Zee hits lower circuit, plunges 30%: Here's why
Zee Entertainment's stock plummeted 30% to Rs. 162.25 on BSE. This happened after the $10bn merger with Sony was called off yesterday. Brokerages like CLSA downgraded Zee to 'Sell' (from 'Buy'), citing increased competition due to the rumored merger of Reliance and Disney Star. Analysts believe that Zee's valuation will remain low in the near term due to factors such as Sony seeking a termination fee, uncertainty about Zee's new strategy and partners, and the actions of its minority stakeholders.
Brokerages see no near-term earnings recovery
Nuvama reduced its FY25E/26E EPS on Zee by 16%/24% and set a target price of Rs. 190. Elara downgraded Zee to 'Sell' with a target price of Rs. 170, while Motilal Oswal downgraded the stock to 'Neutral' with a target price of Rs. 200. Motilal stated, "We do not expect a recovery in earnings in the near term. It is unclear what path Zee may take going ahead and there is limited clarity on the long-term outlook of the business."
Zee5's weak position amid industry shift toward OTT platforms
As the entertainment industry shifts toward OTT platforms, Zee5 is expected to struggle against strong competitors like Disney, Netflix, Amazon Prime, and Reliance Industries-led Network18. The company's performance has been sluggish over the last two years. Revenue growth remained flat from FY20 to FY23, and the EBITDA margin dropped to 10.7%. This decline was attributed to losses in the OTT segment and slower growth in the linear TV segment.
Zee's response to Sony's calling off merger
Sony sent a termination letter to Zee on Monday, citing non-compliance with the merger agreement as the reason. The deal fell apart as the two media giants couldn't agree on who would lead the combined entity. Sony also demanded a $90 million termination fee from Zee after ending the agreement. Zee fired back in a stock exchange filing, saying it "categorically refutes all claims and assertions" made by Sony and is planning to take legal action against the company.
