Zee Entertainment: Will it default? Deep dive into financials!

Zee Entertainment: Key Insights

1. Revenues for Oct-Dec 22: Rs 2,111.20 crores ( down marginally YoY)
2. Net Profits for Oct-Dec 22: Rs 24.30 crores (down 92% YoY)
3. Debt (as of Dec 31, 2022): Rs 29.6 crores (up 288% from March 2022)

Zee Entertainment share price has fallen approximately 20% (as on 28th Feb 2023) from the start of the year 2023. This is primarily because of a petition filed by private lender IndusInd Bank in the bankruptcy court over a reported loan default of Rs 83.1 crore by Siti Network, a subsidiary of Zee Entertainment.

Now, in such a tumultuous time, questions arise regarding the financial health of the company. Will the company default on its loans? Does it have the wherewithal to pay off its debts? Are its cash balance and cash flows enough to service its debts? Let’s find out!

Zee Entertainment: Are Financials Strong Enough to Stave off Default Risks?

Net Profit Fell: In the December-2022 quarter, the company reported a net profit of Rs 24.30 crores. This denotes a yearly fall of 92% from the previous year, same quarter. The major reasons for such a fall were:

• Adjustment of provisions from Zee Learn’s insolvency case
• Receivables from Siti Networks
• A one-time bonus as part of the talent retention plan

Debt levels rocketed: The company’s debt balance at the end of the December 22 quarter stood at Rs 29.6 crores, indicating a massive rise of 288% from March 2022. However, against the total revenue of Rs 2,111.20 crores, lease liability/other borrowings of Rs 29.6 crores is less than 1.5% in December 2022 quarter.

Finance Costs jumped: Finance costs witnessed a yearly jump of 344% from the previous year to Rs 13.14 crores. 

Falling Operating Profits: Operating profits at the end of the December 22 quarter stood at Rs 33.80 crores, down 29.5% from the previous year. Weakening ad revenue due to soft performance in Marathi and a seasonal dip in Hindi movies led to a decline in operating profits.

Looking at the financials and rising costs (finance cost), some analysts have raised concerns over the company's financial metrics. However, most analysts remained conformable with debt levels, strong subscription business as well as revenue growth.

Zee Entertainment: Latest News flow

1. Private lender IndusInd Bank recently filed a petition in bankruptcy court against Zee Entertainment after its arm Siti Network failed to repay a loan of Rs 83.1 crores.
2. The petition was admitted by the Mumbai bench of the NCLT and it ordered the initiation of insolvency proceedings against the company.
3. Consequently, the CEO of Zee Entertainment Punit pleaded with the NCLAT for relief against the bankruptcy proceedings. Notably, the NCLAT accepted the plea and stayed the proceedings against the company.  
4. Also, the National Stock Exchange (NSE) banned the shares of Zee Entertainment from trading in the Futures and Options segment.
5. However, in a notification issued on February 27, 2023, the NSE removed the ban.

Zee Entertainment: Credit Rating

Brickwork Ratings: The credit rating agency downgraded the company’s rating to Stable on April 22, 2022. The downgrade was due to the uncertainties related to the company with regard to the inspection carried out by the Ministry of Corporate Affairs in February 2020. 

Zee Entertainment Share Price Movement

Zee Entertainment: Analyst Rating

Emkay Global: The renowned domestic brokerage has a Buy rating on the stock with a price target of Rs 260. The firm cited the strength in the company’s subscription revenue growth as a key growth driver for the company in the near term.

Prabhudas Lilladher: The top domestic brokerage has a Buy rating on the stock with a price target of Rs 277. The firm remains of the opinion that the company’s net profit drop is a one-off and that its strong subscription business will aid its growth in the near future.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.