Time to take a contrarian call on Zee Entertainment?

How Zee Entertainment’s 37% Plunge Played Out

The V-shaped recovery in the Zee Entertainments, NSE -2.22 % stock since last week’s precipitous plunge puts the spotlight on the most precious asset in value investing: Patience. 

For investors in India’s largest listed media company, the need to stay put was never so vitally important than at present. The key is to assess the recent rollercoaster ride in its correct context. The fundamentals that drive the operations at Zee are intact. Zee has a viewership market share of 23 per cent in India and a dominant position in regional channels. The earnings trajectory remains strong, with 15-16 per cent growth in Earnings per Share (EPS) anticipated in the two years ending FY20. 

An attractive aspect of Zee’s operations is the inherent strength of its business. This is one of the key reasons many analysts continue to be bullish on Zee. Also, after increasing its investments in the Over The Top (OTT) platform Zee5, the company has guided that it is likely to sustain 30 per cent operating profit margins. 

Media & Entertainment analyst Rohit Dokania of IDFC NSE 2.33 % Securities in his report on the company notes, “We believe Zee’s fundamentals remain strong and unaffected from group level concerns. We continue to believe that some strategic partner will find Zee a unique asset given its high market share in such a competitive TV broadcast market. 

Moreover, such opportunities come rarely. As of now, we do not think that the group level concerns will have any impact on the day-to-day fun.

Furthermore, among all the Essel Group companies, Zee Entertainment is the most valuable asset from an acquirer’s standpoint. Unlike other Essel Group companies, Zee has the highest revenue, cash flow from operations, the lowest debt in its capital structure, and most importantly, strong brand equity. 

Third, the company is trading at an attractive valuation relative to both global and local peers. According to Bloomberg, currently, Zee is trading at an EV/EBIDTA that is 37 per cent cheaper than the multiples for global media and entertainment companies and about half of what the Indian peers command. 

If this discount widens in the coming months, then the company’s stock would become even more attractive. 

To be sure, volatility would persist in the short term after Essel Group chairman Subhash Chandra said that he is likely to find in the next three months a buyer for half of his stake in Zee. But given Zee’s pivotal role in the overall operations of the Essel Group, investors stand a good chance of stellar rewards for their patience. 

Zee Entertainment Enterprises

Zee Entertainment Enterprises Limited (formerly Zee Telefilms Limited) is an Indian mass media company owned by Essel Group. Headquartered in Mumbai, it has interests in television, print, internet, film, mobile content and allied businesses.

History

The company was launched on 15 December 1991 and was previously known as Zee Telefilms until 2006, when it was renamed and the news and entertainment units were spun off into four smaller divisions. ZEEL currently operates over 34 different television channels, cable company Siti Cable, record label Zee Music Company a production company and other businesses as well. It has expanded operations abroad, with several of its channels available in the UK and US as well as Africa and Asia.

In 2002 ZEEL acquired a majority stake (51%) in ETC Networks. In 2006, they acquired Integrated Subscriber Management Services Limited, and in November 2006, ZEEL acquired an interest (50%) in Taj television TEN Sports. In February 2010 ZEEL acquired an additional stake (95%) in TEN Sports.

As Zee Telefilms, the company formed part of BSE Sense from 2000-2005. The news and regional entertainment channel business were spun off into a separate company in 2006 under the corporate banner Zee News Limited (ZNL).

In May 2011, Star Den entered into a 50/50 joint venture with Zee Turner Limited and Zee Entertainment Enterprises Limited (ZEEL) to distribute and market all channels owned by the company and ZEEL, their respective affiliated channels and other third party channels in India, Nepal and Bhutan.

It also owns a music label, Zee Music Company.

In 2008, Zee Networks launched Zee Motion Pictures and ZEE Limelight (now Zee Studios), for development, production, distribution and marketing of mainstream films in Indian languages including Hindi, Tamil, Telugu, Kannada, Malayalam, Bengali and Marathi. Some of the productions of Zee Studios include Gadar: Ek Prem Katha, Natsamrat, Sairat and Rustom.

In 2015 Zee acquired Sarthak TV, an Odia language GEC.

Zee Entertainment Enterprises launched the Bollywood movie channel Zee One dedicated to the German market on 28 July 2016. A Polish version is scheduled to follow in 2017.

In 2016, Zee launched Zee Mundo, the first ever Spanish-language Bollywood movie channel.

In 2017, ZEE acquired the majority of Reliance Broadcast Network and got the Big Magic, Big Ganga, Big FM, etc. from Anil Ambani's Broadcasting Network. It also acquired 100 percent stake in two media entities,9X Media and INX Music. 

Zee Entertainment Enterprises operates 14 news channels and 65 entertainment channels.

A partially owned subsidiary, Diligent Media Corporation, is a publisher of Indian daily newspapers and news and entertainment websites. DMC is a joint venture between Zee and the Dainik Bhaskar Group.

Recently, Zee Entertainment acquired US patent for a new digital technology, where the platform will offer immersive content, satisfying all five senses.