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Zee Entertainment | Punit Goenka: Move to oust Punit Goenka from Zee was expected: Abneesh Roy

If what the investors have asked for get approved, what will be the new leadership? What will be the constitution of the new board? In terms of the current team, below Punit Goenka, one would need to see continuity. The Zee flagship channel is going through a revamp. They are launching a lot of new content, new marketing campaigns and we would need to see and address that also, says Abneesh Roy, Executive Director (Research) Edelweiss Securities.

What are you making of these developments at Zee?
This was expected. With just a 3.99% stake of promoters, this was just a case of rent rather than a gift. The stock was languishing for long in spite of midcaps and a lot of media stocks doing well. The key to watch is today’s EGM. This is similar to what was seen in Dish TV a few days back. There also, Yes Bank, the largest shareholder of Dish TV had asked for removal of the managing director and the other independent directors. Post that, in the last few days, Dish TV stock has moved up almost 25%-30%.

These stocks are available at a very comfortable and in fact, cheap valuations. There have been concerns at the promoter level. We did see the company addressing a lot of promoters’ concerns in the last one year which was a good development and the stock had rerated partly and had gone to Rs 250-260. The company had addressed a lot of concerns and they were giving out quarterly e-balance sheet numbers and sharing the related party transactions with Dish TV and Siti Cable. They were giving more clarity about investments and the numbers for Zee5 in spite of the fact that Zee5 was one of the only listed entities in the OTT space apart from Balaji.

They had also defocused on Sugar Box, which was clearly seen as a diversification from the core business. If what the investors have asked for get approved, what will be the new leadership? What will be the constitution of the new board? In terms of the current team, below Punit Goenka, one would need to see continuity. The Zee flagship channel is going through a revamp. They are launching a lot of new content, new marketing campaigns and we would need to see and address that also.

On a fundamental aspect, Zee is improving market share quarter on quarter. Our sense is that some improvement is likely in Q2 after the Q1 disappointment.

Whenever a pandemic happens, Zee loses market share because they do not have much content in the comedy and crime thriller space, where some of their competitors have an edge. We would expect Zee as a network to get back around 100 bps market share because the economy is opening up and overall advertising is looking up. Also, the festive season is coming up. A lot of the sectors did not have a proper business case to advertise and those sectors will come back. FMCG is continuing to do well. Other parts of the consumer sector are also doing well.

Zee is a very cheap stock at 10-12 times PE multiple forward. It is a dividend paying company with zero net debt. If all these things go right, we have a new board and more independence, it should do well.

What is the guarantee that the new board or the new management will be able to do a better job than what the current board is not doing?
Zee has been a low cost company and more focussed on sustainable content rather than some of their competitors who use the big dollar content, which is not sustainable. Zee being a listed company, did have that constraint and that is why Star has got around 24% network share non-sport and Zee has got around 18% to 19% sustained market share in Q1. They went slow because of the pandemic. But unlike a bank business, media is a brand and that is why the library is there, the brand is there and the current management knows what is the USP of Zee. They also know that Sony has got a particular size, Star has got a particular size and if I copy that, it might do well.

I do not think that is a big risk. Punit Goenka has done a decent job from a fundamental aspect. We are focussed on the businesses he exited. He had gone into new regional businesses, most of which are doing well. Yes there has been a loss in market share in the flagship channel, but in such a large bouquet of channel, there is always going to be some wins and some losses but I will say what you have highlighted is a small risk. The existing management is doing a decent job.

The most concerns came in terms of either corporate governance in the last two years, then investor relation, insider trading were the bigger concerns. Fundamentally, the company is still doing decently given the constraint of a listed entity, but if the management continues to maintain the USP of the channel rather than becoming a me-too, then it will not fall.

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