After news of investments firms Invesco seeking removal of Punit Goenka as Director we saw gains of 40 percent on the stock. Most of the brokerage houses have indicated valuation re-rating and since then we are seeing upgrades pouring in for the company. Abneesh Roy, executive vice president of institutional equities at Edelweiss Securities, said, "I would expect Zee's market share to start bouncing Q2 itself. I expect around 100 basis point improvement in Q2 and further improvement in the second half because Zee is taking corrective action.”
Shares of Zee Entertainment, on Tuesday, zoomed 40 percent after news of Invesco Developing Markets Fund and its subsidiary OFI Global China Fund LLC, calling an extraordinary general meeting (EGM) seeking the removal of the current managing director and CEO, Punit Goenka from the board of the company broke out. In frenzied buying, the stock jumped 39.99 percent to close at Rs 261.50 on the BSE. During the day, it zoomed 44.99 percent to its 52-week high of Rs 270.85. The two investment firms, Invesco Developing Markets Fund and its subsidiary OFI Global China Fund LLC, together account for 17.88 percent of the paid-up share capital of Zee Entertainment
. Since then, most of the brokerage houses have indicated valuation rerating for the stock. The 40 percent upmove yesterday, was backed by huge delivery volumes and the percentage of deliverable quantity to traded quantity stood at close to 30 percent.
Abneesh Roy, executive vice president of institutional equities at Edelweiss Securities, said, “We are seeing very good interest coming back in Zee. In the last few quarters, that had got derailed because of the pandemic. Zee's flagship channel, Zee TV had lost market share because it is not strong in crime shows and comedy shows. When the pandemic came, there was an issue in terms of doing fresh content. People like to watch comedy and crime, but Zee has been historically weak in that sphere. So, I would expect Zee's market share to start bouncing in Q2 itself. I expect around 100 basis points (bps) improvement in Q2 and further improvement in the second half, because Zee is taking corrective action.”
Roy further added, “If these concerns of Invesco get addressed, I am sure that there will be further rerating of the company. We have seen marquee investors also coming into the company. So, I would say that yes, multiple positives are coming out for Zee in the coming quarters. Having said that, this is a sector in which there is disruption. Zee will have to invest in the business. Zee5 will need more investing in terms of the app and the content as well. So there will be margin dilution, which is currently there, most of that is already factored in. So we feel that the stock can definitely rerate further. But there will be volatility in the stock in the near-term. How the EGM pans out, what happens at the CEO level, all those things will matter in the near-term.”
On Zee5, Roy said, “If the matrix for Zee5 improves, Zee5 will start getting a SOTP valuation at some stage. Currently, we and a lot of the street give negative value to Zee5. We don't give SOTP as it is a loss-making business. At some stage, it will become neutral and then people will start valuing if the scale-up happens. Also, whether rerating will sustain because of the economy opening up will have to be watched. I think this stock can trade at 20-25 times also, if all these metrics are met.”
“If Covid third wave happens, I think Zee will again suffer on the higher side. As I said, they do have gaps in terms of content in comedy and thriller. So I would expect the stock to be a bit volatile, I think the stock could remain strong in the near term. But from a medium to long-term perspective, we see this as a quasi-consumption play, and Zee5 could be a big value generator,” he further said.
(With inputs from PTI)
For full interview, watch accompanying video.