ADVERTISEMENT

Most Brokerages Expect Zee Entertainment Stock’s ‘Bumpy Ride’ To Continue

Macquarie expects the bumpy ride for Zee Entertainment’s investors to continue until there is resolution around promoter debt.

Pedestrians walk past the Bombay Stock Exchange (BSE) building in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
Pedestrians walk past the Bombay Stock Exchange (BSE) building in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Most brokerages remain cautious on Zee Entertainment Enterprises Ltd. after the media company said most of its founders’ 22 percent stake has been pledged with financial institutions.

“We expect the bumpy ride for investors to continue until there is resolution around promoter debt,” Macquarie analyst wrote in a note.

Here’s what analysts had to say about the latest development in the Zee debt saga:

Axis Capital

  • The stock has been placed 'Under Review' from earlier 'Buy' rating
  • The change was due to a high promoter pledge under the revised disclosures.
  • It expects the stock to remain volatile in the near-term until further clarity emerges on deleveraging.
  • As most of the promoter holding is pledged, the company won't be required to top-up the pledge on a further stock correction.
  • Current management will continue to run the business even if its stake reduces to single-digit.

CLSA

  • Maintained 'Buy', but cut target to Rs 260 from Rs 450.
  • Deteriorating cash conversion will put Zee's cash flow under immense scrutiny.
  • At a bedrock 8 times price-to-earnings, the stock would have to fall to around Rs 180 apiece.
  • Low coverage for domestic loans adds the risks.

IDFC Securities

  • Maintain Outperform; Cut target price to Rs 416 from Rs 478.
  • The brokerage continues to keep faith in the management, business fundamentals, and intrinsic value.
  • At the current stock price, there isn't much to lose fundamentally.
  • A significant upside is seen if Zee manages to get in a strategic investor.

JPMorgan

  • Maintain 'Neutral', target price Rs 375
  • Uncertainty around further promoter stake reduction would continue in the short-term.
  • Promoters are hopeful of resolving the debt payments by the end of the current quarter.

Macquarie

  • Maintain 'Neutral', target price at Rs 375
  • Promoters are aiming to resolve the situation in the next three months
  • The maturity date of VTB’s loan is beyond a year, lending some comfort on the invocation threat.
  • Share price fall increases the risk of Essel group ceding control.
  • Promoters have received a binding offer for some of the road assets.
  • Expect the bumpy ride for investors to continue till promoter debt resolution

Morgan Stanley

  • Maintain 'Underweight', target price Rs 248 as of Oct. 4 from Rs 370 earlier.
  • Management comforted investors that it remains interested in running operations
  • Promoter debt at the group level stands at Rs 7,000 crore versus Rs 13,400 crore in January.
  • Management plans to conclude ongoing debt resolution in the next three months.