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“BUY” This Large Cap Media Stock For A Target Price of Rs. 430: Emkay Global

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The shares of Zee Entertainment Ltd have been given a buy recommendation by brokerage firm Emkay Global Financial Services Ltd. The brokerage has set a target price for the stock of Rs. 430, implying a 23 percent rise from the market price of Rs 349 as of (December 22, 2021). But the stock is now trading at Rs. 333 per share on the NSE.

 

The brokerage’s take on Zee Entertainment Ltd.
 

The brokerage’s take on Zee Entertainment Ltd.

The brokerage in its research report has highlighted that "We have segregated the deal structure and equity capital increase into five parts: 1) sub-division of SPNI (transferee company); 2) Rs79.5bn rights issue by Sony Pictures Entertainment Inc (SPE); 3) share issuance to ZEEL promoters for Rs11bn infusion; 4) share swap for 100 shares held in ZEEL with 85 shares of SPNI; and 5) share issuance to the shareholders of BEPL (Bangla Entertainment Pvt Ltd), which is wholly owned by SPNI promoters. ZEEL promoters will get a 2.11% stake in the merged entity in lieu of the non-compete agreement, and they will have the option to increase their stake from 3.99% to a maximum of 20% through open market purchases. In the merged company, ZEEL promoters will continue to be classified as promoters."

According to Emkay Global "The deal structure and valuations are in line with the non-definitive agreement signed by both parties in Sept'21. We continue to highlight that this deal is positive for ZEEL shareholders as it will resolve investor concerns around governance, board composition and funding for future expansion (through the cash pile at the merged entity). The merged entity will be the market leader in India with a comprehensive bouquet of offerings, and will have the necessary balance sheet strength to invest in digital businesses and acquisition of sports rights. We strongly believe that acquiring the rights to a major cricket event (IPL or ICC India cricket series) will play a critical role in the OTT platform's significant facelift, which could lead to a valuation re-rating as well."

The brokerage has further added that "Merger synergies include: 1) enhanced bargaining power with content producers, distributors and advertisers; 2) cost optimization by shutting down tailend channels; and 3) other scale benefits. The recovery of Zee's market share loss in Hindi GEC and select regional markets is key in the near term. Key risks: 1) integration challenges; 2) cultural issues; 3) delayed regulatory/shareholder approvals; 4) sustained slowdown in ad revenues; 5) higher-than-estimated losses from the digital business, and 6) significantly low OTT monetization."

Buy Zee Entertainment Ltd. Says Emkay Global

Buy Zee Entertainment Ltd. Says Emkay Global

According to the brokerage's research report "Sony Pictures Networks India (SPNI) and ZEEL have signed a definitive agreement to merge ZEEL with and into SPNI. Under the deal, the entities' linear networks, digital assets, production operations and program libraries will be combined. Post deal closing, SPNI will have a cash balance of USD1.5bn, including USD1.06bn through a rights issue by the current SPNI shareholders and a fund infusion from ZEEL promoters. With a 50.9% stake, Sony will retain management control of the new entity. With the merger agreement signed, key things to watch out for now will be Invesco's support for the merger, timely regulatory approvals, smooth integration, the strategic roadmap for OTT investments, and recovery in Zee's viewership share in select core markets. We have adjusted our Pro-forma estimates assuming that the benefits from the merger will start reflecting from FY24 vs. FY23 earlier. Maintain Buy with a revised Mar'23E TP of Rs430 (11x Mar'24E Pro-forma broadcasting EBITDA)."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Emkay Global Financial Services Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Story first published: Monday, December 27, 2021, 9:08 [IST]
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