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Zee Entertainment share price dips 4% on Kotak downgrade after recent rally

The stock surged 36 percent in last three months after Essel Group sold a major part of its pledged stake in the company

November 25, 2019 / 04:06 PM IST
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Shares of Zee Entertainment Enterprises declined four percent on November 25 after Kotak Institutional Equities downgraded the stock a notch to add from buy following the recent run up in the stock.

The stock surged 36 percent in last three months after Essel Group sold a major part of its pledged stake in the company. The counter closed at Rs 343.65, down Rs 14.25, or 3.98 percent, on the BSE.

Sale of Essel Group's 16.5 percent stake in ZEE to financial investors at Rs 304 per share has largely eased promoter leverage concerns, a key overhang, said Kotak, which tweaked its estimates and raised its fair value to Rs 385, valuing ZEE at 17 times FY21 estimated price-to-earnings.

After this transaction, promoter stake has dropped to around five percent and pledged shareholding fell to 1.1 percent. The proceeds (about Rs 4,800 crore) from this stake sale would reduce promoter loan-against-share (LAS) to about Rs 2,300-2,500 crore from Rs 7,000-7,200 crore. The promoters intend to monetise other group assets to repay residual loan against shares (LAS) liability.

Kotak said a further re-rating hinges on: 1) Resolution of balance sheet concerns and robust free cash flow (FCF) generation; 2) Reconstitution of board in a manner that inspires investor confidence; and 3) Success of ZEE5.


A quick resolution— unwinding and/or write-off as deemed necessary to rebuild investor confidence would help, it added. Zee management has hinted at board reconstitution.

Kotak expects further deceleration in advertising revenue growth in Q3 FY20 on: 1) Continued macro-led weakness in consumption; 2) Marginal shift in allocation to promotions from advertising by a few FMCG companies in order to push volumes; and () ZEE’s viewership market share has declined from its peak in the second half of FY19 led by some weakness in the ratings of Zee TV, Zee Telugu and FTA channels.

The brokerage cut its FY20 and FY21 advertising revenue growth forecast to three percent (from six percent) and 12 percent (from 14 percent), respectively.

It feels ZEE is on track to deliver strong 25 percent growth in domestic subscription revenues in FY20 as guided by the management.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Nov 25, 2019 04:06 pm

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