Zee Entertainment Shares Shrug off Weak Q1 Performance Dip; All Eyes on the NCLT Ruling Regarding the Sony Merger

Revenue from operations at Rs 1,984 crore grew by 7.6 percent, with subscription revenue rising 18 percent to Rs 907.5 crore in Q1 FY24.

Zee reported a 97 percent year-on-year decline in profit from continuing operations at Rs 3.87 crore for Q1 FY24

On August 10, the shares of Zee Entertainment Enterprises were up by more than 1% in early trading, even though the company’s profits for the quarter ending in June FY24 fell by 97% compared to the previous year.

Shares of the company were up by 1.18% at Rs 244.95 on the BSE at 9.35 am.

Investors are eagerly awaiting the decision of the National Company Law Tribunal (NCLT) concerning the Zee-Sony merger case today, according to analysts.

The media and entertainment firm’s profit from continuing operations for the quarter ending June FY24 saw a significant 97% year-on-year decrease to Rs 3.87 crore. This drop was influenced by weak operational figures and an exceptional loss of Rs 70.6 crore compared to Rs 29.9 crore in the same period last year.

In Q1 FY23, the company had reported a profit of Rs 130.1 crore. Analysts had predicted a profit decrease of around 80-90%.

In the same timeframe, there was a 7.6% growth in revenue from operations, reaching Rs 1,984 crore. The company’s subscription revenue also increased by 18% to Rs 907.5 crore in Q1 FY24 from Rs 771.7 crore in Q1 FY23, as stated in a filing made after the market hours on August 9th.

The company did better than what analysts predicted. Analysts had expected subscription revenues to grow around 2-3% compared to the previous year. Nevertheless, the company explained that the increase in subscription earnings was balanced out by a slower advertising climate. The rise in subscription revenue was due to higher prices resulting from New Tariff Order (NTO) 3.0 and the influence of ZEE5, the company’s streaming platform.

The company stated that its earnings from domestic advertisements were Rs 901.8 crore, which was 2.6% lower compared to the same period last year. Analysts had predicted a more significant 7% decline in advertising revenues year-on-year.

The environment for advertising spending wasn’t very active as the beginning of the June quarter had a slow start, partly due to the Indian Premier League (IPL) taking place in the first two months of the quarter. However, things started to improve towards the end of the quarter, with signs of ad spending picking up, primarily led by the FMCG sector, as mentioned in the company’s earnings presentation.

In terms of operations, the EBITDA decreased by 42.3% compared to the previous year, amounting to Rs 154.9 crore. The margin also went down by 680 basis points to 7.8% for the quarter.

According to a note from brokerage firm Motilal Oswal, even though advertising revenue had initially grown modestly, it is currently getting better. The management anticipates a robust recovery starting from the third quarter of FY24, which aligns with the arrival of the festive season.

Zee-Sony Merger

The National Company Law Tribunal (NCLT) is expected to reveal its decision on the Zee-Sony merger case today. The NCLT had earlier reserved its judgment on the merger of Zee Entertainment Enterprises and Culver Max Entertainment (previously known as Sony Pictures Networks India) on July 10.

The NCLT’s Mumbai bench, consisting of H V Subba Rao and Madhu Sinha, held back the verdict after listening to objections from creditors such as Axis Finance, JC Flower Asset Reconstruction Co, IDBI Bank, Imax Corp, and IDBI Trusteeship, who had concerns about the merger plan.

In December 2021, Zee Entertainment and Sony Pictures agreed to merge their businesses. Both companies then sought approval for the merger from the tribunal after already receiving necessary clearances from the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and other regulatory bodies like the Competition Commission of India (CCI) and the Securities and Exchange Board of India (SEBI).

During Zee’s Q1 FY24 earnings call, the management remained optimistic about the smooth conclusion of the merger. Punit Goenka, Zee Entertainment’s CEO, clarified that his legal situation and the merger were separate matters. The company stressed that aside from confirming his role in the merged entity, there were no other changes to the agreement’s terms.

Brokerage firm CLSA remarked that although Q1 figures were unimpressive, the consolidated revenues matched estimates. The closure of the merger will be a significant factor, and the awaited verdict from SEBI about CEO Goenka is also anticipated.

In a temporary order dated June 12, the Securities and Exchange Board of India had prohibited Subhash Chandra, Essel Group’s chairman, and his son Punit Goenka from holding directorial or significant managerial positions due to alleged misappropriation of Zee funds for personal gain.

The Securities Appellate Tribunal (SAT) upheld SEBI’s interim order, imposing a one-year restriction on Zee Entertainment promoters Subhash Chandra and Punit Goenka from assuming board roles in publicly listed companies, citing allegations of fund diversion.

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