Zee Entertainment extends gain after promoter's stake sale

Shares of Zee Entertainment Enterprises (ZEEL) were up 5 per cent to Rs 363 on Friday, extending its previous day’s 12 per cent rally on the National Stock Exchange (NSE), after the promoters offloaded around 16 per cent stake in the company via open market on Thursday.
In the past three trading days, the stock of ZEEL has rallied 27 per cent, as compared to a 0.25 per cent decline in the Nifty 50 index. A combined 50 million shares changed hands on the counter on the NSE and BSE till 01:20 pm.

On Wednesday, Essel Group said it was planning to sell around 16.5 per cent stake in ZEEL to financial investors, in order to repay loan obligations to certain lenders of the Group for whose benefit such shares are currently encumbered (and who have consented to such share sale by the Group).
Promoter ESSEL Media Ventures sold 69.4 million shares while Cyquator Media Services sold 61.6 million shares and ESSEL Corporate LLP sold 11.8 million shares via bulk deals at an average price of Rs 304 per share, the NSE data shows.
Government of Singapore bought 28.5 million shares, representing 3 per cent stake, while Societe Generale bought 16.7 million shares or 1.73 per cent stake in ZEEL, data shows.
Post transaction, most of the brokerages have upgraded the stock as they believe the deal removes the pledge overhang while also ensuring the continuation of the current management team.
“We see this as two-fold positive for the company. This should enable to resolve a large portion of group’s debt concerns. Trailing 12-month uncertainty of overhang of stock-supply and uncertainty diminishes. The continuity of existing and efficient management viz. Puneet Goenka as MD & CEO, though with reduced stake of around 5 per cent with 1.1 per cent encumbered,” analysts at Dolat Capital said in a company update.
“The transaction removes the overhang on the company that had impacted the stock, which is down around 22 per cent since the time promoters stated their intention to sell a part of their stake despite the run up after the announcement of the stake sale. Operating performance and balance sheet improvement are key for re-rating in the near term,” analysts at Emkay Global Financial Services said in a company update.

Zee Entertainment slips 9% in firm market post Q2 results

Shares of Zee Entertainment Enterprises (ZEEL) slipped 9 per cent to Rs 240 in the intra-day deal on the BSE on Friday after the company reported lower-than-expected consolidated net profit for July-September quarterly (Q2) as it provided for an inter-corporate deposit (ICD) worth Rs 171 crore during the period.
Zee’s profit before tax declined 22 per cent year on year (YoY) to Rs 504 crore for Q2, as the company said the ICD write-off, reported as an exceptional item in its results, was due to related parties delaying payment.

Operational revenue during the quarter grew 7.4 per cent to Rs 2,122 crore on YoY basis. EBITDA (earnings before interest, tax, depreciation and amortisation) margin shrank 150 bps to 32.7 per cent from 34.2 per cent, due to higher production cost. The company’s net profit rose 6.6 per cent YoY to Rs 412 crore in Q2, below a Bloomberg consensus estimate of Rs 474 crore.
“While revenue/PAT growth is expected to be strong at 12/20 per cent over FY19-21, free cash flow (FCF) might come under pressure with Rs 1,410 crore investments in 1HFY20 attributed to content for new channels and digital rights, rise in trade receivables, of which around Rs 700 crore are from Dish TV and Siti Cable (Rs 300 crore overdue) and fixed deposit worth Rs 200 crore stuck with the bank. FCFF (free cash flow to the firm) was expected to turn positive by FY21 but this will now be delayed, intensifying the worry about additional write-offs,” Motilal Oswal Financial Services (MOFSL) said in a results update.
The brokerage firm maintains ‘neutral’ rating on the stock due to the overhang on promoter stake sale. In our view, promoters losing control (a worst-case scenario) of the company would negatively impact operations and profitability of the company, it added.
The brokerage firm Sharekhan has dropped coverage on ZEEL given incremental concerns relating to its balance sheet.
“Given multiple headwinds in the offing, we reckon that the drift in valuation in the last few months is unlikely to reverse soon. Premature and unilateral adjustment made by a bank against related-party dues along with provision of inter-corporate deposit (ICD) is expected to create fear among investors,” Sharekhan said in a client note.

At 12:45 pm, ZEEL erased its partial intra-day loss and was down 3 per cent at Rs 255, as compared to a 0.38 per cent rise in the S&P BSE Sensex. The trading volumes on the counter jumped 1.7 times with a combined 39.2 million equity shares changing hands on the NSE and BSE.

