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Brokerages keep a bullish call on ZEE as stock trades at discount

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NEW DELHI: Many foreign brokerages have maintained their buy ratings on Zee Entertainment as the stock now trades at a deep discount to long-term averages following Friday’s 27 per cent plunge.

Nomura India said there is no change in business fundamentals after Friday's correction in the stock price.

A large part of the correction in the stock price was in the futures and options segment, and actual deliveries were much lower, it said.

The stock took a beating on Friday on a report suggesting the company’s alleged link with Nityank lnfrapower, which is under SFIO investigation.

The company has strongly denied the report and on Sunday said it has reached a deal with lenders on not invoking shares of the company if the stock price falls further. Deutsche Bank in a note said promoters' intention to sell up to 50 per cent of their shareholding to a strategic partner, which is expected to be completed in March or April, will be positive for minority shareholders. “Of the three Infra assets, one deal is done (expect funds to come in very shortly - weeks/months).

Solar and road asset deals too should see full consummation to happen in 3-6 months.

EV of the three infra asset sale is upwards of Rs 20,000 crore with equity value of Rs 8,000-9,000 crore.

Sale of the Infra assets would remove a significant part of the pledge, only a small amount would be left to take care of,” the brokerage said. On Monday, the scrip rose 14.29 per cent to hit a high of Rs 365 on the BSE.

The promoter group of the company has said the stake sale process in Zee is at an advanced stage and will be met within the stated timeline. The management on Monday said 96-97 per cent of the lenders have agreed not to invoke shares if the shares fall further.

After the agreement, the company has not pledged further shares as collateral after Friday’s sharp fall, said CEO Punit Goenka said in an investor call. There is standstill on part of lenders for now, Goenka said.

The management said stake sale in Zee will not be hit by recent developments. Following the revocation of company shares on Friday, promoter holding has dropped 60 basis points to 41 per cent, the management said.

Essel Group has pledged 59 per cent of its Zee ownership (effective 25 per cent) to group lenders, CLSA said. “While pledging of Zee shares is not new, its rise from 42 per cent in December 2013 to 59 per cent in December 2018 and Zee’s stock price fall have exacerbated risk of pledges being invoked,” CLSA said.

That said, the brokerage has retained its buy call on the stock as it sees valuations compelling at 16 times FY20 PE, a 45 per cent discount to 10-year average PE. Deutsche Bank values Zee at 28 times March 2020 earnings, a 15 per cent discount to its five-year average trading multiple and has a target price of Rs 575 on the stock. CLSA said Zee’s valuations look compelling after the sharp fall, adding that it sees 19 per cent earnings CAGR over 2019-21.




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