Zee Entertainment tumbles after board OKs Rs 522 cr investment in tech arm

Zee Entertainment Enterprises fell 8.57% to Rs 137.10 after the company said it will invest Rs 522 crore in its subsidiary Margo Networks as part of its strategy to ramp up its digital offering.

Margo Networks owns a platform called SugarBox that enables internet services to work even in areas of bad or no network and empowers users to access them without an active data connection.

The board of Zee Entertainment Enterprises (ZEEL) at its meeting held on 8 April 2020 agreed to extend financial and operational support to SugarBox. ZEEL said it will invest a sum of Rs 522 crore in SugarBox over a period of time and will provide operational support including through providing performance and corporate guarantees as appropriate and necessary and has authorized SugarBox to finalize the terms of 10 years contract with RailTel Corporation of India.

SugarBox is a related party of the company and the transaction will be undertaken on an arm's length basis. None of the promoter/promoter group/group companies have any interest in SugarBox. The cost of the acquisition and nature of consideration, percentage of shareholding, control acquired or the number of shares acquired is yet to be finalised, ZEEL said.

ZEEL had acquired 80% equity stake in Margo Networks (SugarBox) in 2017 to exploit strong synergies of the technology developed by SugarBox with the current business of the company and with a potential to significantly augment the digital content consumption.

SugarBox operates in the content delivery network (CDN) and telecommunications industry and is engaged in providing hyperlocal content distribution services at key places of interest including public transport, rural areas, public places, hospitality and residential areas by setting up storage, compute, wired and wireless connectivity infrastructure.

With the latest investment, SugarBox will commence commercial operations across existing contracts like L&T Metro, Chennai Metro, NMMT, Kolkata Metro, Indian Railways and forge new partnerships to scale up its network. With this, the SugarBox platform is expected to reach 25 million users daily and 300 million monthly unique users by mid-2022, spending an aggregate of 2.5 billion hours monthly in a near-captive environment, where access to Apps is limited due to patchy connectivity.

Using the SugarBox platform, a user will be able to stream Zee5 videos, listen to Zee Music, play games, learn on-the-go,shop online and engage in other E-commerce activities like order food or book onward transport,etc. This will benefit the company by offering an ecosystem play (similar to investments in DTH in the broadcast industry) and contributing to its broader digital strategy. Through this investment, Zee will be able to contribute to the growth of the entire digital ecosystem, expanding Zee's digital presence beyond OTT & AdTech and enable Zee to benefit from the growth of the entire digital ecosystem, the company said in a statement post market hours on Thursday, 9 April 2020.

On a consolidated basis, ZEEL's net profit fell 37.9% to Rs 349.43 crore on 5.5% decline in net sales to Rs 2,048.65 crore in Q3 December 2019 over Q3 December 2018.

ZEEL is a media and entertainment company engaged in providing broadcasting services.

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