Media Stocks Archives

Concerns Raised by IiAS

On September 10, proxy advisory firm Institutional Investor Advisory Services (IiAS) raised fresh concerns at ZEEL. They asked the media company’s shareholders not to vote for the reappointment of two independent directors on its board— Manish Chokhani and Ashok Kurien. They were both members of the company’s audit and remuneration committees. Chokhani and Kurien had resigned from their respective posts ahead of ZEEL’s Annual General Meeting (AGM) on September 14.

In its report, IiAS pointed out that ZEEL’s Nomination and Remuneration Committee (NRC) had approved a 46% increase in CEO Punit Goenka’s pay for the financial year 2020-21, during a time when employees did not receive raises. Moreover, the CEO’s revised pay was much higher than what shareholders had approved back in the AGM of 2020. The advisory firm also warned shareholders against the adoption of ZEEL’s financial statements, citing serious corporate governance issues.

The problems did not stop there. Ashok Kurien is classified as one of ZEEL’s promoters. However, IiAS alleged that the company had reclassified him as a non-promoter without mandatory regulatory filings or shareholder approval. Further, both Chokhani and Kurien failed to address and deal with crucial governance concerns that led to the resignation of several independent directors in the past.

Interestingly, IiAS had raised concerns over Goenka’s pay revision last year as well. It had asked shareholders to vote against the CEO’s reappointment at ZEEL’s 2020 AGM, citing weak oversight and control, loan & investment write-offs, sketchy related party transactions, and pay revision. Thus, a lot of red flags have been raised with respect to the company’s Board of Directors and management.

What’s Next for ZEEL?

Invesco Developing Markets Fund and OFI Global China Fund, which together hold a 17.88% stake in ZEEL, have now called for an Extraordinary General Meeting (EGM) of shareholders to pass important resolutions. This includes the removal of CEO Punit Goenka and the appointment of six new independent directors. As per reports, the Board of Directors of Zee Entertainment Enterprises may call an EGM within three weeks. If the board fails to call for a meeting, investors or shareholders may call an EGM themselves within three months.

Possible Future Scenarios

Market analysts have narrowed down three possible scenarios:

There could be a change in ZEEL’s board, followed by a change in management. This scenario assumes the appointment of a new Chief Executive Officer (CEO) by a new board. There is also a possibility that the new board would receive interest from strategic investors to acquire a majority stake and management control in ZEEL.

There could be a change in the media company’s board, but with continuity in its management. Punit Goenka would continue as the MD and CEO. However, they would seek better cash generation and tighter control on capital allocation.

There would be continuity of management with a new set of investors. This case assumes that existing shareholders would exit ZEEL, and a new set of investors will emerge by backing Punit Goenka as MD & CEO.

Conclusion

ZEEL is one of India’s largest media and entertainment companies, with nearly 46 channels broadcasting in 11 languages. As per reports, the change in management is unlikely to affect the company’s brand and market position. Moreover, the appointment of a new professional board and leadership team can be considered a positive move. This may have been a trigger for the stock’s breakout/rally on Tuesday.

Over the past few years, ZEEL has reinvented itself by reducing its debt and improving financial performance. The company’s OTT platform, ZEE5, is the largest domestic non-sports platform with ~8 crore monthly average users. While ZEEL has started seeing an improvement in its business prospects, the move by major shareholders was backed by a narrative that highlights corporate governance issues. These issues have time and again damaged the company’s reputation.

The staggering 40% rally of ZEEL’s shares was fuelled by bulk deals from ace investor Rakesh Jhujhunwala’s Rare Enterprises and BofA Securities Europe SA. On Sept 14, Rare Enterprises bought 50 lakh shares (0.52% stake) of ZEEL at Rs 220.44 per share through bulk deal transactions on NSE. Meanwhile, BofA Securities purchased 48.65 lakh shares (0.51% stake) at an average price of Rs 236.2 per share.

If you wish to learn more about ZEEL, you can read our in-depth company analysis published in June. What are your views on the entire ZEEL saga? Are you invested in the company? Let us know in the comments section of the marketfeed app.

If you have ever watched television, even for a few days, you must have come across Zee channels. It is one of those companies that we can all associate very well, as we have used its services through some medium. In this article, we discover more about Zee and how fundamentally strong the company is.

Company Profile – Zee Entertainment

Zee Entertainment is one of the largest global content providing companies. It was started in the year 1982 by Subash Chandra who is also known as the Media Baron of India. It operates in multiple businesses like Broadcasting (both domestic & international), OTT digital platforms, Movies & Music and Live entertainment. They boast of having 100+ channels under their name and have 1.3 billion viewers, which is a staggering number.

