Zee Entertainment Enterprises Ltd (ZEE) Ltd and Sony India (Sony) have entered into an agreement to settle all merger-related disputes and release each other from all document claims. The settlement includes withdrawal of all claims for the $90 million in termination fee, litigation and other related costs. ZEE had earlier withdrawn its merger implementation application from the NCLT in April.
This marked an end to a tumultuous journey of almost three years and allays fears about one of the risks which was being highlighting since the merger breakdown, Emkay Global said.
"However, other legal risks persist – Disney’s proceedings for non-compliance of cricket rights purchase and Punit Goenka’s ongoing SEBI case. While this settlement does remove a key overhang, we believe that a meaningful re-rating should happen in case of a new partner/buyer comes in," the brokerage said.
A lack of any major strategic investor during the recent fund-raise does not inspire confidence, Emkay Global said as it maintained a 'Reduce' on ZEE with a target price of Rs 150 per share, based on 8 times June 2026's estimated broadcasting Ebitda.
Emkay Global said ZEE has faced operational challenges over the last few years, as advertising growth has remained muted. Barring Q4FY24, advertising growth has declined in the last eight consecutive quarters on YoY basis), though the quantum of decline has reduced in the last few quarters, the domestic brokerage noted.
"Subscription revenue has seen a steady growth, aided by NTO3.0 implementation. Management focus is clearly on driving margins higher, targeting 18-20 per cent Ebitda margin by FY26," Emkay Global said.
Any margin improvement should be led by reducing losses in Zee5, where the company has reduced manpower and marketing costs, and is optimising content costs, it said while adding that such a case can potentially lead to slower revenue growth.
"ZEE has also seen exits of some senior personnel in the last couple of months, as it looks to deliver a better performance. We believe the company is up against a tough business environment currently, and particularly with it competing against the larger combined entity of Disney-Reliance. While this case is now behind, any unfavorable verdict in other cases—tussle for cricket rights with Disney Star, and Punit Goenka’s ongoing SEBI case—can derail the management’s current plans," Emkay Global said.