zee share price target: Is ZEE gearing for a 100% rally after merger with Sony?

NEW DELHI: A sharp 25 per cent rally in shares of ZEE Entertainment on Wednesday could just be the pie of a bigger rally in the days to come. A back-of-the-envelope calculation by Elara Capital’s analyst Karan Taurani suggests there is a possibility of at least 80-100 per cent upside in the stock and that the market value of ZEE could touch Rs 70,000 crore.

On Wednesday, the stock surged 24.97 per cent to hit a high of Rs 319.50 on BSE. It commanded a market capitalisation of close to Rs 30,000 crore.

Taurani in a note said that Sony’s profit after tax (PAT) is estimated to grow at a lower compounded annual growth rate (CAGR) of 10 per cent over FY20-24, which translates into Rs 1,460 crore whereas Elara’s estimate for ZEE PAT for FY24 is Rs 1,676 crore based on an expected CAGR of 20 per cent.

“The combined entity could have a PAT of around Rs 3,100 crore. We expect the PE multiples to be re-rated towards 18-20 times, with a market cap of Rs 65,000-70,000 crore for entire entity,” he said.

Taurani said Elara would be monitoring the developments in coming months, but said ZEE looks like a structural re-rating candidate in India’s broadcasting space.

“Both companies can go to market together with their merged OTT offerings , which too are slightly different in content. Sony is more into sports and mainstream shows (Scam), whereas Zee is into regional web series and hence the content strategy can augur well to create a platform, which have all the offerings. They may emerge the second largest homegrown OTT after Disney+ in India,” he said.

India has four major broadcasting players — Star, Colours, Zee and Sony. Out of these four, two are getting merged, which will create the No. 1 player in the entertainment space with 35-40 per cent market share, said Ashwin Patil, Senior Fundamental Analyst, LKP Advisory.

“Out of this, Zee has about 18-19 per cent share. Sony has a very big portfolio and has sports channels. ZEE will also have good access to Sony’s various genres while Sony will have access to Zee’s regional channels. The merged entity will be a formidable host to take on its competitors,” Patil said.

Given the scale and depth of content, the combined entity is seen to have a better bargaining power with the distributors – OEM, telcos and other platforms. That too will be a win-win rather than them going to the market separately, Taurani said, adding that ZEE has fared better against industry on ad growth front due to their strong execution around ad strategy.