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market | IST

Zee Ent new management could spark stock rerating: Elara Securities

Invesco Developing Markets Fund and OFI Global China Fund LLC, two of the largest shareholders of Zee Entertainment had called an extraordinary general meeting (EGM) seeking the removal of Punit Goenka, Manish Chokhani and Ashok Kurien as directors of the company. In an interview with CNBC-TV18, Karan Taurani, senior VP-research analyst, Elara Securities, and Sandeep Parekh, founder, Finsec Law Advisors, shed light on the situation.

Invesco Developing Markets Fund and OFI Global China Fund LLC, two of the largest shareholders of Zee Entertainment had called an extraordinary general meeting (EGM) seeking the removal of Punit Goenka, Manish Chokhani and Ashok Kurien as directors of the company. Manish Chokhani and Ashok Kurien resigned on Monday, from the position of non-executive non-independent directors of the company, ahead of the company’s annual general meeting (AGM). It is noteworthy that ahead of that, Institutional Investors Advisory Services (IIAS) had gone ahead and asked the shareholders to not vote for the reappointment of Ashok Kurien as well as Manish Chokhani. In an interview with CNBC-TV18, Karan Taurani, senior VP-research analyst, Elara Securities, and Sandeep Parekh, founder, Finsec Law Advisors, shed light on the situation.
“Prima facie if you look at the situation and if the new management does come in, we do see a rerating trigger here,” said Taurani.
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The entire overhang was around the corporate governance and some new write-offs which could probably be coming for the company, he added.
“Looking at the peer comparison in terms of growth and valuations, Zee as a company has not done that bad. The performance metrics have deteriorated in the last two and a half to three years because they would always outperform the industry growth rate but now, they are coming almost at par with the industry growth rate. On the valuation multiple front, they are not doing too bad because there are other companies like Sun TV and other broadcasters which are probably trading at a multiple of almost 14-15 times one-year forward P/E and Zee as an entity, despite reporting a growth in-line with industry average, their multiples are almost 9.5-10 times. So that is the area to look at,” he mentioned.
According to Taurani, Zee5 as a platform has done well versus most other peers like SonyLiv and Voot when it comes to content, but they need to compete hard with global giants and larger players like Hotstar and MXPlayers.
“So, some kind of new strategy on digital is a very big key for driving multiple reratings in the medium-term to long-term,” he said.
Parekh said, “I would put this in the corporate governance category rather than a hostile takeover. Hostile takeover is when somebody wants to acquire control, here, these are all passive shareholders who are unhappy with the current state. They are not trying to run the company, they just want competent people, professionals to run the company.”
For the entire discussion, watch the accompanying video.