of capital to discount the FCFF and then adjusted for the
debt and contingent liability component in order to arrive at the equity value using the DCF method.
The equity value of the Company arrived at under the DCF method is adjusted for cash and bank
balance (as per Consolidated Historical Balance Sheet).
7.1 Discount Rate and Terminal Growth Rate
7.1.1 Weighted average cost of capital (WACC)
In order to determine the discount rate, we have used the WACC methodology as set out below:
Where:
WACC
=
Ke * ( E/(D + E)) + Kd * (1-T) * ( D/(D + E))
Ke
=
cost of equity
E
=
market value of equity
Kd
=
cost of debt
D
=
market value of debt
T
=
corporate taxation rate
The cost of equity is derived using the Capital Asset Pricing Model (“CAPM”) as follows:
Where:
Ke
=
R(f) + ß * (R(m) – R(f)) + 
R(f)
=
the current return on risk-free assets
R(m)
=
the expected average return of the market
(R(m) – R(f))
=
the average risk premium above the risk-free rate
that a “market” portfolio of assets is earning
ß
=
the beta factor, being the measure of the systematic
risk of a particular asset relative to the risk of a
portfolio of all risky assets

=
Company specific risk
For purposes of our analysis, the forecast cash flows have been computed on a nominal basis.
Therefore, we have used a discount rate based on nominal rates of returns. Each element of the formula
is considered below:
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 25 of 30
Cost of equity:
7.1.1.1
Risk free rate: The nominal risk-free rate of return is derived with reference to 10 year
benchmark Government of India Securities as on 31 July 2011. Based on such yield rate, we
have considered risk free rate of 8.46 per cent per annum as on 31 July 2011 (Source:
Bloomberg, as on 31 July 2011).
7.1.1.2
Market risk premium: The historical market rate of return of the BSE Sensex for 20 year
period as at 31 July 2011 was 14.67 per cent based on one year moving average of Sensex.
The historical return has been considered as the expected average return of the market
(R(m)) over the long term. Based on above an equity risk premium (R(m) – R(f)) is 6.21 per
cent.
7.1.1.3
Beta: Beta is a measure of the risk of the shares of a company. ß is the co-variance between
the return on sample stock and the return on the market (say, Sensex). In other terms, ß
measures the sample stock’s volatility relative to the entire market. In order to determine the
appropriate beta factor for each project, consideration must be given either to the overall
market beta of the Company or betas of comparable quoted companies. Based on the
Annexure 1, we have considered a beta of 0.85.
7.1.2 Discount rate
7.1.2.1
The Weighted Average Cost of Capital (“WACC”) is estimated at approximately 13.6 per
cent.
Calculation of Cost of Capital
Risk Free Rate of Return
Market Rate of Return
Risk Premium
Beta (levered to target D/E ratio)
Alpha
Cost of Equity
Cost of Debt
Tax Rate
After Tax Cost of Debt
Total
Debt to Capital %
Equity to Capital %
Debt to equity
Weighted Average Cost of Capital
Source: B S R analysis
8.46%
14.67%
6.21%
0.85
1%
14.7%
11.0%
32.5%
7.4%
100.0%
15.1%
84.9%
0.18
13.6%
We have considered an alpha of 1 per cent to calculate the cost of equity to account for the
following uncertainty:
 MSMPL incurred losses in FY 2010 and had an EBITDA margin of 17 per cent in FY 2011.
The Management has estimated that MSMPL will maintain an EBITDA margin of
approximately 17 per cent going forward. There is no historical track record available of
such EBITDA margins.
 MSMPL has the right to broadcast IPL matches up to FY 2017. There is an uncertainty on
whether MSMPL will be able to re-acquire the right to broadcast IPL matches after FY 2017
and the price it will have to pay to re-acquire these rights.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 26 of 30
7.1.3 Terminal Value
At the end of the forecast period, a normalized year has been considered and hence the corresponding
cash flows generated by MSMPL are estimated to continue indefinitely.
The most common approach in calculating terminal value is to apply a constant growth model, utilising
the following formula:
FV of terminal value = FCFn / (r-g)
PV of terminal value = FV of terminal value / (1+r)n ( r = discount rate)
In undertaking our analysis of MSMPL we have applied a nominal growth factor of 4 per cent, which
we considered reasonable given the sector in which the company operates, its position therein, and
growth prospects.
