Up 31% today! Can shareholder activism trigger a re-rating in ZEE shares?

NEW DELHI: Shares of climbing 31 per cent in Tuesday’s trade surprised many on D-Street. The stock rallied after Invesco, the largest shareholder of ZEE with a 17.9 per cent stake, sought an Extraordinary General Meeting (EGM) to remove three directors including MD & CEO Punit Goenka and also to appoint six independent directors.

Two directors Manish Chokhani and Ashok Kurien have already tendered their resignations.

Kotak Securities said the turn of events is likely to result in an end to governance concerns, improvement in cash generation and a possible change in management.

Kotak said that the gap between ZEE’s market value and intrinsic value is too narrow, notwithstanding the evolving situation and sees Rs 250 as the fair value for the stock.

On Tuesday, the scrip was up 31 per cent at Rs 246.20 on BSE.

Kotak sees three different scenarios: First, where a change in board will be followed by a change in management. This scenario assumes the appointment of a new CEO by the new board. There is also a possibility that the new board receives interest from strategic/financial investors to acquire a majority stake and management control.

In the second scenario, there could be a change in board with continuity of the management.

This scenario, Kotak said, assumes that the new board continues with the existing management including Goenka, but seeks better cash generation and tighter control on capital allocation.

The last scenario assumes continuity of the management with a new set of investors. “This case assumes shareholder churn and a new set of investors/shareholders backing Punit Goenka as MD & CEO,” Kotak said.

The reconstitution of the board as proposed by Invesco needs a majority 51 per cent votes at the EGM. But the promoter family owns just 4 per cent of the company.

Abneesh Roy of Edelweiss said demand to remove Goenka was on expected lines.

“With promoters holding just 3.99 per cent stake, this was just a case of rent rather than a gift. The stock was languishing for long in spite of midcaps and a lot of media stocks doing well. The key to watch is today’s EGM. This is similar to what was seen in

a few days back. There also, , the largest shareholder of Dish TV, had asked for the removal of the managing director and other independent directors. Post that, in the last few days, Dish TV stock has moved up almost 25-30 per cent,” he noted.

Roy said Zee is a very cheap stock at 10-12 times PE multiple forward. It is a dividend paying company with zero net debt. If all these things go right and a new and more independent board comes in, it should do well.

“ZEE is in a good space. It has got its own audience. Once they get the right people on board, I do not see any reason for it to collapse or go away. It is a very good franchise from the stock market point of view. I think one should wait and see who comes on the board. The stock is definitely cheap, but be patient with it. I do not see any earth shattering consequences of the Goenka family going out of ZEE,” Nischal Maheshwari of Centrum Broking told ET NOW.

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