Festive offer: Star to Zee TV, broadcasters cut a-la-carte channel prices

Three leading Indian broadcasters — Walt Disney-run Star TV channels, Zee Entertainment Enterprises, and Viacom 18-run Colors — have slashed prices for popular à la carte channels by 37 per cent to up to 90 per cent for a limited period in the ongoing festive season. They reduced the monthly charges, even as most of them agreed that the decision will likely lead to a loss in subscription revenues.
The move by these broadcasters came close on the heels of the Telecom Regulatory Authority of India (Trai) announcing a review of its earlier tariff order, announced six months ago, which among others capped the prices for la carte channels. The order has drawn criticism from customers, who complained that while it was meant to be “customer-friendly” and give them a choice, in reality, it led to an increase in their DTH bills or have forced them to reduce the number of channels that they subscribed.

Disney, for instance, has slashed prices of 16 channels, including Star Plus, Star Maa, Star Jalsha, and Asianet, by 37 per cent to Rs 12 a month. For its other channels, the broadcaster has cut the prices by 50 per cent or even to a tenth of the current levels. These channels, according to estimates, constitute 50 to 60 per cent of its viewership. Disney has a bouquet of 64 channels.
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Star and Disney India Country Manager Sanjay Gupta said: “We have made deep cuts in our prices and this is primarily meant to get back a lot of customers who were not subscribing because they found the rates very high. By cutting the prices substantially, these channels will become affordable.”
Zee, too, has reduced prices by up to 37 per cent of six channels (of total 60), which Zee TV, Zee Bangla, Zee Marathi, and Zee Telugu. Explaining the move, Atul Das, Zee’s chief revenue officer-affiliate sales, said: “We believe that that this will greatly enhance consumer engagement with our channels across the country.”
Colors confirmed that it has reduced prices of its two channels — Colors Hindi and Colors Hindi — from Rs 19 a month to Rs 12 a month in line with other players. Colors has 42 channels in its bouquet. Explaining the reason for such a decision, a senior executive in a broadcasting company said: “With Trai now announcing it plans to review to the tariff order — and most probably reduce will the tariffs — we thought it was in our interest that we reduce the charges for popular channels to pre-empt any such move and resolve the complaints, which consumers have had on pricing.” The executive admitted that this may lead to a reduction in subscription revenues by 10 per cent or more, and that he does not expect that it will be recovered by consumers subscribing to more channels.
The Indian Broadcasting Foundation has opposed any move by the regulator to review its tariff order, arguing that another intervention would be premature and have disastrous consequences for the entire industry.
Consumers at the lower end have complained that they now have to pay Rs 130 a month (plus GST) as network capacity fee to distribution platforms (cable operators) for even the basic free-to-air channels.

Invesco Oppenheimer buys 11% of Essel group's stake in ZEEL for Rs 4224 cr

Subhash Chandra’s Essel Group, the promoter of Zee Entertainment Enterprises Limited (ZEEL), has sold 11 per cent of it 36 per cent stake to Invesco Oppenheimer Developing Markets Fund for a total consideration value of up to Rs 4,224 crore. The fund already holds 8 per cent stake in the entertainment company. After the additional stake buy, the fund’s shareholding in ZEEL will rise to 19 per cent, while the promoters’ stake will come down to 25 per cent.
The Essel group had in November announced that promoters intended to sell half their stake in ZEEL (which was 42 per cent at the time) to strategic investors, preferably a global tech company. In January this year, Essel group lenders started selling shares in Essel companies like ZEEL and Dish TV to recover the debt accumulated by the company. The parent company had an accumulated debt of Rs 16,000 crore. At the end of the March 2019 quarter, Zee promoters had pledged 66.18 per cent of their shareholding to lenders.

In order to repay the debt, Essel had initiated the process of divesting its key assets, including ZEEL, with an aim to repay all lenders by September 2019. During this divestment process, the group said it received positive responses from multiple partners expressing their interest to buy a stake in ZEEL and other key non-media assets. The company is said to be in talks with Bharti Airtel for the merger of its DTH business, operated as Dish TV, with the telecom giant's digital TV business. The promoters are expected to cash out of the company for Rs 4,500-5,000 crore.
Punit Goenka, managing director and CEO of ZEEL, said: “I’m extremely glad to share that the fund as a financial investor has further reposed its faith in ZEEL. It also gives me immense pleasure to note their strong belief and trust in the intrinsic value of our precious asset. It is the valuable belief and support of our esteemed financial investors that enables us to consistently generate great value, year after year.”
The Invesco Oppenheimer Developing Markets Fund, an investment company registered with the US Securities & Exchange Commission, has a long history of investing in India as a financial investor. The fund has been a financial investor in Zee Entertainment Enterprises Ltd since 2002.