The Zee Telefilms share: QUO VADIS?

The Zee Telefilms stock has seen a lot of activity over the past two days. Positive for a change. Compared to the 15 million or so trade two days ago, 32.3 million shares were traded yesterday and 1.1 million today. Two days ago, there were more sellers than buyers which led to a collapse in the ZTL share price from Rs 136 to Rs 114 and then to Rs 105.50 yesterday. This started off a wave of panic in the investment community.

Since then, the ZTL scrip has been on a recovery path. The share climbed to close at Rs 138 by the time trading ended today. The reason: Solomon Smith Barney (SSB) has put a buy recommendation on the stock. It says the share will hit the Rs 273 mark by end this year.

SSB has forecast a 45 per cent compounded annual earnings growth for ZTL between financial year 2000 and financial year 2002. The rapid growth is expected after the conversion of its flagship channel Zee TV into a basic pay channel as it is expected to be encrypted some time in April this year.

According to an analyst with a leading securities firm: "The market has already discounted the Budget effect and the results that ZTL is expected to report in the last quarter, so at this level we recommend that investors buy into the stock. It is attractive even a pat rice of Rs 170-175 (it yields a price-earning ratio of 27-28). In the previous quarter of this year it had a net profit of Rs 470 million; in the last quarter of last year, the net profit was Rs 260 million. We expect the net profit for Q4 this year to be somewhere between these two extremes, even if if Zee TV's performance has deteriorated as compared to last year. This will take the price to upper side."

The SSB prediction is the opposite of a recommendation made on 3 March by Goldman Sachs which has downgraded this stock. In its report, it has has lowered the estimates for Zee's earnings per share for 2002 from Rs 6.84 to Rs 6.31 and in fiscal 2003 from Rs 9.98 to Rs 9.1. This warning actually led to the slide in the share price and it shed 15.99 per cent on that day.

The scrip has clipped off over 90 per cent of its value (from its all time high of Rs 1600 in Feb 2000 ) over the last 10 months after its share split while the Sensex has shed 33% of its value. Still it is considered as a market out-performer by some analysts.

Adding to the uneasiness about the share is the buzz that an overseas corporate body is offloading ZTL stock. Zee Telefilms has denied that it or its promoter chairman Subhash Chandra is behind any of the selling.

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