ZEE gains 7% after Punit Goenka resigns as MD to take over reins as CEO

Zee Entertainment Enterprises (ZEE) shares have moved higher by 7 per cent to climb to Rs 123.80 on the BSE in Tuesday’s intra-day trade amid heavy volumes after Punit Goenka resigned as the Managing Director of the company, to be appointed as the CEO of the company.

The move has been initiated so that Goenka can focus entirely on operational responsibilities assigned to him by the board of the company.

ZEE, in an exchange filing, said Punit Goenka, Managing Director - Key Managerial Personnel of the company, decided to relinquish his position as Managing Director of the company to entirely focus on his operational responsibilities assigned to him by the board on November 15, 2024.

The board of directors of the company, in its meeting held on Monday, November 18, 2024, accepted Goenka's resignation as Managing Director of the company, and appointed him as CEO – Key Managerial Personnel of the company.

At 10:28 AM, ZEE was trading 6 per cent higher at Rs 122.95, as compared to the 1.2 per cent rise in the BSE Sensex. The average trading volumes on the counter jumped four-fold with a combined 23.08 million equity shares changing hands on the NSE and BSE.

Meanwhile, the stock price of ZEE had hit an over four-year low of Rs 114.40 on November 13, 2024. The stock is trading at its lowest level since March 2020. Thus far in the calendar year 2024, the market price of ZEE has more-than-halved, or tanked 56 per cent, as compared to the 8 per cent rise in the BSE Sensex.

For Q2 FY25, the TV broadcasting and software production company had reported a mixed operating performance. ZEE’s revenues have continued their declining trend, as it fell 18 per cent year-on-year (YoY) to Rs 2,001 crore in Q2FY25, on softer advertising revenue and lower revenue from other sales and services (Q2 FY24 was boosted by the release of Gadar 2 movie).

Advertising revenue growth for the company remained underwhelming, declining by another 7.9 per cent YoY. Ad revenue for the company has now declined annually in the last eight of the nine quarters. Subscription revenue, meanwhile, saw an uptick of 9.2 per cent YoY.

ZEE's margins surprised positively as the company managed to contain expenses across the board. In Q2 FY25, earnings before interest, taxes, depreciation and amortisation (Ebitda) margin stood at 16 per cent, increasing by nearly 320 bps QoQ on effective cost management aided the profitability. The company’s profit for the quarter jumped 70 per cent YoY to Rs 209 crore.

Despite a strong beat at the operating level, research analysts at Prabhudas Lilladher broadly maintain their estimates as the brokerage firm was already building-in a sharp back ended recovery (Ebitda margin of 17.3 per cent in H2FY25E) led by the cost optimisation drive.

Analyst believes the benefit of the cost rationalisation initiative is partly overshadowed by a weak operating environment as evident from a decline in domestic ad-revenue since Q2 FY23 barring one quarter. While cost frugality is commendable, recovery in the ad-environment is critical for re-rating, the brokerage firm said in its result update.

The company's core broadcasting business, excluding Zee5's losses, continues to trade at a weak valuation of 6.2x one-year forward P/E. Analysts at Elara Capital believe the comeback of ad revenue and consistent execution on profitability in line with guidance will continue to add respite to valuation.

Further, any relief for the promoter group from SEBI’s ongoing investigation case and removal of the overhang of a penalty of $940 million from Disney (ICC sports rights case) would add respite to valuation, the brokerage firm said.

Analysts expects momentum to pick up in the festival season on ad revenue growth in the range of 3-4 per cent YoY in H2 FY25E, which could lead to a 1 per cent YoY growth in FY25E.

Momentum continues in subscription revenue on the back of the NTO 3.0 implementation and Zee5, as the former grew 9 per cent YoY in H1 FY25 to Rs 1,950 crore; analysts expect 6-7 per cent YoY growth in H2FY25E in the segment.

The brokerage firm expects an overall revenue compound annual growth rate (CAGR) of 4.6 per cent during FY24-27E, driven by subscription revenue and improved traction.