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 p.c 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 p.c 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 shall be a publicly listed entity and the nation’s largest 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 cope with Sony Photos Networks India

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

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

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

World 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 shall 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 powerful progress forward, money swell and inventory valuation compelling at 15x FY23PE, we retain ‘purchase’,” CLSA stated.

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 p.c low cost to the 10-year common.

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

The merger is anticipated 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 centered at non-fiction and is robust within the comedy style. Moreover, Sony has a big film library, which ought to additional strengthen the already robust Zee library. As well as, Sony has a digital presence – Sony Liv. Nevertheless, we see scope for some channel rationalisation, which ought to assist drive price synergies for the corporate,” ICICI Securities stated.

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 can be how key institutional buyers react to this growth.

“If the merger occurs, some buyers could have considerations on Mr. Goenka persevering with as MD, however Board shall 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 buyers would have needed to search for a strategic investor, which will get addressed upfront,” Edelweiss Securities stated.

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 considerations get addressed.

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