Zee Leisure shares prolong rally on constructive brokerage view; Sony deal seen worth accretive

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Zee Leisure Enterprises (Zee) share worth rallied one other seven % on Thursday to hit a 52-week excessive of Rs 362.85 after the corporate introduced a merger with Sony Photos Networks India. Zee shares had surged greater than 30 % within the earlier session.

India’s two high media leisure channels Zee and Sony Photos Community, on Wednesday, introduced an unique, non-binding time period sheet to merge each the businesses.

The mixed entity will likely be a publicly listed entity and the nation’s greatest TV broadcast firm. Based on the time period sheet, Zee CEO Punit Goenka will proceed to be MD of the merged entity for 5 years.

Learn right here: Zee Leisure indicators merger take care of Sony Photos Networks India

Analysts view this merger as a constructive for Zee because it doubtlessly addresses the corporate’s board-related issues, improves company governance and operational efficiency which may assist in the long term considerably and brings large synergy positive factors.

Sony has a 9 % market share, whereas Zee has 18 % and so the mixed entity will likely be largest in India at 27 % versus Star at 24 % market share.

Additionally Learn: Zee Ent-Sony deal: Brokerages say merged entity might emerge as 2nd largest home-grown OTT

International brokerage agency CLSA believes that the merger phrases are beneficial for Zee. The merger will mix Zee and Sony linear TV networks, digital belongings, manufacturing operations and content material libraries. The merged firm will likely be larger than sector chief Star. Sony will add to Zee in leisure genres, gaming and sports activities.

“With Zee’s proposed merger with Sony a constructive and robust development forward, money swell and inventory valuation compelling at 15x FY23PE, we retain ‘purchase’,” CLSA mentioned.

It raised its goal worth to Rs 400 from Rs 306 earlier, which is an 18x PE a number of to one-year ahead earnings estimate and at a 33 % low cost to the 10-year common.

Specialists see income synergies for Zee on the merger to be at 6-10 % with the expanded bouquet of channels post-merger and improved attain. It additionally sees some synergy profit in subscription revenues.

The merger is predicted to work out nicely additionally as a result of Zee and Sony have very restricted content material overlap. Sony Photos India, a wholly-owned subsidiary of Sony Company, Japan, has 26 channels in India together with 10 in sport and three every in Hindi GEC and flicks. It has a restricted regional presence in Marathi and Bangla GECs.

“Sony channel portfolio has restricted overlap with ZEEL with Sony Hindi GEC targeted at non-fiction and is robust within the comedy style. Apart from, Sony has a big film library, which ought to additional strengthen the already sturdy Zee library. As well as, Sony has a digital presence – Sony Liv. Nonetheless, we see scope for some channel rationalisation, which ought to assist drive price synergies for the corporate,” ICICI Securities mentioned.

The brokerage has upgraded its ranking on ZEEL to ADD from ‘maintain’ and raised the goal worth to Rs 374 from Rs 200 earlier. It additionally raised the FY23E P/E a number of to 22x from 12x.

Additionally Learn: Don’t see a lot upside for Zee Ent from present ranges: Senora Advisors’ Mridul Jalan

In the meantime, an vital difficulty to be careful for could be how key institutional traders react to this growth.

“If the merger occurs, some traders might have issues on Mr. Goenka persevering with as MD, however Board will likely be dominated by Sony, which might handle this concern.  The merger fills in gaps in ZEEL’s portfolio in sports activities, Comedy and Crime exhibits. Additionally, at some stage, minority traders would have needed to search for a strategic investor, which will get addressed upfront,” Edelweiss Securities mentioned.

It expects the inventory to be risky within the close to time period. It retains ‘purchase’ and will increase the goal worth to Rs 428 from Rs 343 and raises a number of from 20x to 25x as company governance issues get addressed.

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