Zee Entertainment Enterprises Ltd. may see further gains in its stock price as investors bet the Indian media company’s merger with a unit of Sony Group Corp. will boost its revenue and earnings.
The shares have rebounded 58% from a June low, helped a surge last week after India’s company law tribunal approved the deal to create a $10 billion local media giant. Still, it remains more than 40% below a peak it touched after reports of the contentious deal first surfaced in 2019. Stock rose as much as 3.2% on Monday.
While objecting creditors can still appeal the tribunal’s decision at a higher court, the deal has already been approved by India’s exchanges and antitrust regulator. The merger is seen creating a strong competitor to Walt Disney India and billionaire Mukesh Ambani’s Network 18, while driving a continued rebound in Zee’s stock.
READ: Zee-Sony Deal Nod Paves Way for $10 Billion Indian Media Giant
A “marquee name like Sony” should help Zee’s share-price valuation, Bank of America analyst Sachin Salgaonkar wrote in a note. Trading will be suspended in the stock at some point on the deal’s completion but the merged entity should be relisted about six weeks after that, he added.
Analyst optimism has started to grow after the tribunal’s approval, with the consensus price target on Zee up 19% from a June low. BofA’s Salgaonkar reinstated coverage with a buy rating citing likely improvements in cash flows and governance on the Sony deal.
“Synergies should start accruing post the completion of the merger, from the consequential enhanced bargaining power,” cost cuts and other scale benefits, Emkay Global Financial Services Ltd. analyst Pulkit Chawla wrote in a note, boosting Zee’s price target.
READ: Zee Analyst Optimism Growing After Sony Merger Nod: Street Wrap
The Sony name could also help Zee gain back some of the appeal to international investors it lost when it was removed from the MSCI India Index in 2021. Zee is trading at about 32 times estimated earnings for the next 12 months compared with 52 times for multinational consumer-goods maker Hindustan Unilever Ltd.
--With assistance from Akshay Chinchalkar.
(Updates stock performance in second paragraph.)