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market | IST

Zee Ent-Sony deal: Brokerages say merged entity may emerge as 2nd largest home-grown OTT

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Zee Entertainment and Sony Pictures, on Wednesday, said that they have received in-principle approval for a merger that will combine both companies' linear networks, digital assets, production operations and programme libraries. Further, Zee Entertainment Enterprises Ltd’s (ZEEL) Managing Director and Chief Executive Officer Punit Goenka will lead the merged entity.

Zee Entertainment and Sony Pictures, on Wednesday, said that they have received in-principle approval for a merger that will combine both companies' linear networks, digital assets, production operations and programme libraries. Further, Zee Entertainment Enterprises Ltd’s (ZEEL) Managing Director and Chief Executive Officer Punit Goenka will lead the merged entity.
Sony Pictures Networks India (SPNI) said the merger would bring together two leading Indian media network businesses, benefitting consumers throughout India, across content genres, from film to sports. The combined company is expected to benefit all stakeholders, given strong synergies between ZEEL and SPNI, said SPNI. As per the deal, the shareholders of SPNI will hold majority stake in the merged entity. This exclusive, non-binding pact to combine both companies' assets will enhance the combined company's digital platforms across technology and content, ability to bid for broadcasting rights in the fast-growing sports landscape and pursue other growth opportunities, said SPNI.
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Now brokerage views have started pouring in.
According to Elara Capital - both have a very strong movie content catalogue that can be used for OTT as well as for TV offerings. So, there will be less overlap and more synergies. Post-merger, the entity may emerge as second largest home-grown OTT offering after Disney Plus in India. Both entities as combined, will have better advertisement revenues and as a whole, consolidation is a big positive. Most importantly, the corporate governance issue will fade away.
Elara has put out initial estimates, they say that Sony is estimated to grow at a lower CAGR of 10 percent, while Zee will grow at 20 percent over FY24. The combined entity could have a profit of around Rs 3,100 crore and expects the price to earnings to be in the range of 16 to 17 times. An execution on the digital business will drive further rerating for the company. Elara says even at these valuations, there is a possibility of 80-100 percent upside at least.
IIFL also views the deal as a positive and valuation seems reasonable. They also add that revenue, as well as cost synergies, will kick in.
Axis Capital says merged entity will have a much stronger franchise and will be able to drive long-term growth. If we look at the valuation a few weeks ago, Zee was trading at 9 times and with the increase in price, it is now trading at 12 times. But if you compare with its historical average, it is below because Zee used to trade at 20 to 25 times.
-With PTI inputs