Rakesh Jhunjhunwala makes Rs 62 crore in just nine trading sessions

Rakesh Jhunjhunwala makes Rs 62 crore in just nine trading sessions

REPL issued non-convertible debentures (NCD) in two tranches, with maturities of three years and one day, and four years and one day, generating a yield of around 7.75 percent for Barclays (Illustration: Moneycontrol)

As the Zee Entertainment stock continued to trend upwards, ace investor Rakesh Jhunjhunwala is sitting pretty on gains of over Rs 60 crore. Jhunjhunwala bought 50 lakh shares on September 14, the day after the largest institutional shareholders Invesco Oppenheimer called for the ouster of CEO Punit Goenka and reconstitution of the board of Zee Entertainment.

From Jhunjhunwala’s purchase price of Rs 220 on September 14, the stock has zoomed, trading at Rs 345 at 10.02 hours this morning. That means a gain of Rs 62.50 crore or a return on investment of 56.81% in nine days. Although the number may not mean much, on an annualised basis, this translates into a return of 2303% return on an annualised basis!

The Nifty in comparison has delivered a return of 26.43% year-to-date and 59.22% over the past one year till date.

Zee kind of opportunities are rare. It requires investors to be both nimble-footed and willing take calculated risks, something Jhujhunwala has mastered over the years.

Not just Jhunjhunwala, a few of the marquee fund managers had also bought into the stock on September 14. More institutional buying is coming into the stock as brokerages turn positive. The complexion of the company is changing with the much-needed capital infusion coming from Sony Pictures that could help it augment its digital business significantly.

In terms of overall numbers, Sony Pictures clocked Rs 582 crore in profit after tax for FY21, down from Rs  896 crore the previous year chiefly because of the pandemic. If that number can be re-couped by FY23, the combined profit for Zee and Sony could be roughly Rs 2500 crore based on analyst forecast. A 10% growth in profit for the following year could take that number to Rs 2750 crore.

Over the past decade, the Zee stock has traded at an average one-year forward multiple of roughly 26x, but, over the past couple of years, it had seen a de-rating because of governance issues and stress caused by the promoters’ pledged shares. After the huge surge in stock price over the past week, the stock has come back to multiples it has commanded historically.

Here is the stock math: Assuming that the new entity commands an earnings multiple of 25x, the overall market-cap of the new entity should be around Rs 68,750 crore (25x P/e *Rs 2750 of PAT for FY24). Considering the Zee shareholders will hold a 47% share in the new entity, the share of market-cap will be Rs 32,312 crore. Based on today’s price of Rs 333, the stock commands a market-cap of Rs 32,800 crore, pricing in historical valuation multiple for the new entity.

Ironically, Invesco, with its activist action, just managed to create huge value for savvy individual and institutional investors. But it Invesco itself will have to wait it out to make a return on its own investment in Zee bought at Rs 400 a share.

The deep value trade in Zee is over. With governance issues behind, and with a stronger competitive position in the broadcasting space, a good movie distribution business, and a finger in the high-growth OTT pie, Zee now has a long runway ahead for growth.

The future course will be determined by the growth trajectory Goenka and the new promoters chart for the company.

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