At 11:56 AM, shares of Zee Entertainment were trading 4.81% up at Rs 163.40 on BSE.
According to ET, investors took advantage of the chance to buy Zee shares today, hoping for a positive change even after Sony canceled its planned merger with the struggling media company. The termination of the Sony deal led to downgrades and sell recommendations for Zee, which strongly disagrees with Sony’s allegations of breaking the merger agreement.Zee Entertainment is considering different options, including legal action and challenging Sony’s $90 million arbitration claim. The earlier Zee-Sony merger had initially boosted Zee’s valuation, as it was expected to enhance corporate governance and bring significant merger benefits.
Kotak Equities lowered the stock rating from reduce to sell due to various concerns, including ongoing investigations, poor operating performance, and significant risks to earnings per share (EPS) estimates. These risks involve possible sports-related losses in FY2025/26E and challenges in the core broadcasting business.
Zee is encountering operational challenges, such as a sluggish advertising business, decreasing viewership in crucial markets like Hindi GEC, Tamil, and Marathi, tough competition in subscription pricing, and slow growth in the OTT sector amid competition from major industry players.
Emkay Global was quoted stating that the breakdown of the Sony deal and the possible Reliance-Disney merger might worsen Zee’s standing in the industry. The brokerage revised its forecasts, reducing Zee’s standalone EBITDA for FY24-26E because of a slower recovery, lack of sporting revenues, and higher content investments.
CLSA stated that with the termination of the Zee-Sony merger, they expect Zee’s price-to-earnings (PE) ratio to drop to the previous 12x levels observed before the Sony merger announcement on August 21, 2023. This timeframe coincided with the COVID-19 second wave, and Zee’s stock PE had previously experienced de-rating during the promoter share pledging crisis in 2019 and a decline in business cash conversion. CLSA assumes that Zee’s valuation is likely to return to a 12x PE, forming the basis for their revised target price of Rs198 (previously Rs300).
Zee Entertainment has faced muted growth in the past two years, with flat revenue growth from FY20-23 and a decline in EBITDA margin to 10.7% (6MFY24). Factors contributing to this include losses in the OTT segment and slower growth in the linear TV segment.