The announcement of approval for the Zee-Sony merger by the National Company Law Tribunal (NCLT) led to a remarkable 16.5% surge in the shares of Zee Entertainment Enterprises. However, the aftermath saw a 2% dip in the stock as uncertainty loomed over the position of Punit Goenka, owing to his ongoing legal battle with the Securities and Exchange Board of India (Sebi). This uncertainty has cast a shadow on the leadership of the merged entity, raising questions about who will ultimately helm the conglomerate.
Analysts are keenly observing the situation, and while the approval is a significant step, they caution that there are several crucial factors to consider. One major concern revolves around top management appointments and content investments. The swift growth of the digital landscape and the emerging trends in content consumption make these decisions paramount. Additionally, the growth in advertising-income is another area that analysts are closely monitoring to gauge the health of the newly merged entity.
Jaykumar Doshi, an analyst from Kotak Equities, highlights the complexity of the situation. He suggests that while the interim order from Sebi restricts Punit Goenka from holding key positions, it's the final decision of Sebi or the verdict from SAT/Court that will ultimately determine the outcome. Moreover, the question arises as to whether shareholders' approval is required immediately or at a later stage regarding the appointment of the Managing Director/CEO.
Despite the merger's nod, Kotak Equities has opted to downgrade ZEEL's rating from "add" to "reduce," indicating a less favorable risk-reward equation. The focus now shifts to the execution and digital progress of the merger with Sony. This is believed to be pivotal for the sustainability of valuation and potential re-rating. The merged entity's enterprise value (EV), which factors in a cash infusion of USD 1.6 billion, currently stands at Rs 358 billion.
As the merged company aims to capture a network market share of approximately 27%, it positions itself as a prominent player in the linear media space. However, concerns remain regarding the current valuations, which might not comprehensively reflect the robust growth prospects and emerging challenges. Analysts also highlight that the evolution of the media landscape requires vigilant adaptation to shifting consumer preferences and market dynamics.
The journey ahead involves submitting necessary documents to the Registrar of Companies (ROC), with expectations of the merged entity coming into existence by September-October 2023. The process of delisting Zee and re-listing Sony-Zee is predicted to take about six weeks post-NCLT approval.
While uncertainties persist, experts remain optimistic about the potential of the merged entity. The anticipated EBITDA (earnings before interest, taxes, depreciation, and amortization) of the new conglomerate is contingent on various factors, including the growth of the core TV business, synergy gains from the merger, moderation in OTT (over-the-top) losses, and cost-saving strategies. Despite the challenges, Sanjiv Bhasin, Director at IIFL Securities, expresses bullish sentiments, projecting a potential rise in the stock price to around Rs 400 by Diwali, and even as high as Rs 450 over the coming year.
