Zee - Sony Better Placed To Challenge Netflix, Amazon: Analysts’ Take
Here’s what brokerages have to say about Zee Entertainment-Sony Pictures Network merger...
Analysts expect the merger of Zee Entertainment Enterprises Ltd. and Sony Pictures Networks India Pvt. to ease governance concerns in the Subhash Chandra-founded broadcaster, and the combined entity to be a market leader in the nation’s TV viewership as well as take on global online streaming platforms such as Disney, Netflix and Amazon.
The two companies finalised the terms of the merger after a 90-day exclusive negotiation period ended on Dec. 21. Sony Pictures Networks will own a 50.86% stake in the merged entity, while Essel Holdings Ltd.—a Zee promoter company—will own 3.99%, according to an exchange filing. Zee’s public shareholders will own 45.15%.
Punit Goenka will lead the combined company as its managing director and chief executive officer.
Shares of Zee Entertainment gained as much as 2.4% in intraday trade before erasing the gains. The stock ended 3.04% lower compared to the NSE Nifty 50's 0.69% gain. Of the 22 analysts tracking the company, 17 maintain a ‘buy’, four recommend a ‘hold’ and one suggests a ‘sell’, according to Bloomberg data. The overall 12-month consensus price target implies an upside of 11.2%.
Here’s what brokerages have to say about Zee Entertainment-Sony Pictures Networks merger:
Prabhudas Lilladher
Maintains ‘buy’ on Zee, hikes target price to Rs 415 from Rs 399 apiece—an implied return of 19%.
The merger is a win-win situation for both parties as it will result in material synergies amounting to 6-8% largely on the revenue side and drive growth aided by the collective cash ammunition of $1.7 billion.
Funds are likely to be utilised to accelerate investment in digital business and bid for premium content like sports.
While Punit Goenka is expected to continue as MD and CEO, the newly constituted board will have the dominance of Sony Pictures, easing the governance concerns.
Signing of the definite agreement brings confidence that merger will culminate.
Values the stock at 23 times FY24 EPS (no change in target multiple).
Key Risks: Failure to get the majority shareholder approval of 75%.
Dolat Analysis
Downgrades to ‘accumulate’ from ‘buy’, cuts target price to Rs 382 from Rs 445 apiece—still an implied return of 9.53%.
Combined go-to-market, revised strategy and merged company financials disclosure would be only after the closure of the transaction.
Expects Zee to go through a time correction.
Merged company has the necessary ammunition to take on global peers like Disney, Netflix, Amazon in broadcast/digital business.
Zee-Sony combination will be the top player in broadcast business with 28-29% viewership share, followed by Star at 24%.
Expects NTO 2.0 (new tariff order) to be eventually positive for broadcasters with a short-term disruption.
Content amortisation policy of the merged entity needs harmonisation as both the companies differ, especially on movie costs.
Over-the-top content and distribution could unlock strategic benefit for the merged entity, as it can have better bargaining power with the distributors given the scale and depth of content.
Emkay Global
Maintains ‘buy’, raises target price to Rs 430 from Rs 415—an implied upside of 23.3%.
Deal structure and valuations are in line with the non-definitive agreement signed in September.
Merger could turn out to be a win-win situation for both companies as it will strength channel offerings and content portfolio.
Expects benefits from the merger to start reflecting from FY24.
Deal is a positive for Zee Entertainment shareholders as it resolves concerns around governance, board composition and funding for future expansion.
Merged entity will be the market leader in India and will have the necessary balance sheet strength to invest in digital businesses and acquisition of sports rights.
Acquisition of a major cricket event (IPL or ICC India cricket series) will provide the OTT platform a significant facelift and could result in valuation re-rating as well.
Merger synergies include enhanced bargaining power with content producers, distributors and advertisers, cost optimisation and scale benefits.
Recovery of Zee’s market share loss in Hindi general entertainment channel is crucial in the near-term.
Key Risks: Integration challenges, cultural issues, delay in shareholder approvals, sustained slowdown in ad revenue, higher-than-expected losses from digital business and low OTT monetisation.
Motilal Oswal
Upgrades to ‘buy’ from ‘neutral’, hikes target price to Rs 425 from Rs 335—an implied return of 22%.
Combined entity will be a leader in the broadcasting space, with capability to intensify its OTT foray, similar to Netflix on its India content.
Deal addresses past corporate governance and balance sheet issues. Sony will have the ability to leverage large-scale opportunities in the sector.
Merged entity will have wider portfolio across genres, and could use its leverage to boost competitive position and synergies.
CLSA
Maintains ‘buy’ with a target price of Rs 415—an implied return of 19%.
Merged company’s strong balance sheet and high cash will allow it to bid for media rights, especially in sports and other growth opportunities.
Zee founders will limit ownership in merged company to 20% and the deal construct does not provide founders any pre-emptive or other rights to acquire equity from Sony Group.
Merged company will be bigger than sector leader Star with 33% market share in Indian TV viewership, ahead of Star’s current 29%.
NV Capital
Expects the merged entity to invest more on creating content as there is increased concentration on the companies' digital platforms Sony Liv and ZEE5.
Merger intensifies competition for marquee sports properties that are currently housed in Walt Disney's Star India and are due for renewal.
LKP Securities
Deal may take eight months for final completion as it still requires regulatory and shareholders' approvals.
Funds infused by Sony would be primarily used to grow the digital or over-the-top platform and sports business.
Music and movie business of Sony will not be included under the ambit of this merger and therefore they may compete with the like-to-like businesses of the merged entity post-merger.
Geojit Financial
Merged entity will have strong content portfolio.
Merged entity likely to have dominance over multiple languages along with better operational performance.
Hem Securities
Merger is a 'win-win' situation for all the stakeholders including Invesco.
Expects Invesco to back the merger as corporate governance concerns are likely to be addressed.