Rerating Candidate | ZEE's m-cap likely to jump to Rs 70,000 crore post merger

NEW DELHI: Post its merger announcement with Sony Pictures, ZEE Entertainment has become a rerating candidate. A back-of-the-envelope calculation by Elara Capital's analyst Karan Taurani suggests the merged entity may command a market capitalisation as high as Rs 65,000-70,000 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 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. Elara's estimate for ZEE PAT for FY24 is Rs 1,676 crore based on a projected growth of 20 per cent CAGR.


"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 the entire entity," he said.

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

"Both the 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 that have all of it. That may help it emerge as the second largest homegrown OTT after Disney+ in India," he said.


To get some idea, India has four major broadcasting channels or players -- Star, Colours, Zee and Sony. Out of them, two are getting merged, which will create the number one player in the entertainment space with 35-40 per cent market share, said Ashwin Patil, Senior Fundamental Analyst at 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 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 the ad growth front due to its strong strategy.