Wealth Destroyer! Media stock Zee Entertainment Enterprises lost 50% of investor wealth just in 2024 YTD | Stock Market News

Shares of Zee Entertainment Enterprises (Zee) have delivered disappointing returns for investors both recently and over the long term. In 2024 alone, the stock has plummeted by 50 percent, marking a significant erosion of investor wealth. Over the past year, the decline stands at 42 percent, illustrating a challenging period for the media firm.

The stock’s poor performance extends beyond recent years, with a substantial 62 percent drop in value over the last five years and a 32 percent decline in the past three years. Currently trading at ₹136.75, Zee’s share price remains over 54 percent below its 52-week high of ₹299.50, achieved in December of the previous year. Conversely, it is only slightly (8 percent) above its 52-week low of ₹126.15, reached last month.

In July, the stock has already fallen by 7 percent, reversing the gains seen over the previous three months. During that period, Zee’s shares rose 1.5 percent in June, 1.8 percent in May, and 6 percent in April. However, the stock faced significant setbacks earlier in the year, with declines of 14 percent in March, 7.3 percent in February, and nearly 37 percent in January.

Overall, the media stock has struggled to deliver consistent performance, with both short-term and long-term trends pointing to a challenging investment environment.

What led to the 50% fall in 2024 YTD?

The persistent decline in Zee Entertainment’s share price can be largely attributed to the collapse of its planned merger with Sony. The deal, which aimed to create a $10 billion media conglomerate, fell apart after Sony Group withdrew from the agreement. The Japanese entertainment giant, which had been working on the merger for two years, filed multiple petitions with India’s National Company Law Tribunal (NCLT) to exit the pact.

Sony issued a termination notice to Zee on January 22, citing Zee’s failure to meet the conditions of the merger agreement and demanding a $90 million break-up fee. Zee, however, strongly refuted any breach of the agreement, which was initially announced in December 2021.

The situation was further compounded by the termination of ZMCL’s CEO, Abhay Ojha, in May. The company did not provide specific reasons for his departure.

Zee also faced significant financial strain due to its failed merger with Sony Group Corporation’s Indian media unit. According to media reports, the company incurred merger-related expenses totaling ₹432 crore over the financial years 2022-23 and 2023-24. Specifically, Zee reported merger costs of ₹176 crore in 2022-23 and ₹256 crore in 2023-24.

The merger agreement was terminated primarily due to disagreements over leadership and unmet closing conditions. Additionally, as part of its efforts to rationalise its portfolio and meet merger conditions, Zee Entertainment recorded impairment charges of ₹331 crore in 2022-23. These charges were related to the closure of several businesses, including Margo Networks.

Fundraise

Zee Entertainment recently launched a Foreign Currency Convertible Bonds (FCCB) issue to raise $239 million. The FCCBs will be issued to Resonance Opportunities Fund, St. John’s Wood Fund Ltd., and Ebisu Global Opportunities under mutually agreed terms. These bonds will feature a 5 percent annual coupon rate, will be unsecured, unlisted, and will have a 10-year maturity period.

The FCCB issue will be conducted in tranches and divided into 10 series, amounting to a total of ₹1,997 crore. This move is part of a broader plan approved by the company’s board on June 6 to raise up to ₹2,000 crore through various methods, including equity shares.

If all FCCBs are converted into equity, it will result in an 11.7 percent post-money dilution. As of the June quarter, the promoter’s stake in Zee Entertainment stands at 3.99 percent. The company aims to use the funds to enhance its strategic flexibility and pursue growth opportunities in the media sector.

Earnings

In the March quarter (Q4FY24), Zee reported a consolidated net profit of ₹13.35 crore, a significant turnaround from the net loss of ₹196.03 crore in the same period of the previous fiscal. Revenue for the quarter grew nearly 3 percent year-on-year to ₹2,169 crore.

This growth was primarily driven by a 10.6 percent year-on-year increase in domestic advertising revenue, reflecting continued recovery in the macro advertising environment and increased spending by FMCG clients. Subscription revenue growth was supported by a rise in linear subscriptions, according to the company’s investor presentation.

Brokerage views

After Zee announced its results, CLSA upgraded its rating to “underperform” from “sell” and raised the target price to ₹175. CLSA found the numbers encouraging, noting that the company is revisiting costs and that the subdued margin of 9.6 percent for the quarter is transitory. They also highlighted Zee’s aspirational target of an 18-20 percent EBITDA margin by FY26.

UBS maintained a “neutral” rating with a target price of ₹190, acknowledging a healthy recovery in a non-seasonal quarter. UBS also emphasised management’s confidence in reaching the 18-20 percent EBITDA margin target by FY26, driven by sustained growth in subscription revenues and Zee5.

Citi, however, gave Zee a “sell” rating and reduced the target price to ₹137. Despite noting the company’s guidance towards year-on-year margin expansion in FY25, Citi’s analyst expressed the need to watch for strategic initiatives.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.