Maintain ‘Buy’ on ZEE as it is an unlock play and likely to recoup market share while board-related concerns get addressed.

Large institutional shareholders have called for a revamp of ZEEL’s board. In our view, with promoters holding just 3.99% in ZEE and the stock languishing, it was only a matter of time before the board was revamped. In this report, we list the key items to watch out for, provide a peek into the profiles of directors proposed and recount the series of events that led to this turn in ZEEL’s saga.

A few days ago, a similar set of events took place at Dish TV. Major investors in ZEEL demanded the removal of Punit Goenka, current MD, from the board and appointment of six new directors thereof. Maintain ‘Buy’ on ZEE as it is an unlock play and likely to recoup market share while board-related concerns get addressed.

Key events to watch out for
A few days ago, Yes Bank, the largest shareholder of Dish TV, demanded the removal of the MD and other independent directors. The key event to watch out for in ZEE will be the developments at its EGM. We understand the Board needs to hold an EGM within 21 days of the receipt of the requisition. Else, investors themselves can call an EGM in 45 days. And we also understand that simple majority might be enough for approval of these resolutions at the EGM. We await more clarity. Meanwhile, all eyes are on whether Goenka continues as CEO or leadership transition happens.

Recounting the series of events
In Jul-19, Invesco had signed a deal with ZEE promoters to acquire up to 11% of the company for Rs 4,2240 mn at Rs 400 per share. Invesco has been a financial investor in ZEE since 2002 and owned a 7.7% stake in the company before 2019. Presently Invesco Developing Markets Fund and other investors have called an EGM to pass an ordinary resolution on the following: (i) removal of Punit Goenka; and (ii) appointment of Surendra Singh Sirohi, Naina Krishna Murty, Rohan Dhamija, Aruna Sharma, Srinivasa Rao Addepalli and Gaurav Mehta as independent directors.

Outlook: Unlock play and market share recovery; maintain Buy
As a company, ZEEL has stepped up over the past few years, via improved disclosure norms and by addressing some key investor concerns like defocussing on Sugarbox investment and focusing on building a strong content library, ramping up OTT operations and aggressively pricing its offerings. Since the promoter stake fell below 4%, the board has been held to strong performance standards by institutional investors, who now hold a major stake.

The stock is likely to stay volatile given uncertainty around leadership and disruption in media. Longer term, corporate governance standards would improve. We expect strong recovery in ad spends industry-wide with FMCG companies ramping up marketing given the upcoming festive period. Improving mobility should help recovery in ad spends across sectors as we move into H2FY22; retain ‘Buy’ with target price of Rs 343.