ZEE’s Q2 net up 7% on higher revenues

Mumbai: Strong operating performance and likely divestments of an education business and a part of the promoters’ stake in Zee Entertainment Enterprises (ZEE) should help the cashstrapped owners of India’s biggest listed media company repay Rs 7,000 crore of outstanding debt, which is due in six months.


In the quarter ended September 30, the company posted a net profit of Rs 412.09 crore, up 6.7 per cent from Rs 386.10 crore in the corresponding quarter of the previous fiscal. Also, net revenues were up 7.7 per cent to Rs 2,190.13 crore, compared with Rs 2,034.79 crore in the year-ago period.


The September-quarter performance reaffirms the fact that ZEE remains the most valued asset in the group. At a time when the broader industry’s advertising revenue declined around 4 per cent, ZEE reported growth of close to 2 per cent.

Analysts also believe that its focus on creating regional content for TV and video streaming platform ZEE5 should help the company remain competitive. Analysts believe that the proposal to monetise KidZee, through the divestment of its education arm Zee Learn, could fetch more than Rs 2,000 crore, and the proceeds could be used to reduce debt.

The promoters’ ability to repay outstanding loans will continue to dictate ZEE’s price movements, with the primary owners’ debt obligations often overshadowing operating performance over the past few months.

The company plans to launch four more channels — three movie channels in Kannada, Tamil and Bhojpuri languages, and a Punjabi entertainment channel.

Separately, the promoters are ready to sell a further 11 per cent stake in ZEE. In a recent interaction, ZEE’s chief executive officer Punit Goenka told ET that negotiations will start afresh with strategic investors wherein the promoters are willing to sell around half of their current 22 per cent shareholding.

This, along with the sale of other non-media assets, should help the primary owners repay the entire outstanding debt.

Goenka told analysts late Thursday in a post-earnings conference call that the promoters have recently been approached by some marquee investors for the Zee Learn stake, adding that they intend to consider those offers.

The promoters own 57.18 per cent stake in Zee Learn, which has a network of pre-nursery and K-12 schools, besides institutes of higher education. There are other education brands as well, such as KidZee (2,000 schools), Mount Litera (K-12 chains of 136 schools) and Mahesh Tutorial.

Recently, the education sector has seen greater interest from investors after the much-publicized acquisition of the Euro Kids, Euro Schools, Kangaroo Kids and Billabong High chains by KKR at an enterprise valuation of ?2,000 crore.

To be sure, the company’s valuation appears rather inexpensive at the moment. The increasing receivables and inventory, though a concern, are expected to come down in the coming quarter, said the promoters in the conference call. At the current market price, considering its FY21 estimated earnings, the ZEE stock is trading at an EV/Ebitda of about 7.7, compared with the five-year average EV/Ebitda of 24.2.