Shares of Zee Entertainment Enterprises Ltd (ZEEL) saw a notable gain in Monday's trading session following the company's announcement of issuing 20.94 crore fully convertible warrants to Sunbright Mauritius Investments Ltd, an entity belonging to its promoter group.
The news prompted a positive market reaction, with ZEEL's stock opening 1.53% higher at Rs 109.20 on the BSE.
Details of the Warrant Issuance
According to the company's filing with stock exchanges, each warrant is convertible into one fully paid-up equity share of ZEEL. The issue price for each share is Rs 126, which includes a face value of Re 1 and a premium of Rs 125.
ZEEL has already received 25% of the total warrant issue price, amounting to Rs 31.50 per warrant. This initial payment from the allottee totals Rs 659.76 crore. The company's committee has subsequently approved the allotment of these warrants.
Under the terms of the issue, Sunbright Mauritius Investments Ltd has an 18-month window from the allotment date to convert the warrants into equity shares, either in a single tranche or multiple tranches. Upon conversion, the allottee will be required to pay the remaining 75% of the warrant issue price, which is Rs 94.50 per warrant. It's important to note that as only warrants have been allotted at this stage, there is no immediate change to ZEEL’s paid-up share capital.
Analyst Outlook and Recent Performance
This development follows a period of scrutiny for ZEEL. Earlier this month, UBS maintained a 'Sell' rating on the stock with a target price of Rs 85. The consensus Bloomberg target for the stock over 12 months stands at Rs 98.96, suggesting a potential 8% downside from current levels.
UBS had previously highlighted ZEEL's soft June quarter results. Consolidated revenues grew by 4.5% year-over-year but slightly missed estimates, primarily due to a 12% year-over-year decline in advertising revenue. Conversely, the company's Q1 subscription revenue showed healthy growth of 16% year-over-year.
Overall operating expenditure (opex) for the quarter was up 15% year-over-year, resulting in Ebitda margins of 4.1%. Management attributed the ongoing impact on advertising revenues partly to the Middle East conflict, expressing optimism for “greenshoots” in Q3. They also voiced enthusiasm about re-entering the sports segment, planning to acquire more sports properties cautiously. However, management refrained from providing specific margin guidance given the prevailing macroeconomic environment.