ET Intelligence Group: After gains of 6.3 per cent over the past two trading sessions, Zee Entertainment Enterprises poses a poser to potential investors: What next?
Investors, of course, must balance Zee’s compelling value proposition, and the uncertainty around the share pledge or outstanding loans at India’s leading listed media entity.
The next six months are vital at Zee. There are two possibilities, and even if one is managed, investors stand to gain. The first is Zee's promoters further reducing their stake. The second is the sale of non-media assets.
After repaying a part of its total debt of Rs 13,500 crore, Zee’s present debt stands at Rs 7,000 crore. Of the total debt of Rs 7,000 crore, Zee has to make an immediate repayment of Rs 5,000 crore in the next six months.
Analysts believe Zee’s promoters might reduce their stake to meet the deadline instead of selling the group's non-media assets and cutting a profitable deal.
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This is because the group’s nonmedia assets largely comprise infrastructure projects (toll road projects) for which there is low appetite in market. As opposed to this, Zee Entertainment, which has 22-23 per cent viewership's share of India's television industry, is a sound asset as its business model is intact.
They believe that even though in either case the company's stock maybe re-rated, further reduction in promoters' stake would result in higher re-rating, given its greater probability.
The other draw-card pertains to business valuations. On a one-year forward basis, the company is trading at a PE of 12.19. This is at a 50 per cent discount to the company's past 15-year average multiple of 24.43. The current reading of P/E is close to two standard deviations below mean, which is an exceptional event. It offered similar valuations only during the global financial crisis.
The rock-bottom valuations mean that investors have very little to lose. So, buy on dips would be the strategy with the Zee stock.
