Siti Networks Ltd. defaulted on Rs 400 crore worth of loans, a development that may add to the burden of Zee Entertainment Enterprises Ltd.
The cable TV services provider is more than 30 days behind payment of principal and interest, the company informed exchanges. The default came despite the assurance of timely payment of receivables.
According to a report by Emkay Global, Zee is likely to take a balance sheet hit of more than Rs 200 crore as the company will have to honour the corporate guarantees. That will deplete net cash by 9%.
Zee has subscription receivables of Rs 81.2 crore and corporate guarantees worth Rs 120 crore from Siti, according to Kotak Securities. Zee may have to terminate content contracts with Siti till it clears the dues but that will hurt viewership.
According to the report, Zee revised the payment plans for Dish and Siti to recover overdue receivables within 12-24 months starting 2020-21. But after the default, Siti may not have the liquidity to meet its payment obligations.
Siti reported an operating margin of 19.2% and its consolidated revenue declined 2.6% year-on-year on year in the quarter ended June.
More than the financials, Emkay said the default also hits the investor confidence that was building up after first-quarter results. The report raised concerns as the auditors may disallow revenue recognition to Zee from services offered by Siti.
Emkay downgraded the stock to ‘hold' from ‘buy' and cut the target price of Zee to Rs 200 from Rs 272. Zee shares fell as much as 3.7% in early morning trade to Rs 193. Siti was down 4%.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
