Motilal Oswal has given Buy recommendation for Zee Entertainment recommended buy rating on the stock with a target price of Rs 425 in its research rep with a target price of Rs. 425 in its research report issued on Dec 22, 2021

Motilal Oswal’s research report on Zee Entertainment

ZEE announced completion of the due diligence and final contours of the deal. SONY and ZEE’s promoters will hold 51%/4% in the merged entity, while the rest will be held by the public. There will be a fresh capital infusion of INR113b (USD1.6b) by Sony, including the INR11b as non-compete fee to ZEE’s promoters, which will be utilized to increase its stake to 4% from 2% in the merged entity. The merged entity is valued ~17x FY20 EV/EBITDA and 22x P/E. On a SoTP basis, the merged entity’s linear business is estimated to be valued at 11-12x EV/EBITDA, with a negative value for the OTT business. -The combined entity will be a leader in the broadcasting space, with a strong war chest for intensifying its OTT foray and an investment similar to that made by Netflix on its India content. The deal addresses past corporate governance and Balance Sheet issues. A strategic partner like Sony will have the ability to leverage large scale opportunities in the Indian Media space.

Outlook

We upgrade ZEE to Buy from Neutral with a revised TP of INR425. Roadblocks in the fruition of the deal could be key risks.

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