Investors will take final call on Zee leadership

As the five-year term of Zee Entertainment Enterprises’ managing director and chief executive, Punit Goenka approaches its end in December, speculations arise regarding his future at the company. Speaking during the company’s Q4 earnings call on Friday, Goenka stated that he has not discussed his reappointment with any shareholder. “So, at the end of the day, it is the shareholders who will decide whether I am the right person or not, or whether somebody else needs to lead this company,” Goenka told analysts.

Zee Entertainment Enterprises has domestic institutional investors holding 35.56% stake as of March 2024. Some of the top investors include ICICI Prudential Mutual Fund and HDFC Mutual Fund. Goenka, who is part of the promoter family, holds a 4% stake in the company and is the longest-serving CEO in Zee’s history, having been reappointed in 2019 for a term beginning in January 2020.

However, Goenka’s leadership has been overshadowed by an investigation from the Securities and Exchange Board of India (SEBI). Both he and his father, Subhash Chandra, are being scrutinized for allegedly diverting funds from Zee to promoter-owned entities. In August 2023, SEBI issued a confirmatory order against Goenka and Chandra, barring them from holding directorships or top managerial roles in Zee. Although the Securities Appellate Tribunal lifted this ban in October, allowing Goenka to retain his position, SEBI’s investigation continues.

This ongoing scrutiny played a role in the collapse of the much-anticipated merger between Zee and Sony Pictures Networks India. Sony was reportedly uncomfortable with Goenka’s leadership and preferred its executive, NP Singh, to helm the merged entity. In January this year, Sony terminated the merger agreement. Zee subsequently withdrew its application from the National Company Law Tribunal that sought to implement the merger.

Goenka addressed the decision to withdraw the petition, emphasizing a strategic refocus. “This decision will enable the company to sharply focus on growth and strategic opportunities in order to generate higher value for all shareholders,” he said. The company also plans to contest Sony’s $90 million termination fee demand before the Singapore International Arbitration Centre.

Despite these challenges, Goenka outlined targets during the earnings call, aiming for an 18-20% EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) by FY26. Zee has already taken drastic measures to reduce costs, including terminating 15% of its workforce and cutting investments in its technology centre and content. “We have been implementing a series of steps since the latter half of the quarter, the results of which will reflect on the bottom line in the financial year 2025,” Goenka noted.

The strategic and operational shifts at Zee come at a critical time. The Indian media industry is undergoing rapid changes, driven by digital transformation and evolving consumer preferences. Zee, which has been a traditional stakeholder in television broadcasting, is now navigating digital media and streaming services. Cost-cutting measures and refocusing are part of Goenka’s broader plan.

With institutional investors holding a substantial stake, their decision on Goenka’s future will be pivotal. These investors, which include major mutual funds like ICICI Prudential and HDFC, will weigh the benefits of continuity against the need for new leadership, especially in light of the ongoing SEBI investigation.

Regulatory scrutiny has already impacted Zee’s initiatives, evidenced by the failed merger with Sony. Moving forward, the outcome of SEBI’s investigation will likely influence not only Goenka’s position but also Zee’s strategic direction.

In the meantime, Zee’s performance in the coming quarters will be closely watched by shareholders and analysts alike. The company’s ability to achieve its EBITDA targets, streamline operations, and navigate regulatory challenges will be critical in restoring investor confidence. Goenka’s future at Zee, while uncertain, will be determined by a combination of these factors and the decisions of its major shareholders. GoodReturns