Zee Entertainment slips 7% amid reports govt to probe company's books

Shares of Zee Entertainment Enterprises (ZEEL) were under pressure for the second straight day on Wednesday. The stock fell 7 per cent to Rs 229 on the BSE amid media report that the corporate affairs ministry has ordered an inspection of the financials of the company. The stock of broadcasting & cable TV operator has fallen 11 per cent in the past two trading days.

According to a Moneycontrol report, the ministry has ordered an inspection of financials of ZEEL following allegations of corporate governance lapses and after some independent directors quit recently.

The BSE said, the exchange has sought clarification from Zee Entertainment Enterprises with reference to news appeared in www.moneycontrol.com/ dated February 5, 2020 quoting "MCA orders inspection of Zee Entertainment's books"

The reply is awaited.

In November 2019, Zee had announced the resignation of independent directors Sunil Sharma and Neharika Vohra, and non-independent director Subodh Kumar.

While Sharma had tendered his resignation after the sale of shares by the promoter group to financial investors on November 21, Kumar and Vohra had indicated that the board had not implemented certain decisions that were taken after a meeting on October 17.

On December 17, credit rating agency, Brickwork Ratings India, had downgraded the company's cumulative redeemable non-convertible preference shares and the issuer rating.

The downgrade in the rating factors the resignation of certain Independent Directors and the Company Secretary, along with dilution of controlling stake of the promoter and promoter group and the stepping down of Subhash Chandra as Chairman of the Board who, however, will remain as Non-Executive Director of the Company.

Meanwhile, in the past two weeks, ZEEL has underperformed the market by falling 23 per cent after reporting disappointing numbers for the quarter ended December 2019 (Q3FY20). In comparison, the S&P BSE Sensex has remained unchanged during the same period.

In Q3FY20, ZEEL’s consolidated revenue declined 6 per cent year-on-year (YoY) to Rs 2,050 crore on account of lower-than-expected ad revenues. During the reporting quarter, revenue momentum was hit by weak consumer advertisement spends in a slowing economy and higher expenses, which dragged margins; the same trend is expected to continue for another quarter, according to analysts at Motilal Oswal Securities.

As ad/subscription revenue outlook looks weak due to Telecom Regulatory Authority of India (TRAI’s) latest order over capping of channel prices, the brokerage firm has lowered its FY20/FY21 revenue estimate by 4 per cent / 8 per cent and EPS estimate by 14 per cent / 18 per cent.