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Zee provides a unique investment opportunity for the investors as there are no other leading media players listed.
Also the recent share price correction, triggered by promoter woes, and the resultant fall in valuations has made the company a favourite of analysts.
Investors used to consider Zee Entertainment Enterprises as a low risk high reward opportunity because of its strong business model and balance sheet.
Zee always used to report better than industry advertising growth rates and increased subscriptions.
In addition to its strong presence in the Hindi entertainment space, Zee also invests heavily in regional language space and this should make Zee a pan-India player.
Due to increasing market share, Zee was also able to report 16% annualised advertisement revenue growth during the past five years.
However, the decision of the promoters to raise money using Zee shares for their other projects has shattered this belief and dragged this counter to low levels.
With the promoters selling their stake to repay personal debt, a big overhang over the counter has been removed now.
This means the investor focus will now shift to its business fundamentals and balance sheet.
Analysts’ viewsSell 3
Hold 10
Buy 16
The media industry is going through cut-throat competition now and Zee is responding to it with increased investments.
There was pressure on its working capital and its working capital days in first half of 2019-20 was 204 compared to 152 during the first half of 2018-19.
Zee’s continued investment in new regional channels and its over the top (OTT) platform Zee5 is the main reason for this.
Since these investments (for acquiring new movie rights etc.) are needed short term, this pressure on cash flow from operations will continue for some more time.
However, analysts are hopeful that these pressures will be over soon and Zee will be able to return to positive free cash flows during 2020-21.
Recent share price correction, triggered by the promoter woes, and the resultant fall in valuation is another reason attracting analysts to this counter.
Zee also provides unique investment opportunity because other leading players from the media space are unlisted.
However, investors entering this counter now should also know the possible risk involved.
The biggest risk in Zee now is the uncertainty about upcoming management structure, because Subhash Chandra has resigned from the post of chairman, though he will continue to be a non-executive board member.
However, the current CEO Punit Goenka is working efficiently and is well entrenched from 2008, he is also from the promoters’ family.
It means that the investors should keep a close watch on management changes in Zee.
Zee Entertainment compared with ET Media and Sensex.
Stock price and index values normalised to a base of 100.
Source: ETIG and Bloomberg.Selection Methodology: We pick up the stock that has shown maximum increase in “consensus analyst rating” during the last one month.
Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock.
To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it.
You can see similar consensus analyst rating changes during the last one week in ETW 50 table.
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Stock pick of the week: Why Zee is a unique investment opportunity for investors
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