When you have this high viewership, it is obvious that you are not present in only one or two languages. Zee provides their services in more than 10 languages, which is very important considering the diverse country we live in. Slowly and steadily, their new regional channels have established dominant positions in their respective markets. Their viewership is not only restricted to India but is spread to more than 170 countries with 8 foreign languages.

ZEE5 is the OTT platform under their brand which has been expanding its reach. It is relatively a very young OTT platform, especially when you compare it to the giants like Netflix or Prime. It was launched in February 2018 but has been taking a place in the audience’s heart due to its eye-catching regional content. In FY21, more than 75 original shows and movies were released on ZEE5. The reunion episode of the popular TV show FRIENDS was premiered in India on ZEE5.

According to Manish Kalra, the chief business officer of ZEE5 India, their OTT platform gets 65.9 million monthly active users and 5.4 million daily active users. Not only this but Zee has a huge presence as a music channel on Youtube. Zee Music added more than 4 million subscribers on Youtube which have taken their total subscribers tally to 72.8 million, making it the second most subscribed Indian music channel on YouTube.

A look at Financials

The company admits that its financials are suppressed due to the negative impacts of Covid-19. Zee reported operating revenue of Rs 7,729 crore which is 5% less than what they reported in FY20. However, due to sensible management, the company was able to reduce its expense by 8.6% to Rs 5,939 crore in FY21 as compared to Rs 6,495 crore in FY20. Overall, the EBITDA of the company increased by more than 15% to Rs 1,577.57 crore on an annual basis.

Comparing the performance of Q4 FY21 to Q4 FY20, Zee declared an increase in advertising revenue by 8% from Rs 1,038 crore to Rs 1,123 crore. However, the impact of the Covid-19 on the first two quarters proved to be too heavy. The advertising revenue in FY21 decreased to Rs 3,748 crore from Rs 4,681 crore reported in FY20. This fall of almost 20% is of high significance keeping in mind that India is yet to pass through the grueling second wave.

To Zee’s benefit, they were able to reduce the Programming cost by 19.2% during the fourth quarter of this financial year. The fixed assets under the company shrunk on an annual basis by 9.3%. However, an increase in the cash, loans & other investments category helped the company see a marginal rise of 3% in the total assets for this year.

The impact of the pandemic can also be seen on the company’s EPS (Earning per Share) which has fallen below Rs 9 for the first time since 2016. At the same time, they have tried to make their investors happy by paying a dividend of Rs 2.50 per share. With this, their dividend payout ratio has increased to 30% for FY21, the highest in a decade.

Without a doubt, the financials of the company have taken a huge hit, but what we can infer is the company is firmly looking to bolster itself. Their financial performance is increasing which can be a great sign for the company. We cannot ignore the effects of the pandemic but Zee has tried to fight this battle very well till now.

The fate determiner of NIFTY Media

The NIFTY Media index consists of media & entertainment stocks. Without a doubt, this is one sector that is intensely battered due to this pandemic. Zee Entertainment has the highest weightage in NIFTY Media. In fact, its weight is as high as 27.16%, which means almost one-third of the whole index. It is followed by PVR, Sun TV Network, and TV18 Broadcast with 16.44%, 15.97%, and 12.51% respectively. This tells that for this index to go up, ZEE needs to show some upward movement as well.

FIIs have been bullish by increasing their stake in the stock from 44% to 65% in the last two years. Many analysts believe that their single-digit growth in the advertisement could even turn into double-digit growth if the impact of the second wave is not too hard on them.

They still have the highest Market share of 36% in the Indian Television Market. The rise of ZEE5 into prominence has shown that the company is not only dependent on its Television advertisements. They are aware of the competition digital platforms pose in front of them. Thus, backing ZEE5 has been a very sensible step for the company.

Online streaming is for sure the right way to go. With more India specific shows and originals, Zee is competing fiercely with Disney+Hotstar. This will be a tough game to win, but there can be more than 1 winner.

It is one of the few large-caps which have not crossed its pre-Covid highs. There is still potential in the stock with the interesting valuation and Price to Book ratio of just over 2. Currently trading at a good resistance zone and can be watched by short-term players as well! Long term investors need to be concerned about the confusions at the management level.

What are your views on ZEE Entertainment? Do you believe its dominance in the entertainment sector can help it achieve success? Do let us know your opinions in the comments section by using the marketfeed app!