Shares of ZEE Entertainment Enterprises rallied over 7 per cent in Thursday’s trade Zee after the Competition Commission of India (CCI) approved its proposed merger with Sony, subject to some conditions.┬а
The next pit stop is to seek shareholder approval, with meeting scheduled on October 14, said analysts.┬а┬а
“Clearly, the merger process has taken longer than the management expectation of 9-10 months, but once the shareholder approval is in place, the merger process should be largely procedural and may conclude by Q4FY23,” said Motilal Oswal Securities.
ZEE Entertainment in an exchange filing on Tuesday said the CCI has approved the amalgamation of Zee Entertainment Enterprises and Bangla Entertainment with Culver Max Entertainment Private (erstwhile Sony Pictures Networks,with certain modifications.
Media reports suggest the merged entity may exit the Marathi GEC (general entertainment channel) in a bid to allay CCI concerns on four segments, including Hindi GEC, movies, and Bengali channel.┬а
The stock climbed 7.26 per cent to hit a high of Rs 286.90 on BSE. The scrip is down 13.60 per cent year-to-date.┬а
Motilal Oswal said concerns over the merger have been playing on the stock price, as is evident from its low valuation. But now, as the merger process is closer to completion, the stock should benefit, it said.┬а
“We see the potential for value accretion on both the linear and OTT businesses, given the high ROCE and growing linear business and strong wherewithal in the OTT business. With the change in the board and the majority stake now being owned by Sony, an MNC, the stock should also benefit from┬аbetter capital allocation, improved corporate governance, and business synergies,” it said while suggesting a target of Rs 310 on the stock.
The stock, on a combined basis holds an enterprise value (EV) of Rs 30,640 crore, and trades at merely 7 times EV/Ebitda for the normalised linear business, assuming zero value for the OTT business, Motilal Oswal said.
JM Financial has initiated coverage on the ZEE stock with a buy rating and a target of Rs 370.┬а
It said ZEE’s growth over FY10-19 was underpinned by upfront investments which put the company into a virtuous cycle of higher viewership, faster growth and better margins.┬а
FY18 onwards, investments in new content sputtered and inventory bloated, it said.
“Just when Zee was saddled with stale content, Covid hit pushing Zee down a vicious cycle. Sectoral headwinds further worsened matters. Zee now appears to be course correcting. Off-balance sheet matters are behind it. Investments have resumed. Viewership seems to have stabilised. Merger with Sony should put Zee back on the growth path while allaying governance concerns, in our view,” it said.
At 17 times FY24E merged-company EPS, negatives are priced in, it said.┬а
