MUMBAI: There’s a sense of relief at Zee Entertainment Enterprises Ltd (Zeel). Chairman Subhash Chandra, and managing director & CEO Punit Goenka said they would go the whole hog to repay their obligations. Even if it meant dropping the promoter holding in the group to never-before-imagined levels. On the morning of 20 November, Chandra, Goenka and their team of hardworking financial men and number crunchers did exactly that. Their offer putting on sale 16.5 per cent of the Essel group’s pledged holding in Zeel, was quickly mopped up by existing and long term investors in Zeel at a price of Rs 304 per share.

While news items pegged  the the sale proceeds Rs 4,343.18 crore, those in the know believe the figure is higher at Rs 4,560 crore. The money raised would help the Essel group pay back a majority of its debt. Following this, the promoter group still owes Rs 2,400 crore to its debtors.

Two brokerage and investment advisory firms –  SBI Cap Securities and Edelweiss – expressed their confidence and continue to be bullish on the Zeel stock, in research reports sent out to investor clients. They have revised their target price estimate to Rs 400 and Rs 443 respectively. The Zeel share was trading at around Rs 340-350 level at the last closing.

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The SBI Cap Securities report says:  “We believe Zee remains well poised to continue with its market share gains. We expect the ad revenue growth to remain tepid in FY20 estimate, but pick up in FY21 estimate  (+13  per cent YoY), and subscription revenues to maintain their strong growth trajectory in FY20e (+27 per cent  YoY) and FY21e (+14 per cent YoY). We raise our (discounted cash flow) DCF based TP (target price)  to Rs 400 (from Rs 333 as we roll forward to FY21 estimates  and build for marginal improvement in working capital with better focus and execution.”

“While FY20 suffered a slump in advertising, FY21 is likely to be better owing to the anticipated GDP revival and benefits from corporate tax cut. Given that a significant portion of the pledging has been now resolved, we are raising the target price earning multiple to 20x (from 18x), which yields a revised target price of Rs 443 (INR399 earlier). The stock is trading at 15x/13.5x on FY20/21E earning per share,” the Edelweiss report expounded.  

Both did not give much weightage to the concerns around the promoter’s holding in ZEEL due to the sharp fall in shareholding. After this deal, the Essel group promoters will hold just 5 per cent stake in the company as against 42 per cent in December 2018 with Punit Goenka continuing to act in his current role as MD and CEO at ZEEL.

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Earlier, 96 per cent of the promoters’ stake was pledged in Zeel and the group had Rs 7000 crore worth of shares pledged. The brokerage firm Edelwieiss said the stake sale would remove the overhang related to promoter pledge—down from 96 per cent to 20 per cent (1.1 per cent of company stake).

Analysts at Edelweiss further added:  “Despite multiple setbacks over the last 12 months such as group-level issues, new regulatory framework (NTO), liquidity crunch, and ad slowdown, ZEE sustained a strong business performance. In face of a sluggish advertising environment, the business managed to deliver better advertising growth than peers such as SunTV Network. We expect the advertising revenue growth to pick up in FY21 on the back of the anticipated GDP revival, increased product launches and strong market share position attained by ZEE’s channels portfolio.”

SBI CAP Securities’ report says:  “We acknowledge that the existing promoter group has established a robust template of profitability and market share gains by establishing Zee as one of the most valuable franchises in the Indian media market. The management’s focus is expected to get clearer from hereon and reflect in better on the ground execution, in our view.”

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According to SBICAP Securities, divestments in other media or infra assets would gain more importance now in resolving promoters’ remaining debt issues. It has a deadline of April 2020 by which it has to clear its reaminder Rs 2,400 crore in debt.

In November last year, Zeel had revealed the decision of its promoters to sell up to 50 per cent of their equity in the company to a strategic partner.

Earlier in August, ZEEL reached an agreement with US-based Invesco-Oppenheimer Developing Markets Fund for 11 per cent (around Rs 400 per share) of the promoter stake for Rs 4,224 crore. At that time, ZEEL MD and CEO Punit Goenka did not rule out selling more stake in the company.

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