Prabhudas Lilladher has given Buy recommendation for Zee Entertainment Enterprises with a target price of Rs. 415 in its research report issued on Dec 22, 2021

Prabhudas Lilladher’s research report on Zee Entertainment Enterprises

ZEEL has signed a definitive agreement with Sony Pictures Network India (SPNI) to merge their linear networks, digital assets and program libraries. The agreement follows conclusion of exclusive negotiation period where in due diligence was conducted. Post-merger, SPNI will be the largest shareholder owning 51% in the merged entity. We believe this merger is a win-win situation, as it will result in material synergies (~6-8% largely on the revenue side) and drive growth as merged entity will have a cash ammunition of US$1.7bn (inclusive of cash on ZEEL’s books). Funds will be utilized to accelerate investment in digital business and bid for premium content like sports. Mr Punit Goenka is expected to continue as MD&CEO but the newly constituted board will have SPNI’s dominance thereby plugging the gap on governance concerns. Signing of a definitive agreement (earlier arrangement was non-binding in nature) gives us confidence that the merger will culminate.

Outlook

Maintain BUY with a revised TP of Rs415 (Rs399 earlier) valuing the stock at 23x FY24 EPS (no change in target multiple) of Rs18.1 (inclusive of merger synergy benefits). Failure to get the majority shareholder approval of 75% remains a key risk to our call.

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