ZEE Entertainment shares: ZEEL gains as promoters get convertible warrants

Shares of ZEE Entertainment Enterprises Ltd (ZEEL) gained in Monday's trade after the company issued 20.94 crore fully convertible warrants to Sunbright Mauritius Investments Ltd, a promoter group entity. In a filing with the stock exchanges, ZEEL said it had received 25 per cent of the warrant issue price, or Rs 31.50 per warrant, amounting to Rs 659.76 crore, from the allottee. Based on the receipt of the warrant subscription price, the company’s committee approved the allotment of the warrants.

Following the development, the stock rose 1.53 per cent to open at Rs 109.20 on BSE.

Under the terms of the issue, the allottee can seek conversion of the warrants in one or more tranches within 18 months from the date of allotment. Upon conversion, the allottee will have to pay the remaining 75 per cent of the warrant issue price, or Rs 94.50 per warrant.

Each warrant will be convertible into one fully paid-up equity share of ZEEL with a face value of Re 1 at an issue price of Rs 126 per share, including a premium of Rs 125. The amount already paid against each warrant will be adjusted against the issue price of the resultant equity shares.

As the company has only allotted the convertible warrants at this stage, there is no change in ZEEL’s paid-up share capital.

ZEEL has recently named Ashish Mishra as Chieg Marketing officer.

In a note earlier this month, UBS said ZEEL's June quarter results were soft. Consolidated revenues were up 4.5 per cent YoY, slightly missing its estimates), led largely by a 12 per cent YoY decline in advertising revenue. The Q1 subscription revenue grew by a healthy 16 per cent YoY, it noted.

UBS said ZEEL's overall opex was up 15 per cent YoY in Q1, leading to Ebitda margins coming in at 4.1 per cent.

The management highlighted overall advertising revenues continued to be impacted by the Middle East conflict and they expressed hope of greenshoots in Q3. It also expressed optimism regarding the re-entry into sports; they plan to acquire many more sports properties, but on a prudent basis. Management refrained from giving a margin guidance in the current macroeconomic environment.

UBS maintained its 'Sell' on the stock with a target of Rs 85. The consensus 12-month Bloomberg target on the stock stands at 98.96 implying 8 per cent potential downside.