Shares of Zee Entertainment Enterprises (ZEE) dipped 6% to Rs 474 per share, their sharpest intra-day fall on the BSE in past two months as growth trends in over-the-top (OTT) content and concerns related to the rise in cost may hit the profitability of the company.
The stock was the top loser in the Nifty 50 index at 12:09 pm, recording its sharpest decline since October 5, 2018.
According to a CNBC TV18
report, Kotak Institutional Equities downgraded Zee to ‘reduce’ and cut target price to Rs 430 from Rs 600.
ZEE had outperformed the market by surging 15% from its recent low of Rs 439, as compared to 3% rise in the S&P BSE Sensex till Monday. Last month, ZEE announced promoter decision to sell upto 50% of their stake in the company to a Strategic partner, which according to the Promoters is to pursue disruptive technological development and transform the business into tech-media company.
Analysts at JP Morgan believe ZEE remains a good play on the Indian media industry. While near-term business momentum appears good, led by advertising outperformance and supported by Phase 3 monetization and new initiatives to scale up presence in movies/ digital/overseas/live events.
“We believe the medium-term growth outlook faces risk from need for sustained high investments to ensure a successful play in the OTT/Digital segment (growing ad revenue shift to digital medium) and growing consolidation amongst telcos (content aggregation; TV distribution etc),” brokerage firm said in November report with ‘neutral’ rating on the stock.
The blurring lines of tech and media and consequent requirement of heavy spending in digital and OTT warrants a need of a strong global partner to ward off the challenges from other global OTT giants. Therefore, while we note that the announcement of promoter stake sale, prima facie, is negative, the possibility of partnering with a global media/tech giant could lend it a competitive advantage, according to analysts at ICICI Securities.