It is time to revisit my blog published in January 2019 about warning signs in Zee Entertainment. What a year it has been for the media company! Zee's stock price has seen highs of Rs 500 plus and lows of below Rs 200. Currently, Zee is trading at somewhere in between at 300. There are some fresh warning signs. Let’s take a look at them
The strategic stake sale never took place. Yes, the promoters managed a stake sale and the mutual fund crisis was averted, but all of this happened to financial investors. All the names like Sony, Amazon, Comcast or XYZ never materialized. We will never know if they were in the race in the first place or was it just hype. But be that as it may, the fact is that no strategic player found it attractive at Rs 304 per share when at one point it was the blue-eyed boy at Rs 550 plus per share
* The promoters have virtually no skin in the game now. The promoter stake is down to 5 percent now and institutions own nearly 78 percent. Now, this is not to say that institutions owned stocks don’t do well. There are always exceptions like HDFC. But in most of the cases, that is due to regulatory norms. You need a promoter who is fully in the game to run in a tough and competitive market like India, especially in a field where digital has emerged as such a disruptor. In fact, it’s amazing that the pioneer of disruption in India (Zee) has been disrupted to such an extent.
Also Read: Exclusive: Zee Entertainment CEO Punit Goenka says board hired independent agency to examine his compensation and terms of contract
* The letters of outgoing directors have raised serious corporate governance issues. In most cases, the clarification from Zee has been that none of this is new. But the market would want clarity on some of the concerns raised, especially potential default by group companies. To be fair, the management has on record clarified some of these and let’s see how the market responds.
* The stock is placed tantalizingly close to the breakeven price of Rs 304 per share for institutions. The institutions invested in Zee with the clear mandate that the worst is over for the stock and that they needed to be neutral weight in an index stock. However, there is always a threshold for their pain. I take that number as 10 percent. So any time the stock breaches that 10 percent pain point from the price of Rs 304 per share, there could be some panic sale.
Now, of course, I could be wrong and the stock price behaviour of Friday could be a false alarm. Let’s see, either we are in for a nice roller coaster ride.
First Published: IST