Global brokerage and research firm Bank of America Securities (BofA) has double upgraded Zee Entertainment Enterprises (Zee) to a ‘Buy’ rating from the under perform tag that was earlier pinned on the stock. BofA sees favourable risk reward and sees potential surprise coming from the stocks given it already has low expectations. Zee shares were down 6.8% on Monday trading at a price of Rs 205 per share. So far year-to-date the stock is down 29% after having surged 72% since its March lows. The White Knight that BofA thinks will drive revenue improvement for Zee is its OTT application Zee5.

“We find Zee’s OTT app Zee5 well placed to improve its traction leading to revenue improvement & loss reduction; in particular we believe the international subs base who are looking for Indian content may be sticky,” BofA said in a recent note. In terms of monthly application downloads in the month of August this year, Zee5’s downloads were at 7.7 million, only Hotstar had more downloads. In terms of Average Unique Daily Active Users of the application Zee5 was at 1.6, behind Voot, Amazon Prime Video, Jio Tv, and Hotstar.

Additionally, the brokerage firm said that it believes revenues/EBITDA have bottomed out in the first quarter and that from here on, momentum improvement could be expected. “We estimate margin improvement of 7.1 pps from the first quarter of the fiscal year to FY21 (17% to 24%) on back of revenue recovery/operational leverage,” the report said. The note also adds that the depressed multiples of the firm could improve with the recent change on board members. “Zee’s multiples had been depressed in the last 12-15 months on promoter group (pledge share issues) & balance sheet (rising inventory/receivables) concerns,” it said. The new board members include the exit of Subhash Chandra for R Gopalan as the Chairman, while Alicia Yi and Piyush Pandey join as Independent Directors.

The brokerage has increased its financial year 2022-23 EPS by 12-16% factoring in better than expected ad/ margin recovery based on our channel checks. “Our FY22 PE multiple on our PO is 14x,” BofA said. This is at a discount to the historical multiple of 25-30x of Zee. Change in ownership has been termed as an upside to the stock. On the other hand, weak ad/margin recovery and higher competition on the OTT front front remain as the key risks. The price objective pinned by analysts of BofA on Zee is Rs 250 per share.