7.2 Surplus Assets, Preference Capital and Contingent Liabilities
The Management has confirmed that there are no surplus assets or contingent liabilities that need to be
considered to carry out the Valuation.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 27 of 30
7.3 Valuation of MSMPL
7.3.1 Valuation of MSMPL using DCF method:
INR m illion
FYE 31 March
2012
8 m ts
12,435
Total Revenue
2013
12 m ts
27,656
6%
5,152
19%
1,618
7,541
8,336
203
(27)
2,562
0.83
0.90
2,303
2014
12 m ts
30,551
10%
5,644
18%
1,775
8,622
9,603
205
234
2,450
1.83
0.79
1,938
5.0%
40,850
33,658
28,148
23,796
20,274
6.0%
48,533
39,127
32,203
26,897
22,705
y-o-y growth
EBITDA
EBITDA Margin
Less: Tax on EBIT
Add: Amortisation
Less: Capital expenditure - Films & Cricket
Less: Capital expenditure - Other fixed assets
Less: Increase/(Decrease) in Net w orking capital
Free cash flow s to the firm
Period factor
Discount factor
Present value of cash flow s to the firm
1,585
13%
1,108
1,760
5,387
415
(1,338)
(2,228)
0.33
0.96
(2,135)
INR m illion
Primary value
Terminal value
Enterprise Value
Less: Debt
Add: Cash and cash equivalents
Add: Investments & Surplus assets
Less: Minority Interest for MSM Discovery JV
Equity Value
Im plied Multiples
EV/Revenue
EV/EBITDA
EV/EBIT
2011
1.9x
11.3x
11.6x
7,345
27,117
34,461
13,676
5,231
2
1,083
24,935
CoCo Multiples
EV/Revenue
EV/EBITDA
EV/EBIT
Mean
2.7x
14.5x
23.0x
Median
1.5x
15.1x
19.5x
Equity Sensitivity Analysis - INR m illion
WACC
24,935
11.6%
12.6%
13.6%
14.6%
15.6%
Source: B S R analysis
2.0%
27,368
23,421
20,166
17,438
15,121
Term inal Grow th
3.0%
4.0%
30,822
35,180
26,125
29,456
22,327
24,935
19,193
21,278
16,567
18,261
2015
12 m ts
34,221
12%
6,658
19%
1,991
9,766
10,221
206
341
3,666
2.83
0.70
2,552
2016
12 m ts
38,204
12%
7,485
20%
2,193
11,117
11,478
207
339
4,386
3.83
0.61
2,687
TV
12 m ts
39,733
4.0%
6,929
17%
2,030
11,478
11,478
207
144
4,548
4.33
0.57
2,613
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 28 of 30
8
Conclusion
8.1
We have arrived at the equity value of Multi Screen Media Private Limited using the DCF method as
required for the purpose of complying with FEMA Regulations in connection to the Transaction.
8.2
Based on the Scope and Limitations of our work as mentioned in Section 2, Sources of Information in
Section 3, the valuation methodology in Section 6, the calculations in Section 7 and explanations
therein, the fair value of the equity of MSMPL as at 31 July 2011 per DCF method is INR 24,935
million (approximately).
The value per share is around INR 2,729.
Note: The number of shares as of 31 July 2011 are 9,138,579 equity shares of INR 10 each.
B S R & Co.
Project Milestone
Draft Valuation Report
21 February 2012
Page 29 of 30
Annexure 1: Comparable Companies data
The re-levered Beta of the comparable companies in the education and training industry is 0.85 as indicated
below:
Beta Calculation
S.No.
1
2
3
4
5
6
Company
New Delhi Television Ltd
Sun TV Network Ltd
TV Today Network Ltd
Zee Entertainment Enterprises Ltd
Television Eighteen India Ltd
Zee News
Average
Median
Source: Bloomberg, Company filings
Debt/Equity
42%
0%
17%
0%
78%
18%
26%
18%
Levered
Beta
0.94
0.78
0.90
0.85
1.14
0.71
Tax
Rate
32.45%
32.45%
32.45%
32.45%
32.45%
32.45%
Unlevered
Beta
0.73
0.78
0.81
0.85
0.74
0.63
Target's Debt
Equity
18%
0.18
0.18
0.18
0.18
0.18
Target's Tax
Rate
32.45%
32.45%
32.45%
32.45%
32.45%
32.45%
Re Levered
Beta
0.82
0.87
0.90
0.95
0.83
0.71
0.85
0.85
B S R & Co.
Glossary
BSE
Bombay Stock Exchange
CoCo
Comparable Companies
CoTrans
Comparable Transactions
DCF
Discounted Cash Flow
EBIT
Earnings Before Interest &Tax
EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation
EV
Enterprise Value
FCFF
Free Cash Flow for Firm
FY
Financial Year
INR
Indian National Rupee
mn
million
NAV
Net asset value
Pa
Per annum
PAT
Profit after tax
PV
Present Value
TG
Terminal Growth
TV
Terminal Value
WACC
Weighted Average Cost of Capital
Project Milestone
Draft Valuation Report
21 February 2012
Page 30 of 30