Emkay Global Financial has given Buy recommendation for Zee Entertainment Enterprises with a target price of Rs. 430 in its research report issued on Sep 23, 2021
Emkay Global Financial’s report on Zee Entertainment Enterprises
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. Combined entity is valued at Rs502bn (incl. Rs116bn cash from SPNI) based on merger-terms. Zee shareholders would own 49.1% of the merge-co, including a 2% stake transfer by SPNI to Essel Group towards non-compete; Sony will have control over the board. Essel Group will maintain its ~4% stake post-merger, with an option to raise it up to 20%. The merger will result in scale (USD2bn revenues), leadership (~25% revenue share), complementary assets, and an USD1.8bn cash pile to ramp up growth. As a result, we turn constructive on Zee with the assumption of successful synergies accruing on both revenue and cost fronts.
We upgrade to Buy from Hold and raise our Sept’22E TP to Rs430 (11x Sept’23E pro-forma broadcasting EBITDA) from Rs205.