NCLT approval for ZEE-Sony merger is a shot in arm for ZEE Entertainment Enterprises Ltd (ZEE), as analysts noted that necessary approvals from stock exchanges and CCI have already been received in this regard and the merger is all likely in the next 2-3 months. Share price targets on the stock, however, differ widely following the recent rally. The stock's re-rating from hereon would be a function of execution and external factors, analysts said.
Kotak Institutional Equities said the merged company's market capitalisation and embedded value stood at Rs 57600 cror and Rs 45,000 crore, implying a PE of 19 times and EV/Ebitda of 11.5 times on FY25 basis.
"Even as we appreciate Sony-ZEE's portfolio strength (28-30 per cent viewership and ad share in entertainment genres), long-term valuations would be a function of success in digital. In our view, the valuation band for a traditional TV business is 10-12 times P/E, whereas a future-proof business with a good steaming platform can command 25 times-plus PE. At present, Sony-Zee’s positioning in OTT is weak and we are not sure about the investment strategy and execution of the merged company. Our FV of Rs 275 (for ZEE) values the merged company at 17 times September 2025," Kotak said.
Kotak said the stock's re-rating from hereon would be a function of execution and external factors. For now, the brokerage has downgraded the stock to 'Reduce' from 'Add', as it sees a limited upside in the short term.
"We will keep an eye on the merger company's execution in TV/OTT, competitive landscape (developments at Disney-Star/Jio) and the pace of TV-to-OTT shift," it said.
Emkay Global noted that Punit Goenka’s case with Sebi still ongoing and the issue of who will be at the helm of the merged entity persists. That said, the brokerage believes that promoters’ proceedings are unlikely to derail the merger.
"Filing with ROC (post 30 days of receiving order) and MIB vetting are next steps, post which the stock shall be delisted for six weeks. We reinstate our previous targeted EV/ Ebitda (broadcasting) of 9.5 times (from 8 times), with merger completion now in sight and improving business outlook; we also remove our merger-uncertainty discount of 10 per cent, to arrive at a revised target of Rs 335 per share," it said.
On Friday, the stock was trading at Rs 280 on BSE, down 1.94 per cent.
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