Focus and future is on digital platform: Zee Entertainment and Sony Group
Update on the Indian Equity Market:
On Thursday, the benchmark index NIFTY 50 closed at 17,072 (+0.7%), 117 points higher. Among the sectoral indices, REALTY (+2.3%), PSU BANK (+1.6%), and FMCG (+1.3%) led the gainers. MEDIA (-1.1%) and METAL (-0.2%) were among the losers. Among the NIFTY50 components, POWERGRID (+3.7%), IOC (+3.0%), and ONGC (+2.7%) were the top gainers while DIVISLAB (-1.8%), JSWSTEEL (-1.7%), and BHARTIARTL (-0.8%) led the laggards.
Excerpts of an interview with Mr. Puneet Goenka, CEO and MD, Zee Entertainment (ZEEL), Mr. Ravi Ahuja, Chairman of Global television and corporate development, Sony Pictures Entertainment and Mr. N P Singh, MD and CEO of Sony Pictures Networks India with Business Standard on 22nd December 2021:
- The deal ensued when Sony saw an opportunity in the high growth Indian media Industry when they bought Ten sports from Zee Entertainment in FY18.
- Zee Entertainment and Sony both have a foothold in the digital OTT market with Zee5 and Sonyliv, respectively. As the firm has not received any regulatory clearances from the Competition Commission of India, the management does not have any precise operational plans, yet.
- Invesco had reservations as the existing ZEEL promoters were given an option to increase stake in the merged company to 20%. Management has clarified the promoters will have to buy from the open market and there will not be any preferential allotment. As the matter between ZEEL and Invesco is still sub-judice the management has not shared further details.
- Management is considering market share, growth possibilities, and profitability to provide strong value to shareholders and customers. The management anticipates the merged business to be in a position of leadership and powerful enough to compete with global competitors by FY25E.
- The merged entity will be an Indian asset on the portfolio of Sony Pictures Entertainment, and given the size of the Indian market, the entity will be a significant revenue contributor to the multinational media company.
- Even though digital and OTT platforms are experiencing increase in viewership and broadcasting is under immense pressure, the management believes that it still has a role to play in the dynamic entertainment business. The digital business needs scale. The merged company will have a capital of $ 15.7 mn. This arrangement gives the company advantages which the individual companies would not have.
- Linear TV will continue for the foreseeable future. The future focus is on the digital as both old and new subscriber base is increasing. The company would invest in content, technology and distribution in this direction.
Asset Multiplier Comments
- The merger plan would need shareholder approval as well as clearance from regulatory bodies such as SEBI and the Competition Commission of India (CCI). The merger approval is awaited, as is information on the status of the EGM sought by Invesco. If the approvals are not received, the merger will be scrapped.
- The merger is projected to be beneficial in terms of market consolidation and revenue synergy. As the market leader, the merged company would have pricing power in terms of earning ad revenues. The resolution of channel overlap and OTT platforms would be key areas to monitor.
Consensus Estimate: (Source: market screener website)
- The closing price of Zee Entertainment was ₹ 338/- as of 23-December-2021. It traded at 25x/21x/17x the EPS estimates of ₹ 13.5/16.5/19.1/- for FY22E/FY23E/FY24E respectively.
- The consensus target price of ₹ 366/- implies a P/E Multiple of 21 on FY23 EPS estimate of ₹ 17.4/-.
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