Zee Learn slammed for bad governance

Essel group firm Zee Learn has incurred the ire of proxy advisory firm Institutional Investor Advisory Services (IIAS) for alleged bad governance.

“Zee Learn’s board and management have not provided the requisite leadership, resulting in poor capital allocation decisions, including a botched-up acquisition. Plagued with high debt and weakening cash flows, the problems are exacerbated by pledged promoter equity,” IIAS said in a note to its clients, titled ‘Zee Learn fails its tests’.

IIAS has said “investors may need to wrestle the company out of the promoters’ control and influence”. Shares of Zee Learn have halved in the past year. In comparison, the BSE 250 index has declined 30 per cent.

Zee Learn is an education company catering to students from pre-school up to class 12 through brands such as Kidzee and Mount Litera.

In February 2018, the company picked up a 59.5 per cent stake in MT Educare for ~280 crore. IIAS said this led to value destruction for shareholders of both Zee Learn and MT Educare.

ZEE Learn had peak market capitalisation of ~1,560 crore in March 2017, which is now down to less than ~450 crore. MT Educare’s market cap, too, dropped from peak of ~700 crore in May 2016 to less than ~90 crore at present.

“ZEE Learn and MT Educare have complementary businesses — while ZEE Learn focused on in- classroom education (pre-schools to K-1 2), MT Educare provides after-school tutorials (like Mahesh T utorials, Chitale classes); yet the companies have been unable to leverage each other ’s reach and brands to build synergies,” notes IIAS.

In the note, IIAS raised red flags over capital allocation practices, related-party transactions (RP Ts), volatility in cash flows and high pledging of shares by promoters.