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Zee Entertainment shares soar 40%! What’s behind the rally?

Zee Entertainment shares soar 40%! What’s behind the rally?

Last updated: 14 Sep, 2021 | 02:38 pm

Zee Entertainment shares soar 40%! What’s behind the rally?

Zee Entertainment shares ended Tuesday’s session 40% higher to Rs 261.50 due to the buzz around its management and board recast. We take a closer look at what’s propelling the stock, and the outlook going forward. 

Zee Entertainment news: Institutional investors demand change in management

  • Two institutional investors Invesco Developing Markets Fund and OFI Global China Fund LLC, which together hold 17.88% of the shares have called for an Extraordinary General Meeting seeking the removal of Punit Goenka, Manish Chokhani and Ashok Kurien as Directors of the firm
  • The funds had written to Zee Entertainment on 11th September, while Zee Entertainment had made made the filing on the exchanges on the 13th September
  • According to law, shareholders having at least 10% stake can call for an EGM. On receiving a valid request, the company has to hold an EGM within 45 days
  • Apart from seeking the ouster of the three directors, these funds have also requested for the appointment of six new independent directors
  • Punit Goenka, MD and CEO of Zee Entertainment is the son of Essel group founder and chairman Subhash Chandra

Two directors resign

  • Two of the directors Manish Chokhani and Ashok Kurien have resigned from the position of Non-Executive Non-Independent Directors, Zee Entertainment has announced in a separate filing
  • Interestingly, the resignation of Chokhani and Kurien comes after proxy advisory firm IiAS had advised institutional investors to vote against reappointment of Ashok Kurien and Manish Chokhani as Independent Directors on Board of Zee Ltd in the AGM of Sep 14th. 
  • Chokhani cited ‘changed life circumstances and perspectives after Covid’ as the reason for quitting. Kurien said that he has resigned due to ‘pre-occupation.’
  • Today’s AGM should provide clarity on what course of action Zee Entertainment's board and minority promoter intend to take. Further, whether Punit Goenka can hold on to his family's flagship firm remains to be seen. 

Zee Entertainment share price updates: What was weighing on the stock so far?

  • After touching an all-time high of Rs 619 in Feb- 2018, Zee Entertainment shares had corrected over the next two years to its lowest of Rs 114 in Mar-20, after the company ran into debt and corporate governance related issues
  • Essel Group promoter Subhash Chandra had taken loans through Essel Infraprojects, by pledging the shares of Zee Entertainment 
  • Essel Infraprojects was unable to pay the loan, and Subhash Chandra had to sell the pledged shares. This led to a reduction in promoters holding from 35.79% to 3.99%
  • Zee Entertainment also had certain inter-corporate deposits with Dish TV, for which it had to take a write-off of around Rs 500 crore
  • There were concerns that Punit Goenka’s remuneration rose by 46% in FY21, higher than what was approved by shareholders. In that year, Zee had also reportedly not given any hike to its employees
  • There were also concerns that the promoters leveraged their holding in Zee Entertainment to fund personal ventures

Zee Entertainment share outlook

  • Corporate governance was one of the biggest roadblocks for Zee, and with the recent development in the company, that is likely to change. Most analysts expect a re-rating due to this change
  • Kotak Securities see the latest developments as a positive for the stock and is likely to result in an end to governance concerns, improvement in cash generation and a possible change in management.
  • Analysts point out that the stock is trading at very low valuations at around 15 times FY22 earnings. Further, Zee Entertainment is a dividend paying company with zero net debt. In case a more independent management comes in, it should bode well for Zee Entertainment shares.
  • The stock could also continue to be in focus, as ace investor Rakesh Jhunjhunwala has also purchased 50 lakh shares for Rs 220.4 each. The stake totals to about Rs 131 crore at Tuesday's closing price.
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