ZEEL-SugarBox: Not a sweet deal!

Zee Entertainment Enterprises (ZEEL) decision to invest Rs 522 crore in internet technology enabler in Margo Networks (SugarBox) received a cold response from investors.

The stock lost over 10% so far in today’s trade as investors queues up to liquidate their position, finding little benefits to accrue in the near future.
SugarBox is still to commence its commercial operations.
Hence, there is uncertainty with regards to its operating model as well as market penetration capability in highly skewed entertainment business.
Television channel distribution business continues to be dominated by cable operators. Replacing the existing model will be a tough task.

Earlier in 2017, ZEEL had acquired 80% equity stake in SugarBox.
This investment will be made by ZEEL to exploit strong synergies of the technology developed by SugarBox with the current businesses of the Company and with a potential to significantly augment the digital content consumption.
ZEEL management believes investment in SugarBox to give a strong fillip to the overall digital business, sharpening its approach by many folds.

The unique technology is expected to enable ZEEL to serve content to consumers across the Nation, without being restricted by connectivity constraints.
SugarBox enables internet services to work even in areas of bad or no network and empowers users to access them without an active data connection.

It creates a hyperlocal data distribution ecosystem by installing CDN Edge servers at key places of interest (POIs), which users can connect to over a local Wi-Fi network.
SugarBox POIs include public transport, public places, rural areas, hotels & co-living spaces, malls, etc. where a critical mass of users access a host of digital services.
Using the SugarBox platform, a user will be able to stream & download videos, listen to music, play games, learn on-the-go, shop online, pay bills, order food & groceries, book onward transport and access other digital services, all without dependence on cellular data or even the need of an internet connection.

SugarBox will commence commercial operations across exclusive long-term contracts like L&T Metro, Chennai Metro, NMMT, Kolkata Metro, Indian Railways and forge new partnerships to scale up its network.
It is at the forefront of revolutionizing availability, affordability and reliability of digital services for the next billion users globally.

Through ZEEL investment, it hopes to take a giant leap towards achieving that goal.
While this investment could definitely add value over the longer term, this fresh investment in SugarBox comes at a time when ZEEL is already facing several negative headwinds on monies lent to subsidiaries earlier and where receivables have gone up and are yet to be repaid

While this investment is to phased out over a 3 year period, the fresh investment in a related part transaction was not something the markets liked at this point of time from the management as logically topline from SugarBox is marginal and may take a long time to scale up ahead.

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