Zee Entertainment gains depend on advertising revenue recovery, fund usage

The board of directors of Zee Entertainment Enterprises (Zee) approved the issuance of up to 169.5 million fully convertible warrants to promoter entities- Altilis Technologies and Sunbright Mauritius. These are convertible within 18 months of allotment at ₹132/warrant (2.6 per cent premium to the Sebi floor price).

 

While 25 per cent of the warrant price is to be paid up front, the balance 75 per cent is to be paid on conversion. This issue is subject to shareholders’ approval on July 10. On full conversion, the warrants will increase equity by 17 per cent and thus dilute earnings per share or EPS, if fund deployment doesn’t yield satisfactory returns.

 

Assuming approval, it will result in a capital infusion of ₹2,240 crore, increasing promoter shareholding to 18.39 per cent (from 4 per cent), on full conversion. The use of funds has not been disclosed yet. This is a key monitorable, although the hike of promoters’ stake is positive. Other key monitorables are revival in advertising revenue and a favourable outcome in ICC rights arbitration with Star.

 

The funding may be driven by the reported recovery of ₹600 crore dues of Essel Group (with a potential recovery of up to ₹1,800 crore over the next 12-18 months as per media reports). If properly utilised, it may allow Zee to exploit potential growth opportunities. Last year, Zee raised foreign currency convertible bonds or FCCBs worth about ₹2,000 crore for funding growth at a coupon rate of 5 per cent.

 

Zee aims at achieving revenue growth of 8-10 per cent with its current portfolio and improving operating profit margins to an industry-leading range of 18-20 per cent by FY26. A sustainable recovery in advertising revenue remains key. Analysts see single digit annual growth in revenue and operating profit through FY27. Valuations are attractive. 

 

Clarity on end-use of capital could drive re-rating. Zee held net cash of ₹2,410 crore (March 2025) which is about 19 per cent of market capitalisation. Zee has an undrawn FCCB line of ₹1,800 crore (next tranche due in August 2025). This, along with expected operating cash flow or OCF of over ₹1,000 crore in FY26 and the warrants create a significant war chest. The

 

OCF may even be higher if Zee5 (OTT) reduces losses by 50-60 per cent in FY26. It has managed a 50 per cent reduction of losses to ₹550 crore in Zee5 in FY25.

 

According to a presentation, the company intends to “explore value-accretive M&A opportunities in pursuit of scalable growth” and “redefine the content strategy by expanding beyond TV shows and web series”, and also double down on its language market play. Zee recently announced a foray into micro-drama format through ‘Bullet’, a new-age content and tech start-up which aims at launching a micro-drama application tailored for mobile-first audiences.

 

‘Bullet’ will be hosted on Zee5 and will offer multilingual content, split into 60 one-minute episodes. This initiative is part of the strategy to innovate in digital content. Zee is also aiming for ad revenue growth of 8–10 per cent Y-o-Y after 11 per cent fall in FY25. The competition includes the merged RIL-Disney entity.

 

The increase in promoter shareholding may boost investor confidence. In FY24, Zee increased operating profit margins by 390 basis points Y-o-Y to 14.4 per cent. The stock has rallied over 50 per cent from its 52-week low on March 4, 2025. Risks include contingent claims of ₹150 crore in case of adverse court ruling in NCLAT IBC case and the Disney Star dispute over ICC rights with $940 million at stake and a probe into promoter fund-diversion by Sebi.