ZEEL -There is seldom one cockroach in the kitchen

ZEEL a 15k crore market cap made provisions/write offs of Rs 1500cr of write off and claims in a qtr!!! . A company whose promoters who have lost almost all shareholding (Mere 4.77% left) – write-offs should be seen with dollops of salt.

Let’s look at the write offs/provisions/ claims in the quarter

Inventories write off -Rs 260cr:  The company had written of RS 260 cr inventory in the quarter. Inventory spiked to Rs 5400 cr from RS 3900 cr, a whopping increase of 1500 cr and when the company would have expensed Rs 1100 cr (assuming 50% of last year in digital and movies) of inventory.  So, a gross spends of Rs 2800cr in movies and digital rights in FY20!!!  But wait, the overall size of inventory market in 2019 is projected at Rs 4300cr (EY report).  Most importantly analyst questioned mgmt. for being less active with new content on Zee5 as against hotstar and other platforms and mgmt. replied they are not in race to acquire content!!!

Investment write offs – Rs 385cr: The company had written off Rs 385cr from a Rs 600cr investment. Now this Rs 600 cr investment was in two funds Poseidon opportunities fund Rs 380 cr (based out of Bermuda) and Actinium investments Funds limited (based out of British Virgin Islands}. Investors and analyst have questioned mgmt. for holding investments in this obscure offshore entity to which mgmt. replied it would be reversed. What investors were not sure off was they will be reversed with a write off.

Auditors Qualify US$ 52.5mn or 400cr regarding Letter of comfort:  The auditors have qualified the result with a note. ZEE has not recognized this liability of US$52.5 Mn as it believes (based on legal advice) that LOC is not considered as guarantee and this dispute doesn’t require recognition of liability. This is a new issue and investors were never aware of such an issue.  Please read notes to accounts for more details, finally we see Yes bank claiming its dues post new promoters.

Related party and goodwill provisions write offs and some more (Rs 435cr odd):  Company has provided for Rs 118 cr provision wrt to Dish tv and another Rs 43 cr from advertisers.  Apart from that another 180 cr was written of from multiple items which the company did not share details.  Rs 114cr was written off from online business goodwill.  If stock prices are any hints, we would not hope much recovery from Dish tv or Siti cable.

A welcome change in directors:  Piyush Pandey and Alicia Yi

On 20th match 2020 – two company independent directors had resigned – Sunil Sharma and Niharika Vohra after a scathing letter questioning company practices. They were replaced by Surendra Singh and Aparajita jain clearly guessed by the market as not very independent.  Finally, we have 2 new director additions in place of Aparajita jain and Surendra Singh as Piyush Pandey and Alicia Yi.  Well independent directors in india have not had a record of speaking up; and when they have in case of zee the investors have still ignored them.

But Whats in for Bulls or ZEEL investors: An Open letter by CEO

The letter talks about Zee 4.0 and the 5Gs of Governance, Granuility, Growth, Goodwil and Gusto. I would recommend 3Cs for investors – Caution, Caution and Caution.

ZEEL investors are a fancy breed

You can fool people some people some of the times; but you can fool ZEEL investors all the time.

To name a few:  Invesco Oppenhiemer funds, Government of Singapore, Amansa holdings private limited, Vanguard, Vontobel,  Schroder international and the omnipresent LIC. Most of these investor write fancy letters to shareholders and articles, emphasising on corporate governance and Quality. We had a lot of Indian fund managers priasing Zee promoters, but thankfully they kept praising but exited all stock. looks like the FIIs know much more and have a relatively more tolerance for quality. While, its important to be greedy when others are fearful , the question is are you allowed to be blind?

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