Zee Needs To Focus On Governance, Attrition, Revenue Post Sony Dispute Settlement, Says Analysts

Zee Entertainment Enterprises Ltd. needs to focus on corporate governance issues, fall in advertising revenues, and attrition in senior management to trigger a major rerating from analysts after having settled the dispute with Sony Pictures Networks India Pvt. Ltd., according to brokerages.

The company has resolved all the merger-related disputes with Culver Max Entertainment Pvt., formerly Sony Pictures Networks India and opted for a non-cash settlement, both companies informed the exchanges on Tuesday. The resolve came after a months-long fiasco over its merger deal, which entails filing for lawsuits in domestic and international courts.

As part of the settlement, both companies will withdraw their cases against each other from their respective courts.

Citi Research said the recent track record for Zee Entertainment Enterprises has been mixed, with a section of the market is concerned about its corporate governance issues.

The brokerage maintains a 'sell' on the stock with the target price of Rs 137 apiece, implying a 8.7% downside from Tuesday's closing price.

The resolution between the two parties of the merger deal ended a "tumultuous" journey of three years, according to Emkay Global Research. It has also alleviated some of the concerns investors had over the subject.

However, other legal risks persist for Zee Entertainment Enterprises with Disney's ongoing proceedings for non-compliance of cricket rights purchase and Puneet Goenka's ongoing SEBI proceedings, the brokerages said.

The entertainment company also witnessed a steady decline in its advertising revenue for the last eight quarters. The quantum of decline reduced in only a few quarters, Emkay Global Research said.

The brokerage observed Zee Entertainment Enterprises is up against a "tough" business environment as it aims to deliver better performance amid the exit of senior personnel in the last couple of months.

The recent settlement calls for stock rerating in case a new buyer comes into the picture. A lack of major investors during a recent fundraise does not inspire confidence either, Emkay Global Research said.

The brokerage has a 'reduce' on the stock and a target price of Rs 150, implying a 0.53% downside from Tuesday's closing price.

• Inability to effectively manage 'Over The Top' video consumption threat.

• Prolonged macro challenges.

• Unfavorable regulations or prolonged volatility post the tariff order implementation may be an issue.

• Elevated competitive dynamics in a period where Zee Entertainment Enterprises is reducing investments could dent growth.

• Improvement in viewership shares or a meaningful uptick in the economic environment could drive better ad growth outperformance.

• Improving trends in working capital and better cash generation overall could provide comfort.

• Improved traction in Zee5.