Homebusiness News

    Zee invests Rs 522 crore in Sugarbox: Here are the key highlights from its investor call

    Zee invests Rs 522 crore in Sugarbox: Here are the key highlights from its investor call

    Zee invests Rs 522 crore in Sugarbox: Here are the key highlights from its investor call
    Profile image

    By Nupur Jainkunia   IST (Published)

    Mini

    Zee owns an 80 percent stake in its subsidiary Margo Networks, which offers Internet connectivity under the Brand name “Sugarbox”.

    Shares of Zee Entertainment Enterprises (Zee) extended losses on Wednesday after the company made an announcement of investing Rs 522 crore in its tech subsidiary.
    The company owns an 80 percent stake in its subsidiary Margo Networks, which offers Internet connectivity under the brand name “Sugarbox”. Zee acquired an 80 percent stake in FY2017. All directors, including independent directors, approved this investment. Management indicated that investing in Sugarbox is a part of the digital strategy. It is expected to improve overall Zee5’s reach.
    Zee hosted an investor call to discuss the details related to this investment. Here are the key highlights of the same :
    - Investment of Rs 522 crore in Sugarbox will be gradually done in over 24 months, total CAPEX will be Rs 1,250 crore over a period of ten years
    - The investment will be a mix of debt and equity, of which Rs 300 crore would be put towards CAPEX and balance for open and royalties.
    - Additional investment for the total requirement will be fulfilled via internal accruals
    - Sugarbox is expected to breakeven in 4 years and would start generating operating profits from fifth year onwards
    - Margins will be accretive to Zee from the fifth year
    - Management expects healthy IRR over a period of 10 years
    - Sugarbox has been awarded around 7,700 (rakes) rail tenders, 500 bus tenders, the Hyderabad metro tender, the Chennai metro tender, a tender for Navi Mumbai Municipal buses, and that for 6,000 stations
    - The company aims to have 25 million daily users and 300 million monthly users by mid-2022
    - Zee’s free cash flow guidance of over 50 percent of PAT is already factored in the investment in Sugarbox, but considering the current situation of COVID-19 any change in guidance will be provided during Q4 earnings
    -After this investment, founders with 20 percent stake will be diluted, Founders can up their stake at a later stage
    Sugarbox: Revenue model
    It offers connectivity in bad or no network areas through a local area network. The platform would enable users to stream, download, shop online, pay bills, and book transport without using any cellular data. Sugarbox has only Zee5 as a partner right now, but it is looking to integrate other partners too. Not planning to charge customers for at least three years. The company plans to take share of revenue from the relevant apps accessed using the platform, such as OTTs’ share of advertisement revenue and e-commerce websites’ share of gross revenue. All contracts with railways include a minimum guarantee, but the terms of each contract are different
    Brokerage Views
    Motilal Oswal
    The stock is trading at P/E and EV/EBITDA of 6.2x/3.3x, respectively, on FY22E, which looks attractive, but given the weak ad environment and bloating balance sheet and unrelated investments, the upside may be capped.
    CLSA
    The brokerage considers this investment untimely as COVID-19 disruption is likely to constrain the Zee core content business cash conversion. India TV viewership is at its highest ever but the ad environment is at its worst ever, with subscription collections hit during the lockdown. Despite the ill-timed investment, Zee’s core content business is resilient, the balance sheet has zero debt, and the stock valuation is at a bedrock 7x PE. We retain a 'buy' rating with a target price at Rs 295.
    Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
    arrow down

      Most Read

      Market Movers

      View All
      CompanyPriceChng%Chng