ZEE Entertainment – Fool’s Paradise or Ugly duckling?

While, I have stopped actively looking at Zee entertainment and have not followed its results in detail.  I have been pulled back by a number of messages seeking my opinion after the company Q4FY21 results.

Some of the points that demand a look at ZEEL are:

  • Improvement in cash flows – a key concern of the past.
  • Withholding investments in sugarbox – an unnecessary deviation earlier.
  • Improved receivables from Dish tv. 

But is it all expectations management?

A para from Expectations investing by Michael Mauboussin

Analysts have to guess how much a company will earn each quarter. But a company is allowed to give guidance, about what it thinks its earning will be.  This guidance number usually shows up as the consensus estimates among analysts. If the company’s actual earnings meet or just beat the consensus, both the company and the analysts win:  the stock goes up, and everyone looks smart.  The game might not sound so hard, but it requires a lot of cooperation.  Companies are under pressure to achieve the consensus earnings estimate, while analysts rely on the companies to help them from their earnings expectations in the first place.

Companies have two levers in the game. They can manage expectations, manage earnings or do both.  

Now we all know that ZEEL promoters are pushed to the wall and they are left with only 4% shareholding of the company. Also, the group’s other assets have been sold to pay off.  The only scope for the promoters to get back is through their investments in ZEEL.  They have the maximum incentive to do make things look good.

What has not changed and always been my worry is the ballooning and never-ending investments in inventory which for an outsider is a black hole.  I have earlier shared why the very size of the inventory in books is a bold question mark given the limited size of annual movie rights in India.  While investment in sugarbox was an obvious red flag, the ballooning inventory is a less obvious red flag.  Given the nature of it – an analyst’s ability to judge the quality of investments in that will be always limited.

My final take – I don’t invest in cryptos because of two reasons – I don’t understand and cannot trust.  For ZEEL it’s just the trust. 

And I am not writing a blog on its investment in Radhe – I don’t understand it. 

My previous blogs on zeel:

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