Global View: CLSA, Citi, Credit Suisse see about 20% upside in Zee Entertainment in next 1 year

Global brokerages firms such as CLSA, and Citi recommend buy rating on Zee Entertainment post the merger between ZEEL and Sony Pictures Networks India (SPNI) that was announced on Wednesday, which will take at least 8 months to close.

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The most aggressive price of Rs 415 on Zee Entertainment was put out by CLSA that translates into an upside of 19.2 per cent from Rs 348 recorded on 22 December.

The firm highlighted in the conference call that there will be a 6-8% revenue synergy in the first joint financial year itself. The merged entity will accelerate its digital platform and significantly invest in premium content including sports.

The company will be aggressive in sports acquisitions independently and as the combined entity wise. The cash will be utilised for multiple aspects like M&A and bidding for sports content, among others.

The company will use the cash as growth capital for the next 3 to 5 years. Sony's music and movies business will remain out of the merged entity.

Promoters of Sony will invest an additional $300 million in the new company before the deal closes. Sony will invest $1.5 billion in the merged company.

After the merger, shares of Zee Entertainment will be suspended for about three weeks after which the stock will be relisted. The merged company will consider OTT-business further. The company will continue to be dividend-paying.

We have collated a list of recommendations from various global brokerage firms according to a Zee Business TV report:

CLSA: Buy| Target Rs 415

CLSA maintained its buy rating on Zee Entertainment with a target price of Rs 415. Zee Entertainment and Sony Pictures have signed definitive agreements to merge and combine linear networks, digital assets, production operations, and programme libraries.

On merger, Sony will hold majority 50.86%, Zee founders will hold 3.99% and other shareholders will hold 45.15% of the merged company and have cash of US $1.5 billion.
 
Merged company’s strong balance sheet and high cash will also allow it to bid for media rights, especially in sports and other growth opportunities.

The merged company will be bigger than sector leader Star with a 33% market share (ZEE 21% + Sony 12%).
 
The merged company could have about 6-10% on revenue synergies alone and FY24 revenue could reach US$ 2.5bn and likely profits could jump 2.5x to US$ 680 million.

CITI: Buy| Target Rs 395

Citigroup maintained its buy rating on Zee Entertainment with a target price of Rs 395.

ZEEL-Sony announced a definitive merger arrangement. We need to monitor how Invesco Oppenheimer (largest shareholder of Zee with 18% stake) & other key institutions vote.
 
Credit Suisse: Outperform| Target Rs 400

Credit Suisse maintained an outperform rating on Zee Entertainment with a target price of Rs 400.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)