Advanced Television

Zee downgraded by analysts

January 24, 2024

The fallout from the collapsed merger between Zee Entertainment and Sony’s India broadcasting activities continues. Zee’s share price has collapsed (down 26 per cent on January 23rd) and most local analysts suggest that Zee will be under increased financial and shareholder pressure and probable litigation.

At least six Indian brokerages also said investors should sell Zee’s stock, according to market data. Zee’s tumbles saw it lose over $800 million in market value, almost four time the entire market capitalisation of news broadcaster NDTV.

Vivekanand Subbaraman, an analyst at brokerage Ambit Capital, said Zee’s troubles with scaling up the business could see it lose its No.2 position. “The challenge that Zee is facing is that the TV business has been declining at a fairly fast pace – its fiscal 2023 ad revenue is still 22 per cent below 2019 levels.”

Zee’s profit slid 68 per cent in the first six months of the current fiscal year, while its cash reserves dropped 40 per cent.

Investment bank BNPP says that despite Zee formally requesting a “maximum” 6-month extension to the merger discussions (ahead of the talks breaking down) but Sony did not provide any counter proposals.

“Zee now faces litigation from Sony regarding termination fees and potentially with Star regarding the sub-licensing of ICC cricket broadcasting rights. Zee’s core business is still under pressure. We downgrade Zee from Neutral to Underperform with lower earnings estimates and target P/E multiple,” said the bank. “We see this as a significant negative development, and downgrade stock to Underperform.”

“Zee’s stock had sharply rerated when the potential merger with Sony was announced. With the deal collapsing, we expect the stock to derate. We now expect Zee to trade close to the bottom-end of its past 10-year NTM P/E range considering the much-anticipated merger being called off, weakness in core business and additional risks from the litigation. We also lower our FY25-26E EPS by 10-12 per cent on sustained weakness in core business and its impact on margins. After the merger announcement and regulatory approvals, we had continued to value Zee on its standalone numbers and had not factored in the synergy benefits in our earnings estimates. Thus, our 36 per cent Target Price (TP) cut is from a combination of lower target P/E (15x vs 22x earlier) and lower earnings estimates, partly offset by the roll-forward of our TP to Dec-25E from Sep-25E,” added BNPP.

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