Zee Entertainment share price declined over 4% on Friday, a day after the National Company Law Tribunal (NCLT) approved the merger scheme of the company with Culver Max Entertainment (erstwhile Sony Pictures Networks India).
ZEE share price declined as much 4.72% to ₹272.05 apiece on the BSE. The weakness in Zee Entertainment shares comes amid uncertainty over the top management of the merged entity in light of the SEBI’s ban on Puneet Goenka on holding key positions in any listed company.
“We note that SEBI’s interim order bars Mr Punit Goenka from holding Director/KMP position; SEBI’s final order and/or SAT/Court’s verdict would determine the final outcome. It is not clear whether shareholders’ approval pertaining to MD/CEO is required right away or later,” Kotak Institutional Equities said.
The brokerage firm believes the risk-reward is unfavorable and will keep an eye on Sony-Zee’s execution and progress in digital (key to sustainability of valuation/re-rating).
Analysts expect the Zee-Sony merger to be completed in 2-3 months and the merged entity to garner a network market share of around 27%, making it one of the largest media companies in the linear space.
Kotak Institutional Equities estimates merged company EBITDA and PAT of ₹39 billion and 30 billion in FY2025. At Zee’s CMP, the merged company is trading at 19X and 11.5X FY2025E P/E and EV/EBITDA, it said.
The brokerage downgraded Zee to ‘Reduce’ from ‘Add’ and cut the target price to ₹275 per share from ₹260 earlier, valuing Zee at 17X September 2025E earnings that factor in all positives.
The potential EBITDA of the merged company hinges on underlying growth in the core TV business, merger synergies, moderation in OTT loss and cost savings from upfront write-off of inventory, partly offset by sports loss, it added.
Analysts at Motilal Oswal Financial Services feel that the current valuations do not capture the strong growth opportunity, while concerns around top management appointments and content investments would remain key monitorables.
The merged entity’s enterprise value (EV), adjusted for $1.6 billion cash infusion, stands at ₹358 billion. Assuming the merged entity’s revenue generating capability of ₹190 billion with 10% blended margins, it implies EV/EBITDA of 19x on FY24E (implying a negative value for OTT). Assuming zero valuation for OTT, the linear TV segment derives implied EV/EBITDA of 13x on FY24E, Motilal Oswal said.
The brokerage maintained its ‘Buy’ rating on the stock with a target price of ₹320 per share.
At 1:20 pm, ZEE share price was trading 3.97% lower at ₹274.20 apiece on the BSE.
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