Shares of Zee Entertainment Enterprises Ltd. gained the most among peers on the Nifty Media Index after India’s largest publicly traded television network agreed to merge with Sony Pictures Networks India Pvt.
The broadcaster’s stock rallied as much as 23%, hitting a 52-week high of Rs 319.6 apiece, as of 10:15 a.m. on Wednesday. That compares with a 10.84% gain in the Nifty Media Index.
All other Essel Group stocks, too, advanced. While Dish TV India Ltd. gained 10%, Zee Learn Ltd. rose 19.7%. Zee Media Corp. also hovered between 3.2% and 5%.
Shares of New Delhi Television Ltd. hit an upper circuit. Stocks of Shemaroo Entertainment Ltd. and Eros International Ltd. also jumped.
Zee Entertainment said in an exchange filing that Sony Pictures would infuse growth capital and nominate majority of board members in the merged entity. Shareholders of Sony Pictures will hold a majority 52.93% stake in the merged entity and Zee shareholders will hold 47.07%.
The deal with Sony Pictures Networks India came after investors at Zee Entertainment called for a leadership change over governance concerns, including removal of Punit Goenka as a director.
Goenka, the filing said, will continue to be the managing director and chief executive officer of the combined entity.
Zee Entertainment’s stock has risen 33.5% so far this year compared with a 24.7% gain in the S&P BSE Sensex. The relative strength index is at 84, indicating that the stock may be ‘overbought’.
Of the 27 analysts tracking the broadcaster, 18 have a ‘buy’ rating, seven suggest a ‘hold’ and two recommend a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies a downside of 13.2%.
Analyst Views
Elara Capital and Dolat Capital expect Zee Entertainment to get re-rated soon.
Dolat Capital
Sony is strong in Hindi general entertainment segment, where Zee has lost ground. Zee is strong in movies and regional entertainment space. Thus, it would be a good strategic fit from broadcast, digital and content perspective.
Elara Capital
There are large synergy opportunities with the two merging, specially in the OTT space.
If they can go to market together with their merged OTT offerings, they may emerge the second-largest homegrown OTT after Disney+ in India.
With Sony having the controlling stake, the overhang on corporate governance in Zee will fade away.
The combined entity could have a profit after tax of around Rs 3,100 crore.
Even on current valuations, there’s a possibility of a 80-100% upside at least to Zee Entertainment’s stock price.
