The ZEE Board of Directors hosted an investor call yesterday to provide updates on recent developments, delve into key topics, and address any concerns following the cancellation of the merger with Sony. Elara’s Karan Taurani decodes the outcome of the call with his outlook on future of Zee in the aftermath of deal-drop with Sony.
The Board undertakes proactive steps to regain shareholder confidence
The Board of Directors at Zee highlighted several key factors contributing to the company’s subpar financial performance post-2020. These factors include 1) the impact of Covid and related disruptions, 2) a slowdown in advertising spends across the industry, and 3) the demands associated with merger-related activities, which constrained management bandwidth for a significant period of more than two years. The board emphasized that these challenges are not indicative of any structural issues within the management team.
Zee is embarking on a robust revival plan, overseen by the board of directors, aimed at propelling growth and enhancing profitability. The positive outcomes in terms of revenue and margins are expected to be seen from H2FY25. The company is strategically planning investments and pursuing inorganic growth avenues while ensuring the preservation of existing portfolios. Zee remains actively engaged with SEBI in ongoing investigations, with no recorded findings thus far. To facilitate a swift understanding of business complexities, division heads of Zee are collaborating with new directors, and regular monthly sessions are being conducted to provide a platform for in-depth discussions on performance, profits, challenges, and deliverables. In a dedicated effort to address concerns, an independent investigation committee has been instituted to thoroughly scrutinize allegations against both the promoters and the company to safeguard shareholders’ interests.
Legal overhang prevents potential of a strategic/financial partnership
Zee is open for considering expressions of interest for potential mergers or investments but will be able to take definitive steps after obtaining clarity from the National Company Law Tribunal (NCLT), case regarding the cancelled merger with Sony. The uncertain resolution timeline for the NCLT case, could take six to nine months or more as per our assessment, which in turn will hinder Zee’s progress in discussions with other strategic partners, hence, valuations may remain not see respite. The ongoing RIL/Disney India merger, ( which may take eight to twelve months for regulatory approvals), intensifies competition, leaving Zee in a status quo over the near term. Downside risks for Z remain in case of a 1) further delayed outcome of the SEBI investigation, 2) protracted legal disputes with creditors, Sony, Disney (dishonouring cricket rights) and 3) potential extensions of NCLT legal cases.
Consistent delivery on profitability key driver for re-rating
Albeit above, we believe Zee is trading at reasonable valuations (17x FY26E PER) now as Z has a robust catalogue of movies, TV shows, web series and music content, which limits potential downside from current levels despite risks (intrinsic value of the asset). 1) Promoters getting a favourable outcome and clean chit from SEBI, 2) onboarding a strategic partner or a financial partners and 3) improvement in revenue growth and better profitability on a consistent basis are a key for driving re-rating of multiples for the stock. We will continue to monitor above, which could emerge as potential triggers.
