The shares of Zee Entertainment Enterprises Ltd rallied 40 per cent, recording fresh highs on Tuesday after Invesco Developing Markets Fund (formerly Invesco Oppenheimer Developing Markets Fund) and OFI Global China Fund LLC, which together hold 17.88 per cent in Zee Entertainment called for an extraordinary general meeting of the shareholders of the company to seek the ouster of Subhash Chandra’s son Punit Goenka as the director of the company.

The investors have also sought the removal of two other directors Monish Chokhani and Ashok Kurien.

Zee Entertainment closed at ₹261.50 on the BSE, up ₹74.70 or 39.99 per cent. It recorded a fresh 52-week high of ₹270.85 and a low of ₹205.45. It had opened at ₹205.45 as against the previous close of ₹186.80.

The company's M-cap stood at ₹25,117.49 crore.

It closed at ₹261.70 on the NSE, up ₹74.85 or 40.06 per cent. It recorded a fresh 52-week high of 270.90.

The company's stock trades in the futures & option (F&O) segment, which has no circuit limits.

The rally in Zee Entertainment also pushed the Nifty Media index up 14.40 per cent at closing to 1,972.50. The index during the day also hit a fresh 52-week high of 1,995.20.

Binod Modi, Head Strategy at Reliance Securities said, "Notably, Nifty Media index gained ~12% mainly led by a sharp rally in Zee Entertainment following growing expectations of improvement in corporate governance standard after large investors sought the ouster of select directors of the company. "

The two largest shareholders of Zee Entertainment, in a letter on September 11, had called an extraordinary general meeting (EGM) seeking removal of Punit Goenka, Manish Chokhani and Ashok Kurien as Directors of the firm, the company said in a regulatory filing on September 13.

Invesco has proposed six new independent directors to reconstitute the board.

Meanwhile, Manish Chokhani and Ashok Kurien have resigned from their respective posts ahead of the meeting.

"The company has today received letters from Manish Chokhani and Ashok Kurien resigning from the position of Non-Executive Non-Independent Directors of the company with immediate effect. The company has taken the said letters on record," the company informed the exchanges on September 13.

Last week, proxy advisory firm Institutional Investor Advisory Service (IIAS) had raised concerns against Subhash Chandra-backed Zee Entertainment regarding corporate governance.

Analysts bullish

According to analysts, the new development may be perceived as positive. , The resignation of both directors is positive, says DART Research.

"Punit Goenka too may resign from the directorship and continue as CEO. This will be positive," it said.

"If he resigns as MD & CEO then Zee may witness disruption in business. It has already saw almost 300-350 bps market share loss from peak to 17 per cent now. Zee has also talked of a significant step up in investments," DART research added.

"Nevertheless, irrespective of whether Punit Goenka resigns or not as MD & CEO (as Director seems inevitable) still the PE multiple would get upgraded. Activism by large shareholder is welcome. Expect stock to react significantly positive," it said.

Kotak Securities updated the rating of the stock to 'Buy' with a Future Value (FV) of ₹250.

"We expect the stock to re-rate and the gap between Zee’s market value and intrinsic value to narrow notwithstanding the evolving situation," it said in a note.

"We expect any one of the following three scenarios: Change in Board followed by a change in management. This scenario assumes the appointment of a new CEO by the new Board. There is also a possibility that the new Board receives interest from strategic/financial investors to acquire a majority stake and management control; Change in Board with continuity of management. This scenario assumes that the new Board continues with the existing management (Punit Goenka as MD & CEO) but seeks better cash generation and tighter control on capital allocation' and continuity of management with a new set of investors. This case assumes shareholder churn and a new set of investors/shareholders backing Punit Goenka as MD & CEO," it said.

"Zee stock currently trades at 11X Sep-23E PE and 6.5X EV/EBITDA and 9X/5.25X core business earnings/EPS. Zee’s valuations have been constrained by governance concerns and structural risks. The market has ascribed negative value to ZEE5 due to a lack of confidence in the management. Irrespective of how this plays out, we expect a re-rating," Kotak Securities said.