Should You Buy The Zee Stock After A 20% Fall?

Since Jan 22, Zee Entertainment Enterprises saw its stock fall 20per cent, after hitting a Rs 300 high on that day. The shares are now trading at Rs 241 and are down almost 20 per cent.

The latest to trigger a downfall in the stock is reports that the Ministry of Corporate Affairs (MCA) has sought information and inspection under Sec 206(5) of the Companies Act.

The stock has dived almost 14 per cent, ever since the news surfaced.

Zee Entertainment Clarifies On MCA Inspecting Books

"We wish to inform you that we are in receipt of the letter dated January 21, 2020 from the Ministry of Corporate Affairs (MCA) seeking certain information and inspection under Section 206(5) of the Companies Act, 2013.

Further, please note that the information sought by MCA is already available in the public domain. However, we are collating all the desired information and will be providing the same to MCA with an intent to fully cooperate with their inspection. You may note that no conclusion or adverse inference has been drawn by any authority against the Company," the firm said in a release to the exchanges.

It may take time for the Ministry of Corporate Affairs to complete what it is set out to do. Somehow, the stock of Zee Entertainment, when it starts to stabilize, starts plunging again on some adverse news, leaving investors distraught.

Should you buy the Zee Entertainment stock?

Investors tend to buy a stock based on the assumption that the books of accounts, represent a true and fair picture of the financials of the company.

In the case of Zee Entertainment, one cannot allege anything unless the inspection has been complete. However, what does not go down well with the markets is corporate governance issues. Investors hate companies where problems on corporate governance surface.

Earlier last year, shares in Zee Entertainment were all over the place, after mutual funds sold the promoters pledged shares triggering a sharp downside in the stock.

Promoters have been given a deadline until March 31, to pay the debt owed to mutual funds or they might resort to selling further quantities of the pledged shares. We do not have any clue as to what is happening on the debt repayment front by the promoters.

A solid brand equity

If you look at the positives, Zee Entertainment has a solid brand equity. However, profitability has been muted in the last few quarters, given the economic scenario.

Even assuming that the company is given a clean chit by the Ministry of Corporate Affairs, we feel that a solid growth path maybe very difficult to comeby for the company.

We believe that there are just too many risks at the moment for a sharp u-turn in the stock. The shares of Zee Entertainment, is still a good 15 per cent away from the 52-week low that it hit last year of Rs 199. Maybe if you get it way below the Rs 200 levels, you might want to take a chance with a small quantity, purely because of the brand.

About the author:

Sunil Fernandes has spent 25-years reporting on various aspects of business and finance, including mutual funds and equities.