Zee's Q2 net profit misses estimates on ICD write-off worth Rs 170 cr

Rs 170-cr exceptional item provided for as related parties delayed payment

Zee Entertainment’s (Zee’s) July-September quarterly (Q2) profit missed analysts’ estimates as it provided for an inter-corporate deposit (ICD) worth Rs 170.62 crore during the period. 

The disclosure comes amid mounting debt concerns of the promoter group at Zee, with the company management recently indicating that more than 90 per cent of the promoter stake (of 22 per cent) in the broadcaster was pledged with financial institutions.

Zee’s profit before tax declined 22 per cent year on year (YoY) to Rs 504 crore for Q2, as the company said the ICD write-off, reported as an exceptional item in its results, was due to related parties delaying payment. 

Punit Goenka, ZEE's managing director and chief executive officer, said the company was contemplating legal action against a bank, which had broken a fixed deposit of Rs 200 crore prematurely to clear dues of certain related parties. “While these related parties have reimbursed the amount, the company is investigating the matter and is seeking appropriate legal advice,” Goenka said in an analysts call on Thursday evening, which was postponed twice.

The company’s net profit rose 6.6 per cent YoY to Rs 412.1 crore in Q2, below a Bloomberg consensus estimate of Rs 474 crore. Zee’s operating profit, or earnings before interest, tax, depreciation, and amortisation, rose 2.5 per cent YoY to Rs 692.9 crore, in line with Street estimates, while operating margin contracted 150 basis points to 32.7 per cent. One basis point is equal to one-hundredth of a percentage point.

Revenue from operations rose 7.4 per cent over last year to Rs 2,122 crore, as advertising revenue growth remained sluggish at 1.2 per cent during the quarter. Bloomberg’s consensus estimate had pegged revenue from operations at Rs 2,137 crore for the period.

Specifically, advertising revenue for the quarter stood at Rs 1,224.66 crore versus Rs 1,210.60 crore reported a year ago. While subscription revenue grew 19 per cent YoY to touch Rs 723.50 crore versus Rs 608.16 crore last year.

Promoter debt secured by Zee shares and related-party transactions have been a concern for investors for a while now. Essel Group, the promoter of Zee, had earlier sold 11 per cent in the company to Invesco 

Oppenheimer to repay nearly half of the Rs 13,500 crore due to lenders, including mutual funds, by September end. 

Following the deal, promoter stake had reduced to under 25 per cent, which subsequently came down to 22 per cent after some lenders invoked their pledge and sold shares in the market. Of the 22 per cent, 10.71 per cent is held by Zee Media. The latter, a promoter entity, has pledged this 10.71 per cent stake to VTB Capital against loans taken by it. 

During Thursday's analysts’ call, Goenka said the group was working on clearing the debt overhang on the Zee stock and that it was in “constant dialogue” with VTB Capital pertaining to the pledged shares of Zee Media.

Goenka also said ad revenue growth would remain muted for broadcasters given the current economic slowdown, though subscription revenue trends would remain healthy post the new tariff order.