Sameer Kalra - Equity Research Analyst & Founder of Target Investing, who has sell call on the stock, said there are two factors effecting the company in short term which will keep the downside risk high.
Zee Entertainment Enterprises shares plunged 33 percent intraday to hit the 44-month low of Rs 288.95 on Friday after a media report said Essel Group's name may figure in a probe linked to demonetisation-led deposits of Rs 3,000 crore.
The stock closed at Rs 319.35 - the lowest since May 2015, down Rs 114.75, or 26.43 percent on the BSE.
The Serious Fraud Investigation Office (SFIO) is currently probing a company called Nityank Infrapower (formerly Dreamline Manpower), for deposits of over Rs 3,000 crore made just after demonetisation (November – December 2016) when the Modi government barred use of Rs 500 and Rs 1,000 notes, The Wire said.
An examination of publicly-available documents showed that Nityank Infrapower and a group of shell firms carried out financial transactions that involved a few firms associated with Subhash Chandra’s Essel Group between 2015 and 2017, the report said.
The company, however, told investors in a conference call “it has nothing to do with the news reported by the Wire” and that it has Initiated legal action against The Wire Media Group.
Essel Propack told CNBC-TV18 that Zee and its promoter are not directly or indirectly related to the news reports and that the company has already disclosed financial results & investors notes.
The steep correction was not limited to Zee Entertainment only. Other Essel Group stocks - Essel Propack (down 16 percent), Zee Media Corporation (9 percent) and Dish TV (33 percent) were also caught in selling pressure.
There were also multiple block deals in Zee Entertainment, after the stock broke its crucial Rs 400 level, possibly because of the margin call triggered. There could also have been sale of some pledged shares, market analysts said.
The promoter Group held 41.6 percent stake in Zee as of December 2018, of which 59.37 percent was pledged. Most of the shares were pledged at a price of over Rs 500, so it is possible the party holding the pledged shares sold some.
"As 59 percent of promoter stake is pledged, the price fall during the day might have triggered some level of margin call money," Sameer Kalra - Equity Research Analyst & Founder of Target Investing told Moneycontrol.
The management confirmed some invocation of pledged shares. "We will try to work out alternative plans with lenders in regards to pledge shares. Corporate team is in the talks with all the lenders."
The NSE bulk deal data shows ECL Finance sold 1,23,93,190 shares of Dish TV at Rs 23.2 per share and IIFL Wealth Finance sold 1,20,00,000 shares at Rs 24.23 per share.
Kalra also pointed out that after February 1, 2019, there would be regulatory changes in broadcasting as the customer gets to choose what to watch. "This will impact the viewership and subscription revenue in short to medium term, which will ultimately impact the valuations as advertising revenue is directly related to viewership."
This would lead to FIIs and DIIs liquidating their holding to avoid the risks to earnings from the new norms, Kalra said.
Between May to October last year, the stock fell from Rs 600 to Rs 400, followed before recovering to around Rs 500 in December.
It is interesting to note that since the beginning of January, barring a few sessions, the stock has consistently fallen despite strong December quarter earnings and promoter's intention to sell up to 50 percent stake.
Sameer Kalra of Target Investing, who has a ‘sell’ call on the stock, said the promoter stake sale of 25 percent and above if the offer is good, is also a risk. "This is another downside risk element as it is a family-influenced management and the stake sale reduces the incentive for minority investor."
After the announcement of stake sale proposal by the promoter in November 2018, Japanese multinational conglomerate Sony Corporation has joined the race to pick up stake in Zee Entertainment Enterprises, reported CNBC-TV18 on January 24 quoting sources.
Sony is said to be in talks with Zee promoter Essel Group to buy a part stake in the company, sources told the channel, requesting anonymity.
Currently, Zee is available through its television presence across 117 countries.
Chinese investors such as Tencent and Alibaba have also shown interest in the digital content platform of Zee Entertainment, ZEE5, said the sources, adding US giant Amazon may also enter the race, especially for the OTT (over the top) platform of Zee.
The first round of bid is likely to happen in the next few days, a source added.
The company’s discussions pertaining to the stake sale, with the prospective partners are ongoing and the progress is extremely positive, Zee spokesperson told CNBC-TV18.
"At this stage, we do not wish to comment on the name of the prospective partner. Once the deal is at an advanced and closure stage, we will certainly announce the relevant details. We would also like to request you to refrain from reporting any news based on market speculations or rumours, and to kindly wait for an official response or statement from ZEE Entertainment’s Corporate Communications team,” the company said.
Zee Entertainment registered a whopping 50.3 percent on year rise in its third quarter profit at Rs 562.7 crore, driven by strong revenue and operational performance. Operating income in Q3 increased sharply by 26.9 percent compared to year-ago.
Revenue during the quarter grew by 17.9 percent to Rs 2,167 crore with domestic advertising revenue rising 20.6 percent and subscription revenue growing 28 percent YoY.
ZEE Entertainment Futures closed 31 percent lower at Rs 300. The stock witnessed more than 800 percent rise in volumes and over 90 percent jump in the open interest (OI) from the previous trading session, data from MyF&O showed.
It is a classic case of short build up. If we look at the chart closely, there is a rise in open interest and volumes and a simultaneous decrease in price.
On the derivative front, maximum Call OI of approximately 4 lakh crore contracts are placed strike price of Rs 350 while maximum Put OI is placed at strike price Rs 310 with over 4 lakh crore contracts in OI.
