Why Zee Entertainment Share Price is Falling

The share price of Zee Entertainment Enterprises (ZEE) was caught in a broad sell-off recently.

This comes at a time when the company has won the rights to broadcast a huge event.

On Tuesday this week, Zee announced that it has agreed with Disney Star to exclusively broadcast on TV the ICC Men's events including the ICC Men's T20 World Cup (2024, 2026), ICC Men's Champions Trophy 2025, and ICC Men's Cricket World Cup 2027.

This should have brought a wave of happiness to the investors and Zee's share price.

However, that did not happen. In fact, the company's share price is falling on the bourses.

Zee Entertainment share price fell around 5% yesterday. On a YTD basis, it has fallen by 24%.

What factors are dragging the share price of Zee lower in 2022?

Let's find out...

#1 Merger with Sony under scrutiny

On 21 December 2021, Zee Entertainment and Sony Pictures Network India (SPN) announced the companies have agreed to create synergies by merging their linear networks, digital assets, production operations, and program libraries.

The merger of Sony and ZEE was aimed at enhancing content creation and consumer experience. Following the news, the share price did see a sharp jump.

However, this merger became doubtful when the watchdog Competition Commission of India (CCI) of India on 3 August 2022 issued a letter raising doubts about the merger.

According to CCI, the combined entity will enjoy "unparalleled" bargaining power and can increase the prices of channels as well as earn higher profits.

According to a study conducted by CCI, the combined viewership of Zee and SPN in four popular genres would be more than 40%.

These recent observations by the CCI have added doubts among investors, which could be one reason why Zee share price is falling.

However, executives of the two companies have clarified saying it will have no impact on the merger.

All these doubts will become clear in the coming days as both these companies clarify shareholders' queries.

#2 Poor quarterly results

Another reason why the stock has been falling in 2022 is its weak quarterly results.

For the quarter ended 30 June 2022, the company's total revenue stood at Rs 16.6 bn. This is 21% lower as compared to its previous quarter's revenue of 21.1 bn.

The net profit for the quarter under review came in at Rs 2.5 bn. This is 23% lower on a sequential basis.

On a YoY basis, revenues have increased 9% while the profits have reduced 20%.

Owing to deteriorating quarterly performance, Zee share price is falling.

#3 FII Selling

Another reason could be FIIs selling stake in Zee as it is one of the companies which have high FII exposure.

Interest rates are rising in developed markets like the USA. This makes the emerging markets less attractive for FIIs because the risk-free rate of return reduces.

Hence FIIs sell their holdings in companies operating in emerging markets like India to return to the safety of dollars.

FIIs have been divesting their stake in Zee Entertainment since December 2020. FII's stake stood at 66.2% in the quarter ending September 2020.

The stake is reduced to 39.2% by the end of June 2022.

Take a look at the image below to see how FIIs have constantly sold stake in Zee Enterprises.

This stake sale by FIIs has added insult to the injury.

For more details on shareholding, check out ZEEL's latest shareholding pattern.

What the future of Zee Entertainment looks like...

Currently, the merger of Zee and SPN is under the watchdog's scrutiny.

However, the companies have filed replies with CCI, showing the fall in their viewership stake in the financial year 2020-21 and 2021-22. They have shown that their total viewership stake has been reduced to 36%.

That is why, the stock ended in green today.

The quarterly performance of Zee Entertainment may have deteriorated but the overall annual financial performance has been improving.

The company's financial performance was impacted in the Covid-19 years, but a slight improvement can be seen in financial year 2021-2022.

Financial Snapshot

Particulars (Rs in m)	FY18	FY19	FY20	FY21	FY22
Total Income	71,356	81,912	85,265	78,403	83,106
Growth	7%	15%	4%	-8%	6%
Operating profit	25,098	28,190	16,585	17,043	18,397
Operating profit margin	35%	34%	19%	22%	22%
Net profit	14,766	15,648	5,270	7,932	9,557
Net profit margin	21%	19%	6%	10%	11%

Source: Equitymaster

FIIs are slowly coming back to India after the economic revival of India. Hence, once the FII investments flow back to India, they could again consider investing in their favourite stock.

To know more about Zee Entertainment, check out its factsheet and its latest quarterly results.

You can also compare Zee with its peers:

Zee Entertainment vs Zee Media Corp

Zee Entertainment vs Network18 Media

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