Q2 Results: Zee Entertainment’s Cash Flows Fall, Auditor Flags Related-Party Linked Deposit
Zee Entertainment Enterprises Ltd.’s second-quarter profit fell below analyst estimates as it provided for loans extended to related parties.
The company recognised exceptional loss of Rs 171 crore during the quarter due to, among other things, a delay in payments of inter-corporate deposits assigned to related parties. But that’s not the company’s only worry. Its cash flows have declined and receivables have shot up.
Auditor On Related Parties
A disclosure regarding a fixed deposit also brought related-party transactions in spotlight. Auditor Deloitte Haskins & Sells highlighted that relevant information pertaining to the fixed deposit of Rs 200 crore placed with a bank by the parent wasn’t available. The deposit matured on Sept. 10.
The company said the deposit was unilaterally and prematurely adjusted against dues from related parties.
The auditor, however, did not receive any bank confirmation or communication for their review. Deloitte expressed its inability to comment on recoverability of the fixed deposit, its accounting and impact on results.
Cash Flow Concerns
The company’s operating cash flow turned negative in the second quarter as receivables and inventories rose. Its operating cash flows stood at Rs -246 crore in the first half year ended September 2019 compared with Rs 303 crore a year ago.
WATCH | Key highlights from Zee Entertainment’s Q2 earnings.
Inventories increased Rs 459 crore while receivables rose Rs 1,131 crore in the first half, according to the consolidated cash flow statement.
The company also reported substantial investments in content and films. That increased working capital requirement, affecting cash flow.
Adding to its woes, receivables from its group companies jumped substantially compared to revenue of these firms. Receivables stood at Rs 2,418 crore as of September 2019. Of this, related parties contributed Rs 700 crore.
In a conference call after the second-quarter earnings, the company highlighted a delay in receivables from Dish TV India Ltd. and Siti Networks Ltd. As of March, Dish TV and Siti Networks has to pay Rs 329 crore and Rs 169 crore, respectively.
Zee Entertainment expects these receivables to come down in the fourth quarter. It also expects the cash flow to turn positive by next fiscal as it’s working on liquidation of assets to help release cash.