Zee Entertainment Enterprises (ZEE) merger with Sony Pictures Networks India sets the stage for two dominant players to join hands to create a media behemoth, making analysts bullish on the prospects of the listed Zee stock. After the completion of due diligence between Zee and Sony, brokerage firms have upgraded ratings and target prices for Zee stock. “There is a possible upside from the merged entity’s higher competitive position in the market and synergy gains, given that both the companies have a significant potential to improve profitability,” said analysts at Motilal Oswal in a note. Zee stock was trading flat with a weak bias on Thursday at Rs 347.2 per share.
What’s positive for Zee?
Post-merger, Sony and Zee’s promoters will hold 51% and 4% in the merged entity, while the rest will be held by the public. “We continue to highlight that this deal is positive for ZEEL shareholders as it will resolve investor concerns around governance, board composition and funding for future expansion,” said Emkay Global. They added that the merged entity will be the market leader in India with a comprehensive basket of offerings. The balance sheet of the merged entity will also have the necessary strength to invest in digital businesses and acquisition of sports rights. “We strongly believe that acquiring the rights to a major cricket event (IPL or ICC India cricket series) will play a critical role in the OTT platform’s significant facelift, which could lead to a valuation re-rating as well,” they added.
After approval, Zee stock will de-list from the bourses and re-list as a merged company, said Edelweiss. The process could take 2-4 quarters, in their view. “The merger fills in gaps in Zee’s portfolio in the sports, comedy and crime genres. The Zee stock has more than doubled over the past six months, so profit booking is possible. But there can be huge value creation (potentially USD1–2bn) due to the combined OTT app becoming a must-have for subscribers and a scalable business proposition,” they added.
Good deal, but no thanks!
In a contrarian view, Kotak Securities has downgraded the stock to ‘Add’ rating from ‘Buy’ earlier. “We trim our multiple in view of continued pressure in the core TV business (weakness in viewership and ad outlook), and rise in competitive intensity in OTT,” Kotak Securities said. They added that it is imperative for Zee to fix the core and accelerate investments in digital at the earliest. The brokerage firm said that it values Zee at 20X (22X) FY2024E proforma earning, while adding that valuation band for a traditional TV business is 10-15X PE whereas a future-proof business with a good streaming platform can command 30X+ PE. Kotak Securities has a fair value of Rs 375 per share on Zee.
Motilal Oswal has upgraded Zee Entertainment stock price to a ‘Buy’ rating and revised the target price to Rs 425 per share, valuing the company at 25x Sep’23E EPS. This implies more than 22% upside from the current levels.
Emkay Global has maintained its ‘buy’ rating on the stock but raised its target price. Analysts now believe the stock could rally to Rs 430 per share, an upside of close to 23% from current levels. Meanwhile, Edelweiss has maintained its ‘Buy’ rating on Zee with a target price of Rs 428 per share.
(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)