Any meaningful re-rating, they said, should happen in case ZEE finds a new partner or strategic investor.
“The settlement of the merger dispute marks an end to a tumultuous journey of almost three years. While this settlement does remove a key overhang, lack of any major strategic investor does not inspire confidence,” said Pulkit Chawla, research analyst at Emkay Global Financial Services.
The brokerage has retained its ‘Reduce’ rating with a target price of Rs 150.
ZEEL, together with its group company Bangla Entertainment, arrived at ‘an amicable non-cash settlement’ with Culver Max Entertainment, operating as Sony Pictures Networks India (SPNI) on Tuesday.
The companies withdrew all claims against each other and said that none of the parties would have any outstanding or continuing obligations or liabilities to the other.
Analysts, however, remain sanguine about the company’s outlook as the current business environment is ‘tough’. One of the key issues, they said, is the intensified competition against the larger combined entity of Disney-Reliance (if their merger goes through).
Earlier, in February, Reliance Industries Limited, Viacom 18 Media Private Ltd, and The Walt Disney Company said that they would sign definitive binding agreements to form a joint venture to combine the businesses of Viacom18 and Star India.
The deal is worth around $8.5 billion, which could create a giant player in the digital broadcasting industry, with a combined user base of 558 million. It, however, awaits clearance from the Competition Commission of India (CCI).
“While the settlement of the disputes will allay investors’ concerns, we remain concerned about the potential impact of the company’s cost savings measures and revenue outlook amid rising competition and consolidation in the industry,” said those at Citi with a ‘Sell’ rating and a target price of Rs 137.
On the bourses, ZEE share price fell 2 per cent to Rs 147.5 per share in Wednesday’s intraday trade after soaring 11.45 per cent on Tuesday. By comparison, the BSE Sensex was up 0.25 per cent at 12:20 PM.
Operational challenges
In the recently concluded April-June quarter (Q1) of the current financial year (FY25), Zee Entertainment Enterprise reported a consolidated net profit of Rs 118.10 crore as against a net loss of Rs 53.42 crore last year.
ZEE’s earnings before interest, taxes, depreciation, and amortisation (Ebitda), meanwhile, soared 75 per cent Y-o-Y to Rs 271.70 crore with Ebitda margin expanding to 12.8 per cent from 7.8 per cent in Q1FY24 and 9.7 per cent in Q4FY24.
Segment wise, ZEE saw its Advertisement revenues declining by 3 per cent as cricket and general elections diverted ad-spend.
Subscription revenues grew 9 per cent, while Other sales and services grew 71 per cent to Rs 232 crore led by box office success of ‘Maidaan’.
OTT revenue growth moderated to 15 per cent Y-o-Y with the vertical’s losses declining by 33 per cent Q-o-Q to Rs 180 crore.
Analysts, however, believe barring Q4FY24, ZEE’s advertising growth has declined in the last eight consecutive quarters (on a Y-o-Y basis), though the quantum of decline has reduced in the last few quarters, they said.
“Our FY25-27 earnings per share (EPS) are down 3-4 per cent as better margins are offset by dilution impact. Higher competitive intensity, given the impending Viacom18-Star merger, is a key risk. We lower revenues and raise margin estimates as we cut near-term OTT growth but push forward margin recovery,” analysts at JM Financial had said in their results review report.
That apart, ZEEL has seen exits of some senior personnel in the last couple of months, including Animesh Kumar (President of HR and Transformation), Punit Misra (President of Content and International Markets), Nitin Mittal (President and Group Chief Technology Officer), and Rahul Johri (President of Business).
Moreover, MD and CEO Punit Goenka is up against market regulator Securities and Exchange Board of India (Sebi) in alleged fund siphoning case.
Any unfavorable verdict in the cricket rights with Disney Star, and Punit Goenka cases, thus, could derail the management’s growth plans, analysts cautioned.
First Published: Aug 28 2024 | 12:31 PM IST
