Rakesh Jhunjhunwala buys 50 lakh shares in Zee Entertainment; should you follow?

Shares of Zee Entertainment (ZEEL) extended its rally for the fourth straight session on September 15 after ace investor Rakesh Jhunjhunwala’s Rare Enterprises and BofA Securities Europe SA on Tuesday bought shares of the media firm worth over Rs 225 crore through open market transactions. Rare Enterprises bought 50 lakh scrips at Rs 220.44 per share through bulk deal transactions on NSE. BofA Securities Europe SA purchased 48.65 lakh shares at an average price of Rs 236.2 apiece.

Rare Enterprises’ purchase value stood at Rs 110.22 crore while that of Bofa Securities Europe SA was Rs 114.92 crore. BofA Securities Europe SA – Odi is a public shareholder of Zee Entertainment and held a 1.03% stake at the end of the June 2021 quarter.

Earlier, the scrip hogged momentum on Dalal Street on September 14 after two investment firms sought the removal of the current managing director Punit Goenka from the board of the company. Following the development, the stock has jumped 62% to Rs 287.65 since September 8. Two investment firms, together accounting for 17.88 per cent of the paid-up share capital of ZEEL, have sought the removal of the current Managing Director Punit Goenka from the board of the company.

The two investment firms are — Invesco Developing Markets Fund (formerly Invesco Oppenheimer Developing Markets Fund) and OFI Global China Fund LLC, the largest shareholder of ZEEL.

The two firms have called an extraordinary general meeting of shareholders seeking to remove Punit Goenka.

Should you buy?

Brokerages believe that there may be re-rating in the stock in case of a change in the promoter. Commenting on the development, Santosh Meena, head of research, Swastika Investmart said, “Corporate governance was the biggest roadblock for Zee where the recent development of EGM for removal of directors and its promoters is changing sentiments for the group. Zee has a big brand and network along with strong operations where the only concern was management.”

He further added that the stock is trading at attractive valuations and it is one of the strongest and FIIs favourite stocks in the media space. “If there will be any change in promoter then we may see a big re-rating in the counter as we have seen earlier in CG Power. However, I would suggest avoiding other group companies as there are concerns of poor performance. Technically, we expect the stock can move towards Rs 300-350 levels. On the downside, 200-DMA of Rs 205 will be an important support level.”

Edelweiss Securities is also positive on Zee Entertainment with a target price of Rs 343. “As a company, Zee Entertainment has stepped up over the past few years, via improved disclosure norms and by addressing some key investor concerns like defocussing on Sugarbox investment and focusing on building a strong content library, ramping up OTT operations and aggressively pricing its offerings. Since the promoter stake fell below 4%, the board has been held to strong performance standards by institutional investors, which now hold a major stake,” it said.

The brokerage further added that the stock is likely to stay volatile given the uncertainty around leadership and disruption in media. Longer-term, corporate governance standards would improve.

“We expect a strong recovery in ad spends industry-wide with FMCG companies ramping up marketing given upcoming festive period. Improving mobility should help recovery in ad spends across sectors as we move into H2FY22,” Edelweiss Securities said in a report.