Zee shares zoom 40% ahead of AGM

Mumbai: Shares of Zee Entertainment were rallying at 39.9 per cent at the closing hours of BSE even before its AGM began on Tuesday. The reason was talk of a rejig of the company's board. Invesco, the largest shareholder in Zee Entertainment, has called for the removal of managing director Punit Goenka amid a deepening divide between the fund and the company's founders.

Talking to Bizz Buzz, Santosh Meena, head of research, Swastika, said: "Corporate governance was the biggest roadblock for Zee Ltd where the recent development of EGM for removal of directors and its promoters is changing sentiments for the group. Zee has a big brand and network along with strong operations where the only concern was management. The stock is trading at very attractive valuations and it is one of the strongest and FIIs favourite stocks in the media space. If there will any change in promoter then we may see a big rerating in the counter as we have seen earlier in CG Power."

Zee has already rallied on Tuesday, but Meena said: "I believe we may see a big upside from here if there will be any change in management, therefore, aggressive investors can bet on this stock but I would suggest avoiding other group companies as there are concerns of poor performance."

Technically, it is witnessing a breakout of falling channel formation and manages to move above its all-important moving averages where 235/260 are important hurdles; above this, we can expect a move towards 300/350 levels. On the downside, 200-DMA of 205 will be an important support level, he added.

Prior to it, Manish Chokhani and Ashok Kurien have resigned from the position of non-executive non-independent directors of the company with immediate effect. This was informed by the company in its regulatory filing. Invesco had also demanded appointment of multiple independent directors in the company.

Ashok Kurien and Manish Chokhani had resigned from the board of Zee on Monday on the eve of AGM. Oppenheimer/Invesco with 17.9 per cent holding (largest shareholder) had demanded for resignation of Punit Goenka, Manish Chokhani and Ashok Kurien (brother of Subash Chandra) from position of Directors. Proxy advisory firm, IiAS had recommended shareholders for removal of Manish Chokhani and Ashok Kurien. Resignation of both the directors is being taken as positive by the company's shareholders.

In case Punit Goenka resigns as MD and CEO then Zee may witness disruption in business. It has already saw almost 300-350 bps market share loss from peak to 17 per cent now. Separately, his pay was recently increased by 46 per cent to Rs 13.2 cr from Rs 9 cr whereas for other employees it was nil. Also, Zee talked of significant step up in investments.

Nevertheless, irrespective of whether Punit Goenka resigns or not as MD and CEO (as Director seems inevitable) still the PE multiple would get upgraded. Activism by large shareholder is welcome. Expect stock to react significantly positive, a report by DART Research says.

Manish Chokhani, 54, Former CEO of Enam Securities and Former Chairperson of TPG Growth in India. After completing a five-year term as Independent Director, the board seeks to appoint him as non-executive non-independent director, liable to retire by rotation. Manish Chokhani was on the Audit Committee in FY20 and is accountable for the losses on account of related party transactions, which resulted in a significant erosion in shareholder wealth.