Shares of Zee Entertainment were locked within the 15 per cent upper circuit at Rs 215 on the BSE in Tuesday’s session after Invesco Developing Markets Fund and OFI Global China Fund Llc, which own a combined 17.9 per cent stake within the company, involved an extra-ordinary shareholders’ meet to get rid of Punit Goenka (promoter group) as director along side removal of two other directors Manish Chokhani and Ashok Kurien, who resigned yesterday. they need also sought appointment of six independent directors.
The stock trades within the futures & option (F&O) segment, which has no circuit limits. The stock of the broadcasting & cable TV operator has gained 29 per cent from its 52-week low of Rs 166.80 touched on August 23, 2021. Among other ZEE group stocks, Zee Learn surged 17 per cent to Rs 15.17, while Zee Media Corporation was locked at the 5 per cent upper circuit at Rs 10.44 on the BSE.
“Invesco has sought removal of Punit Goenka, currently MD of the corporate , from the board and two independent directors. this is often a step within the right direction. Invesco wants knowledgeable board at the helm which will steer the corporate within the right direction. There are issues with the leadership within the past – Punit Goenka and Subhash Chandra – that the investors and markets objected to. With a miniscule holding within the entities, Goenka’s are calling the shots. The market has already taken this development positively,” said A K Prabhakar, head of research at IDBI Capital.
In a late evening statement to the stock exchanges, Zee Entertainment said the funds sought appointment of six of its own nominees on the board of Zee. The promoters, Subhash Chandra family owns only 4 percent of the corporate and had to sell their stake to pay off the debt worth Rs 13,000 crore taken by the promoter entities of ZEEL after defaulting.
Jaykumar Doshi, an analyst tracking the corporate at Kotak Institutional Equities expects the Zee Board to call a unprecedented general meeting (EGM) within three weeks, failing which investors may themselves call an EGM within three months. He believes there are often a change within the composition of Board, followed by a change in management. Alternatively, there are often a change in Board but the management may continuity or continuity of management with a replacement set of investors, where there’ll be a shareholder churn and a replacement set of investors / shareholders back Punit Goenka as MD & CEO.
“We note that a reconstitution of the Board as proposed by Invesco needs a majority (51 per cent votes out of the entire votes) to be passed at the EGM. The promoter family owns 4 per cent of the corporate ,” Doshi said.
Click here to see Zee’s board composition
Meanwhile, during a separate exchange filing, Zee Entertainment announced that two non-executive non-independent directors, Ashok Kurien and Manish Chokhani on Monday resigned from the board of the corporate . Ashok Kurien resigned thanks to his pre-occupation, while, Manish Chokhani resigned thanks to changed life circumstances and perspective post COVID, the corporate said. The Annual General Meeting (AGM) of the Zee Entertainment are going to be held today, September 14, 2021, at 4.30 pm through video conferencing/ other audio visual means.
“While we await the particular outcome of the meet, with promoters group holding only around 4 per cent stake, it’s likely that this resolution will undergo . This move is probably going to get rid of promoter led overhang on the stock, due to past instances of inefficient allocation of capital, related party transaction, etc”, ICICI Securities said during a note.
Zee’s valuations, consistent with analysts, are constrained by governance concerns and structural risks. The market, Doshi of Kotak said, has ascribed negative value to ZEE thanks to a scarcity of confidence within the management.
“Irrespective of how this plays out, we expect a re-rating. We raise our FV to Rs 250 (Rs200) valuing it at 15X Sep-23E PE and 12X core business earnings (excl. ZEE5 losses). Upgrade Zee Entertainment to shop for from REDUCE,” he said.
Some concerns
While the move is positive within the medium-term, analysts say there are short-term challenges for the corporate – both on the market share front and investments within the digital business.
Karan Taurani of Elara Capital, as an example , highlights the loss of share within the regional genre on the rear of competitive intensity and poor performance within the Hindi General Entertainment Channel space. Further, while its digital business Zee5 has reported a far better performance as compared to most other peers, there’s a drag of investing into large scale content which may be a key to drive eyeballs to the digital medium, he adds.
