CLSA keeps 'Hold' on Zee after fund raise but sees competition ahead

Zee Entertainment shares have been underperformers, experiencing a price drop of over 30 percent in the past year and a year-to-date plunge of more than 45 percent.

CLSA has maintained a 'Hold' on Zee Entertainment with a target price of Rs 150 after the media company got approval of shareholders to raise Rs 2,000 crore through various routes, including issuing equity shares and qualified institutional placements (QIPs).

The special resolution for "issuance of securities for an amount not exceeding Rs 2,000 crore" was passed by 78.83 percent of the total polled votes, Zee Entertainment Enterprises Ltd (ZEEL) informed stock exchanges.

According to analysts at CLSA, despite having a cash reserve of Rs 1,200 crore and low capital expenditure requirements, Zee's decision to pursue a fund-raising plan has raised some questions.

The company has moved past its peak investments in OTT platform Zee5 and has met its working capital requirement, the CLSA note said.

However, the competitive landscape of India's media sector is evolving, with upcoming joint venture between Reliance and Walt Disney poised to create significant industry shifts, CLSA added.

Additionally, Zee's low promoter ownership, at just 4 percent, remains a challenge for the company, the brokerage noted.

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Zee Entertainment shares have been underperformers, experiencing a price drop of over 30 percent in the past year and a year-to-date plunge of more than 45 percent. This decline followed Sony Group's withdrawal from its merger agreement with Zee, citing unmet conditions and demanding a $90 million break-up fee.

Zee has denied breaching the pact, which was initially announced in December 2021. The termination was followed by the departure of ZMCL's CEO Abhay Ojha in May.

Following the failed merger, Zee announced on June 6 its plans to consider fund raising through the issuance of equity shares or via private placement, a qualified institutions placement, preferential issue, or other methods pending necessary approvals.

Subsequently, the media firm has implemented several cost-cutting measures, including a 15 percent workforce reduction and a leadership restructuring, aiming to mitigate business losses and stabilize its operations.

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