Zee share price: Zee shares plunge over 30% after Sony calls off merger

Mumbai: Shares of Zee Entertainment plunged 32.7% on Tuesday – the highest-ever single-day fall – on heightened pessimism around the termination of the merger deal with Sony and the likely subsequent legal and regulatory implications.
Top brokerages downgraded their ratings and cut target prices on the stock as analysts believe that the share price will be under pressure at least for now. The sell-off on Tuesday wiped off ₹7,285 crore in market capitalisation to ₹14,974.50 crore.

Zee shares closed at ₹155.9 on the BSE before touching their 52-week low of ₹152.5 on the exchange. Out of the total traded quantity of 22.84 crore shares on the NSE, the deliverable quantity was 9.57 crore. This amounts to 41.89% of the traded quantity.

Analysts’ price targets on the stock have been lowered from ₹150 to ₹200 per share after the deal was called off on Monday. Earlier, the price target range was ₹275 to ₹430. Brokerage CLSA, which downgraded the stock to sell after the event, said the stock’s valuation will de-rate.

With Zee-Sony merger being terminated, we believe Zee’s PE (Price to Earnings Ratio) will slump back to 12 times levels, seen prior to the Sony merger announcement (August 21),” said CLSA’s analysts Deepti Chaturvedi and Saurabh Mehrotra in a note to clients. “This was also the period of Covid-19 second wave, while Zee’s stock PE had also de-rated in the past during the promoter share pledging crisis (in 2019) and the fall in business cash conversion.” Based on the PE ratio of 12 times, CLSA cut the stock’s price target to 198 from 300.

The proposed merger of Zee Entertainment with Sony, announced in September 2021, was set to create the country’s largest broadcast company. Analysts said the impact of this move has raised uncertainty about the stock’s prospects.

“Zee is facing a legal overhang from Sony, from the creditors of Essel group, and a potential legal overhang from Disney as well if at all they don’t honour their sports contract,” said Karan Taurani, senior VP, research at Elara Capital.In 2022, Disney acquired broadcasting rights of the ICC Men’s TV rights and digital rights for India from 2024 to 2027 for $3 billion and sub-licenced the TV rights for the men’s and Under-19 global events to Zee.

“If at all, the Disney sports contract is to be honoured, the company will face hefty losses and, in that case, the target price for the company could even go to 130,” said Taurani.

Analysts advise against buying Zee shares amid this uncertainty. “Unless any positive trigger comes through, we see the stock struggling and would advise investors to not do any bottom fishing in the stock,” said an analyst from Emkay Global. “Now that the Zee-Sony merger deal has been called off, we see Zee exploring other investors or partners and the chances of Zee remaining a singular entity in the market are low.”

“Operationally, the company hasn’t been doing well even before the merger was called off as advertising revenue growth was weak despite a ramp-up in ad-spending by FMCG companies with ZEE5 losses also remaining elevated,” the analyst said.