Shares of Zee Entertainment Enterprises which plunged as much as 8% to 52-week lows recovered after MD and CEO Punit Goenka dismissed Morgan Stanley’s downgrade on the scrip. Notably, global firm Morgan Stanley had downgraded the shares to ‘Underweight’ from ‘Overweight.’ The firm cut the target price to Rs 410—the lowest among the Bloomberg consensus of 38 analysts—implying a potential downside of 13% from current levels.
The firm has also estimated that Zee5, the firm’s OTT platform will break-even only by financial year ending March 2025, or earliest in the next five years. Further, competing with rivals such as Netflix, Amazon and RJio will be an overhang, and pressurise the margins, lading to a drag of 3-5%, said the firm, as Zee5 will have to spend disproportionately on high quality content, as creating over-the-top content is more expensive than traditional TV.
In an interview to CNBC TV18, CEO Punit Goenka said that the company will be able to deliver upwards of 30% margins despite fresh investments. “I have gone on record to say that Zee5 breakeven will be a 3-5 year journey. We are seeing great traction on Zee5,” he said.
“The analyst at Morgan Stanley has estimated revenues for FY21. I will beat those estimates this quarter itself,” he told the channel. According to Goenka, Morgan Stanley estimate of margin slipping to even 22% by FY21 is not well researched. Ho noted that margin will cross even 30% going forward.
Notably, while Morgan Stanley has downgraded the shares, CLSA expects digital advertising revenue to jump fourfold led by an explosive growth of digital video. However, the Japanese firm notes that while Zee may succeed in both TV and digital platform, margins may come under pressure in the near term because of rising content cost for the over-the-top platform. Zee Entertainment shares recovered from day’s low of Rs 436 and to Rs 465, a recovery of more than 6%.