Zee Leisure shares: After ZEE inventory surge, D-Avenue waits to see if CEO Goenka will get the boot

Day after a 40 per cent surge within the shares of Zee Leisure, hypothesis on Dalal Avenue on Wednesday focussed on whether or not MD & CEO Punit Goenka will now be booted out of the corporate.

A lot of Tuesday’s investor enthusiasm constructed up round a doable cleansing up of the enterprise after the corporate’s largest investor, Invesco Oppenheimer, pushed for an ouster of Goenka, the elder son of the corporate’s founder Subhash Chandra Goenka.

Even ace investor Rakesh Jhunjhunwala, by way of his funding agency RARE Enterprises, put in a big guess on the event by buying some 50 lakh shares.

ZEE traders have weathered many a storm over the previous three years, with the newest hostile growth being allegations of contemporary company governance points on the firm.

The corporate’s promoters had earlier admitted to creating strategic errors by investing in unrelated companies and gave up their majority holding in India’s main media home to attempt to scale back a big debt pile that was choking up the enterprise.

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There have been additionally allegations concerning the group’s dealings with an organization that was beneath the radar of investing businesses for critical frauds prior to now, one thing that the Zee group has vociferously denied.

For ZEE minority traders, Tuesday’s large rally got here as a much-needed aid. On the firm’s AGM on Tuesday, a shareholder didn’t conceal his enthusiasm over the wind of change and stated the inventory market’s response to the developments was ‘telling’.

However the query is, will it result in Goenka’s ouster, and if Invesco — being the biggest shareholder — succeeds in its bid, will it finish the inventory’s distress. ZEE shares are nonetheless down 55 per cent from their hay days in 2018!

“With promoter holding at simply 3.99 per cent and the inventory languishing, it’s only a matter of time earlier than the board will get revamped,” analysts Abneesh Roy and Amritasai Sista of Edelweiss wrote in a notice.

New Set off
The most recent turmoil surfaced after the corporate’s largest shareholder sought the elimination of Goenka and two different members on the board of administrators. Disclosures launched to BSE didn’t say why.

The demand got here after proxy advisory agency Institutional Investor Advisory Providers (IIAS) raised company governance issues within the firm, asking shareholders to vote towards reappointing two administrators — Manish Chokhani and Ashok Kurien.

IIAS alleged Kurien and Chokhani, who have been on the nomination and remuneration committee (NRC), have been accountable for a 46 per cent surge in Goenka’s remuneration for FY21, which was larger than what shareholders had accepted on the 2020 AGM.

IIAS stated Kurien was a co-founder and whereas he was later categorised as non-promoter, no regulatory submitting or shareholders’ approval was hunted for that. Each Kurien and Chokhani have since resigned.

“This can be a scenario the place knowledge involves folks very late in life. Given the timing of the resignations, it’s tough to imagine the 2 have been unwilling to increase their phrases. So the timing of Invesco’s discover and the resignations aren’t any coincidence. It’s easy that the 2 didn’t wish to face the ignominy on the EGM,” stated JN Gupta, Founder & MD at proxy advisory agency SES.

All eyes at the moment are on Goenka.

Weakening of Grip
Goenkas’ grip over the media agency has loosened ever since Subhash Chandra’s Essel group in November, 2018 first introduced plans to promote half of its 41.6 per cent stake within the firm. By then, 59 per cent of promoter stake had been pledged; 17 per cent was unencumbered.

Earlier than the corporate’s hunt for a strategic investor yielded outcome, Chandra in an open letter on January 25, 2019 admitted to creating strategic errors in unrelated infrastructure enterprise that led to a spike in debt and share pledging at promoter ranges.

The admission to piling up a Rs 11,000 crore debt was sufficient to spoil the inventory’s prospects. Studies of Essel Group’s alleged dealings with Nityank Infrapower and Multiventures, an organization that was probed by Critical Fraud Investigation Workplace (SFIO), solely added to the woes.

Later that yr, Essel group bought an 8.7 per cent stake to Invesco Oppenheimer. Chandra bought one other 16.5 per cent stake within the agency the identical yr earlier than stepping down because the chairman of the corporate that he had based in 1992 .

This August, Chandra claimed about 91 per cent of the debt with 43 lenders had been repaid. However that got here at the price of his majority stake within the crown jewel.

What lies forward?
Analysts stated the ZEE board now wants to carry an EGM inside 21 days of the receipt of the requisition. Else, traders themselves can name an EGM in 45 days.

“We additionally perceive {that a} easy majority is perhaps sufficient for approval of those resolutions on the EGM. We await extra readability. In the meantime, all eyes are on whether or not Goenka continues as CEO or a management transition occurs,” Edelweiss stated.

Gupta stated retail traders don’t have any say at an EGM and it’s typically establishments that vote. “The chance of success (of the transfer to take away the MD & CEO) is excessive,” he stated.

Gupta, nonetheless, stated Chandra’s household is a bit totally different from others. He stated, whereas he doesn’t have a delicate nook for them, he does admire the truth that the household did every thing it may do, promoting their fortunes to do away with the debt, and make the corporate clear.

“I agree the governance is unhealthy. However the query is, is the corporate additionally being run badly. We as proxy advisors don’t have area experience and we can’t remark. Buyers know higher,” he stated.

Earnings & Goenka
ZEEL reported a seven occasions bounce in June quarter revenue at Rs 213.80 crore in contrast with Rs 30.40 crore a yr in the past. The numbers, although, have been under market expectations, because the second wave of Covid-19 impacted the restoration. Due to Covid, the media agency’s promoting revenues fell to Rs 3,748 crore in FY21 from FY20’s Rs 4,681 crore.

However throughout the identical interval, subscription revenues jumped to Rs 3,243 crore from Rs 2,887 crore in FY20. Total, ZEE’s gross sales fell 4.9 per cent through the Covid-hit FY21, whilst revenue rose 51.2 per cent over FY20’s low of Rs 524 crore. Over the past 5 years, the corporate has managed to pare its debt whereas rising its internet value.


ZEE’s cumulative shareholder payout stood almost 60 per cent of complete revenue over FY15-21. The acknowledged dividend coverage suggests a payout of 25-30 per cent of consolidated earnings or 33 per cent of standalone earnings, whichever is larger.

Edelweiss stated Goenka has been a good MD and has addressed most of investor issues. He was seen as an individual focussed on the core enterprise as he exited loss-making channels comparable to Sports activities, launched profitable TV channels within the regional house and was aggressive in channels of future — OTT.

“The administration did attempt to handle issues comparable to defocussing on Sugarbox, quarterly disclosures about related-party transactions and key stability sheet numbers each quarter comparable to stock, ZEE5 numbers. A latest occasion of insider buying and selling by the IR Head was, although a private difficulty, a damaging,” it stated.

Analyst views
Edelweiss stated the inventory is prone to keep risky given the uncertainty round management and disruption in media, however felt company governance requirements within the agency would enhance in the long term.

“We anticipate sturdy restoration in advert spends business huge with FMCG corporations ramping up advertising and marketing for the forthcoming festive interval. Bettering mobility ought to assist restoration in advert spends throughout sectors, as we transfer into H2FY22,” the brokerage stated.

Kotak Securities stated the flip of occasions is prone to lead to an finish to governance issues, enchancment in money technology and a doable change in administration. Kotak stated the hole between Zee’s market worth and intrinsic worth ought to slender, however the evolving scenario and pegged the honest worth for the inventory at Rs 250.

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