ZEEL Q1FY21 : Band-aid on something that needs stitches

Q1 FY21 results of Zee entertainment was an exercise by management in trying to shore up investor confidence in governance and give some straws of hope to the few bullish analyst and investors to hang on.

Governance building measures: Isn’t good faith enough?

Company committed to Qtrly disclosures of balance sheet and Zee5 data along with break-up of inventory. This is a good move and well appreciated. However, more data increases confidence of forecasting and not accuracy of forecasting.

Company uploads new policies on – Investment, Treasury and Related party transactions (RPT). In my 15 years career as an Analyst, I never have read a company’s policies on RPT or investment policy. These are best judged by historical actions of the company rather than policies or statements by management.

Zee has uploaded 9-page RPT policy. Length of Reliance, Kotak, Infosys policies is only 4-5 pages and seems more like a regulatory requirement. The best RPT policy or any policy should just be – “We will act in good faith”. No policy can be a deterrent if intent is not right. Both Dish TV and Siti Cable seem to be pain point for ZEEL in terms of getting receivables. Simple management check should be restricting content to them until they pay their dues.  (How will you judge a bank which has a strong NPA policy, but is ever-greening NPAs?). No RPT policy can prevent bad deals.

Balance sheet: Some straws of hope

A stock which is down 90 % and goes up 50 % after that. Is it up 50 % or down 85 %?

ZEEL inventory has improved by Rs 1bn in Q1 FY21 from Rs 64.1bn to Rs.63bn.  One can say it’s a 2% reduction sequentially or inventory is actually up a whopping 75%+ from Fy18 levels. Also, the management has guided that inventory will be down on a full year basis in FY21. We wish that this guidance is met, but should be seen in the context of lockdown, as content available is limited for buying.  Please see below management comments on trajectory of inventory after a sharp spike in Q4 FY18 and you will know why one cannot rely on guidance.

What the managment guided ….
What actually happened…

Cash levels improved:  Cash increased in BS to Rs 13.2 bn in Q1 FY21 from Rs 10.1 bn in FY20. Receivables were also down by Rs.13.5bn and we hope this is receivables from related party. The quarter stand alone is good and investors can only hope the trend is maintained. 

Looks like the long term quality conscious investors needed these commitments from management and they will lap up the commentary and reason for remaining invested. Lets hope they are right and value is created with a lot of fingers crossed.

SOMETIMES HOPE IS THE ONLY STRATEGY FOR A STUCK INVESTOR.

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