ValuePickr Forum

ZEE Entertainment - Large Cap M&E

I found on Twitter.

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Disclosure : Tracking

I think their tie up with airtel is very good for distribution. They should push it in all new age apps CRED, Paytm First etc.

  • Invested

Disclosure : Started Investing

Zee Entertainment Enterprises Ltd.reported a surprise loss in the March quarter due to higher other operating costs and exceptional items.

Net loss stood at Rs 766.7 crore compared with a net profit of Rs 291.7 crore in the quarter ended March 2019, according to its exchange filing. Analysts’ estimates compiled by Bloomberg had pegged profit at Rs 287 crore.

Revenue fell 3.38% year-on-year to Rs 1,951 crore—higher than the Rs 1,868-crore estimate. Operating loss stood at Rs 562.5 crore versus operating profit of Rs 577.7 crore in the year-ago period.

People who are attending the Conference Call, please let us know more about the exceptional expenses.

Q1 Losses Post mortem and Red Flags

Lot of corporate governance red flags at Zee. Their investments in related firms, unknown tech companies has come under radar many times. Plus Essel has defaulted so many times that their shares can be sold by mutual funds any time (e.g: Franklin templeton has 100 crore worth shares to sell against default of 600 crore). We might see Zee in double digits soon

The biggest thing in the con-call is that the management is not on top of the numbers. For so many things they say we will provide the information offline. They say governance and transparency is key but when someone asked what were the investments exactly and why the writedown, they don’t give a straight answer… Did not like the con call at all

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Yes I agree Concall was little bit un-nerving… and this was expected it was not something new…

I think key takeaways would be

  • who will be two new independent directors
  • will we have any more write offs? As per Puneet Goenka… No we won’t…
  • promoter has only 4.9% stake in company, so how long can Puneet Goenka Sir remain on board without anyone questioning any actions and proving himself. Although he said on call - I am here to stay and get the lost goodwill back.
  • FII holding more than 65% , can make Zee a good take over candidate?

All in all… It’s a very interesting situation.

Even after red flags - the contents of Zee make it good to invest. Once all tantrums are resolved this can be a good investment.

Disclosure : Not holding but tracking closely

Inventory = 5347 Cr
Receivable = 2084 Cr
That forms 50% of mkt cap.

Whereas in Sun TV, it is only 1367 Cr, forming 9% of mkt cap.

Is it not Sun TV too good in terms of balance sheet and hence the cash flow which resulted in better RoE and Dividend payout/yield at almost same mkt cap and P/E ? Also, 2021 election is favouring DMK…

Leaving this aside, Zee promoters were able to sell 14.87% stake to various FIIs at 304 / share in Nov-2019 when most of the bad news was already out. Why FIIs paid 19X FY19 EPS ?

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Answer of your both questions lies in Zee’s growth , market share and understanding of media business as a whole…

How can you compare Zee with SunTV

  • How many different channels does SunTV have?
  • How much market share do they have in each category of channels for e.g. music, cinema, entartainment and news…
  • do they even have exposure regionally at india level in different languages, if yes how Many languages?
  • How much has Sun Invested in OTT platform? And can they ever compete Zee in content even if they start investing in OTT
  • Most importantly what are margins at gross level for Sun even in the areas they are present along with Zee?

I am just trying to say idle balance sheet with cash and balances without growth/Capex/investments … It’s safe…no doubt…but you can’t get more than safety in that…

Personal View… Not a recommendation…nor do I am biased because of my investment… But yes please throw some thoughts on above questions… When you want to compare…

You can compare Zee with STAR, Sony , Disney…

This company is like a ‘kati patang’ in this environment when they don’t have any identifiable promoter left. Media biz is highly politicized and you need an anchor to survive and frankly earnings don’t really matter in the short term. Everyone and his uncle knows that the erstwhile promoter group milked it to its bone due to their debt binge. Financial statements matter when you trust the management. The stock is cheap on the basis of potential market size and OTT success. We invest for the future and without any solid anchor it is a boat with a failed engine. I would wait for any white knight to emerge.

Disc: No holding.

Can you please explain by past record, how Sun TV failed to deliver growth. In fact, it has delivered better growth than Zee and even more importantly, dividend yield is 5.2% and payout is 57% (though promoter holds 75%, they have rewarded minority shareholders) whereas Zee is unable to answer shareholders about its balance sheet and dividend is almost NIL at this crucial phase when promoter is out of the business. Everyone knows Zee’s content, market share, OTT,etc., but what investors need is ethical management and accounting principles which are under a cloud.

Last week, you have mentioned, you do not have holdings in Zeae. Now you are stating that you have investments. Have you entered after this 10% fall ? If so, i assume you must have more insight and what about your comparative study among Zee, Star, Sony regarding inventory increase due to media content and corresponding amortization expense in P&L account ?

No I have not yet made any investments and that’s what I said…I am not biased due to investments…

I just went through all the happenings of Zee Entertainment in last 24 months…to see what exactly did go wrong here… And I feel… All big players are eyeing the crown jewel of Essel group Zee Entertainment to get the promoters exit desperately because they know that Punit Goenka is not going to give control easily and so is being dragged…right …left…
.up…down…

I do feel Zee may have lot more volatility going ahead but…I don’t doubt the Zee group business…

I will post my detailed reads/observation here… And yes I have not taken your comments personally at all…

We all here are to learn… Let’s get to more details here…

Cheers

Infact this looks like a solid investment at cheap valuations. But when you see management conduct over last couple of years. It inspires zero confidence. I am more worried that they have not been able to find a strategic investor for largest media asset in such a large market.

One way to look at Zee:

Market cap 13500 cr (approx)
Avg PAT : 1900 cr (past 3 years)

So if you were to buy the entire business today for 13500 cr, you would breakeven in about 7 years. Does not matter what the promoter did or didnt to before today.
This is what a strategic investor is looking at. That makes zee an attractive target.
Its all about waiting out the storm.

Disc: invested

I believe as we speak, the tussle is going on between financial investors and promoters. Investors are pushing for more transparency, more housekeeping and cleaning up of the books. Puneet and his team are naturally reluctant to do so in one lot. But they have started acting on it and outcome was recent announcement that Zee is changing, more disclosures, more transparency and in turn more provisions and more losses disclosed etc. One pointer towards that the 2 delays in Mar 20 conference call (which in first place was declared one day before or on the same day of results). and consequent delay in declaring the results. It seems it was not decided how much "dirt"needs to disclosed in Mar 20 quarter.

Based on my experience with similar promoter based companies changing hands, I guess it will be few more quarters before all old issues are taken care of. So much more pain in store for the financials. Hence I don’t expect the stock to run away unless promoters negotiate their way out of this company while keeping their head held high. If that happens, the stock will jump in hope of a new beginning as the Zee franchise is very strong and lof of strategic investors would be interested in investing.

Disclosure - a tracking position taken in pre-covid days and hence continue to hope for better tomorrow :wink:

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Interesting management interview

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