The stock of Zee Entertainment, which was trading at Rs 176 on Sept 9, has now doubled to nearly Rs 333 on Sept 24. Despite the stock seeing robust gains after a reported merger with Sony Pictures Networks India, brokerages still remain upbeat on the stock.
Buy Zee for a 30% upside, says Emkay
Emkay Global sees an upside of nearly 30% on the stock of Zee Entertainment to a target price of Rs 430 in 12-months time.
Zee and Sony Pictures Networks India (SPNI) have entered into a non-binding term sheet (with a 90-day exclusivity period) for the merger of the two companies. The deal should address investor concerns, and fill the content gaps each of them are currently having.
Emkay Global views the transaction as a big positive as it might resolve a slew of issues relating to corporate governance and investor activism, with the board of directors to be decided by
"The merged entity will become the market leader with a comprehensive bouquet of offerings, along with the necessary balance sheet strength to invest in digital businesses and
sports rights. Sony Pictures Networks India emphasis has been on building sports and HSM portfolios, while Zee has been focused on regional, HSM and movie channels," the brokerage has said.
According to Emkay Global, the merged entity will benefit from increased bargaining power with content producers and distributors; optimization of costs by shutting down tail-end channels, thus, freeing up management bandwidth and costs attached to them; and 3) competitive edge. All these factors should augur well for better valuation, the brokerage says.
"Zee's underlying broadcasting business has been facing challenges due to the Covid-induced shift toward digital. However, in our view, the merged entity's comprehensive
offerings will place it ahead of competitors on the growth front," the brokerage has said.
Buy Zee Entertainment stock says Sharekhan for a target price of Rs 400
Brokerage firm Sharekhan too has recommended buying the stock of Zee Entertainment with a price target of Rs 400 on the stock. The brokerage feels that the proposed merger would be a strategic fit from a revenue perspective as it would strengthen Zee Entertainment's portfolio with sport, kids and English movie properties.
"The infusion of growth capital of $1.6 billion by Sony Pictures, the combined entity's cash balance would increase to $1.8 billion, which would be used to accelerate its digital platform growth and invest in premier content including sports. We believe that corporate governance concerns will get addressed with the controlling stake of Sony Pictures and this will trigger multiple re-ratings for Zee Entertainment. The stock is currently trading at a reasonable valuation at 20x/18x of FY2023E/FY2024E earnings estimates. Hence, we maintain a Buy rating on Zee Entertainment with a revised rice target of Rs. 400," the brokerage has said.
The recommendation of the Zee Entertainment is taken from the brokerage reports of Sharekhan and Emkay Global. The stock has run-up significantly and hence investors may also want to exercise caution. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article.