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Pledged share resolution key trigger for Zee stock

Some of the brokerages have cut their target price on Zee after second quarter results.

ET Bureau|
Updated: Oct 19, 2019, 06.26 PM IST
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A pledge
Promoters losing control of the company would be a worst-case scenario.
Brokerages see resolution of promoter pledge issues as the key trigger for Zee Entertainment Enterprises going ahead. Some of the brokerages have cut their target price on the stock after the second quarter result. Analysts were also concerned with continued spike in inventories and receivables leading to negative operating cash flow.

Zee Entertainment on Thursday posted a 6.9% rise in consolidated profit for the September quarter from a year ago at ₹413.23 crore. Consolidated revenue jumped 7.4% to ₹2,122 crore. The stock fell 5.5% to end at ₹250 on Friday.

“Until the debt issue is fully resolved and clarity emerges on future control and ownership, we believe the stock will remain volatile,” said Morgan Stanley, maintaining an ‘underweight’ rating with a target price of ₹248.

Bank of America Merrill Lynch has retained a ‘neutral’ rating and lowered target price to ₹360 from ₹445. Credit Suisse has also retained a ‘neutral’ rating and cut target price to ₹230 from ₹400. Macquarie has cut target price to ₹268 from ₹375 while retaining a ‘neutral’ rating.

“Zee reported a decent quarter on the operational front, with domestic subscription revenues growing over 25% and market share gain in advertising revenue as well. Nevertheless, Zee’s balance sheet and cash flow generation concerns are likely to persist,” said Credit Suisse.
Table brokers

Kotak Institutional Equities has cut earnings estimates for Zee by 4-6% and lowered the fair value to ₹340 from ₹365. The stock faces a fair set of challenges considering promoter pledge issues and balance-sheet deterioration but the business is fundamentally in good shape and attractively valued.

Promoters losing control of the company would be a worst-case scenario and could negatively impact operations as well as profitability, said Motilal Oswal.

Edelweiss also believes that resolution of promoters’ pledged shares remains a key trigger for the stock even though the valuation is attractive now. The brokerage said advertising growth in the near term is likely to be subdued.

However, some brokerages have raised target price on the stock. CLSA has increased its target price on Zee to ₹320 from ₹290 as the stock is trading at a 60% discount to its historic valuation.
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