Zee-Sony
Citi, CLSA, and Motilal Oswal Financial Services all downgraded Zee Entertainment, anticipating a decline in values and a rise in competition intensity in the sector.
Shares of Zee Entertainment Enterprises fell 30.50 percent in January, breaking a series of lengthy lower circuits throughout the day and reaching a 52-week low of Rs 152.50 on January 23.
The dramatic drop comes a day after Sony Pictures’ Indian subsidiary cancelled its $10 billion merger with the Indian media conglomerate.
Several brokerages have downgraded Zee’s shares, anticipating a dramatic drop in its valuation. Among them was global brokerage firm CLSA, which predicted a valuation drop from 18x to 12x following the merger’s termination. Delivering directly to Citi’s fear, the freefall in Zee’s shares lost all of its gains since August 2021, when its merger intentions with Sony Pictures were originally unveiled.
Zee closed 30.50 percent lower at Rs 160.90 on the National Stock Exchange, having opened at the first lower circuit of Rs 208.3, down 10% from the previous finish.
The circuit values were later reduced to 15%, 20%, 25%, and 30%.
Sony claimed delays in finalizing the deal by the deadline and failure to meet the agreement’s closing criteria as reasons for terminating the merger. The firm is also seeking a $90 million termination fee for claimed violations of the Merger Co-operation Agreement (MCA).
Zee Entertainment has refuted Sony’s claim of violating the MCA provisions, including the demand for the termination fee.
According to UBS Securities, the termination of the transaction is a bad news for Zee, with the implied value per share expected to fall 20% from its current Rs 190.
CLSA also anticipates Zee’s difficulty with low promoter ownership to put additional pressure on the stock. As a result, it downgraded the stock to a “sell” from a “buy” and reduced the price objective by 34 percent to Rs 198.
Citi has also downgraded the stock to “sell” and cut its price objective by almost half, to Rs 180. With the deal put off, the increased competitive intensity in the media sector in the context of the anticipated Reliance-Disney combination would take center stage. The firm also reduced its FY24-26 profits projection for Zee by 22-38%, predicting slower margin recovery.
Similarly, Motilal Oswal Financial Services downgraded the stock’s recommendation from “buy” to “neutral” with a price objective of Rs 200.
“We do not expect earnings to recover in the short term. Zee has not announced whether it will pursue the merger, and the battle with Sony may impede operational improvements or lead to discussions about a merger with other players. It is uncertain what direction Zee will pursue in the future, and there is little clarity on the company’s long-term prospects,” MOFSL stated in a note.
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