Zee Entertainment slips 9% in firm market post Q2 results

Shares of Zee Entertainment Enterprises (ZEEL) slipped 9 per cent to Rs 240 in the intra-day deal on the BSE on Friday after the company reported lower-than-expected consolidated net profit for July-September quarterly (Q2) as it provided for an inter-corporate deposit (ICD) worth Rs 171 crore during the period.

Zee’s profit before tax declined 22 per cent year on year (YoY) to Rs 504 crore for Q2, as the company said the ICD write-off, reported as an exceptional item in its results, was due to related parties delaying payment.

Operational revenue during the quarter grew 7.4 per cent to Rs 2,122 crore on YoY basis. EBITDA (earnings before interest, tax, depreciation and amortisation) margin shrank 150 bps to 32.7 per cent from 34.2 per cent, due to higher production cost. The company’s net profit rose 6.6 per cent YoY to Rs 412 crore in Q2, below a Bloomberg consensus estimate of Rs 474 crore.

“While revenue/PAT growth is expected to be strong at 12/20 per cent over FY19-21, free cash flow (FCF) might come under pressure with Rs 1,410 crore investments in 1HFY20 attributed to content for new channels and digital rights, rise in trade receivables, of which around Rs 700 crore are from Dish TV and Siti Cable (Rs 300 crore overdue) and fixed deposit worth Rs 200 crore stuck with the bank. FCFF (free cash flow to the firm) was expected to turn positive by FY21 but this will now be delayed, intensifying the worry about additional write-offs,” Motilal Oswal Financial Services (MOFSL) said in a results update.

The brokerage firm maintains ‘neutral’ rating on the stock due to the overhang on promoter stake sale. In our view, promoters losing control (a worst-case scenario) of the company would negatively impact operations and profitability of the company, it added.

The brokerage firm Sharekhan has dropped coverage on ZEEL given incremental concerns relating to its balance sheet.

“Given multiple headwinds in the offing, we reckon that the drift in valuation in the last few months is unlikely to reverse soon. Premature and unilateral adjustment made by a bank against related-party dues along with provision of inter-corporate deposit (ICD) is expected to create fear among investors,” Sharekhan said in a client note.

At 12:45 pm, ZEEL erased its partial intra-day loss and was down 3 per cent at Rs 255, as compared to a 0.38 per cent rise in the S&P BSE Sensex. The trading volumes on the counter jumped 1.7 times with a combined 39.2 million equity shares changing hands on the NSE and BSE.


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