Zee's fundamentals worsening on weak business, merger risks: BofA

Sebi has barred Zee promoters Subhash Chandra and Punit Goenka from holding office in a listed entity

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26 Aug, 2025 12:21

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The fundamentals of Zee Entertainment Enterprises are worsening due to "weak" business, "risks" to the upcoming merger with Sony Pictures Network India, and the investigation that has been launched by the Securities and Exchange Board of India (SEBI) against its promoters, BofA Securities said in a report released on June 20.

"We expect Zee’s revenue growth to remain slow on back on a slower ad (lower spending/mix shift to digital) and subscription. Zee’s EBITDA margins have come down from 32 percent in FY19 to 14 percent in FY23 led by content/OTT investments," BofA said.

"The continued investigation by SEBI is increasing corporate governance overhang on Zee in our view," the financial services firm added.

Zee Chairman Emeritus Subhash Chandra, and Managing Director and CEO Punit Goenka have been barred by the market regulator from holding any key managerial position in a listed entity, as they are being investigated for allegedly siphoning off funds. The order potentially debars Goenka to be appointed as the CEO of the proposed merged Zee-Sony entity.

Also Read | SAT to hear Zee CEO Punit Goenka's plea against Sebi order on June 26

According to BofA, it was expected that Zee's corporate governance and business momentum would improve post the merger, with Sony's management getting involved. "But post SEBI’s interim order against Zee promoters, this puts risks to the merger with Sony," it said.

Sony's management is "reportedly unhappy" with the recent developments and "may be looking to invoke force majeure and material adverse clause in the shareholder agreement", BofA added. Force majeure or material adverse clause can be used to terminate a business agreement.

'No rating'

BofA said it would not issue a rating to Zee before there is clarity on the SEBI action against the promoters, and whether the proposed merger with Sony sails through.

"We have a No rating on Zee as we await visibility on the merger going through or not," it said, adding that if the Zee promoters are able to get a stay on SEBI order and the merger goes through, the stock "may re-rate on expectations of improving governance and synergies from the merged entity".

But in a scenario where the SEBI order stays, then the risks remain "either of Zee-Sony merger not going through" or if the merger goes through, then Goenka may not be allowed to be CEO of the merged entity, it said. "We would then remain unsure on the outlook of the merged entity."

The shares of Zee, in the trading session on June 20, plunged by 6.45 percent on the BSE to settle at Rs 173.35 apiece.