Shares of Zee Entertainment on Wednesday rallied up to about 8% to the day’s high at Rs 168.10 as traders bought the dip following Tuesday’s crash in which the stock lost one-third of its value in the worst single-day session on record.
Today’s buying spree comes amid expectations that Zee will now draw other suitors for potential deals after Sony called off a proposed merger with the troubled media company.

The stock has been the subject of multiple de-ratings and sell calls since the Sony deal was terminated. Zee has already refuted Sony’s claims about the breach of the merger co-operation agreement and highlighted that it intends to explore all options, including resorting to legal recourse as well as contesting Sony’s arbitration claim proceeds of $90 million.

The proposed merger of Zee and Sony led to a valuation re-rating of Zee in anticipation of an improvement in corporate governance and significant merger synergies.

Also read | Zee shares crash 33% to record worst fall in history amid sell screams

Kotak Equities said it downgraded the stock to sell rating from reduce, given multiple risks around pending investigations, weak operating performance and significant downside risks to EPS estimates from potential sports losses in FY2025/26E and structural risk to the core broadcasting business.

Zee is operationally facing many challenges in the form of subdued advertising business, depleting viewership share in its key markets like Hindi GEC, Tamil and Marathi markets, competitive pricing in subscription business and slow-growing OTT business with competition from the biggies.”We believe the failure of the deal with Sony and the potential Reliance-Disney merger can further weaken Zee’s position, leaving it at a vulnerable spot in the overall industry,” Emkay Global said.

The brokerage has slashed FY24-26E standalone EBITDA for Zee by 2-17%, to factor in the slower recovery, absence of sporting revenues, and the heightened content investments.

The stock fell below CLSA’s reduced target price of Rs 198 after the merger failed.

“With the Zee-Sony merger being terminated, we believe Zee’s PE will slump back to 12x levels, seen prior to the Sony merger announcement (August 21). This was also the period of COVID-19 second wave, while Zee’s stock PE had also de-rated in the past during the promoter share pledging crisis (in 2019) and the fall in business cash conversion. We believe Zee’s valuation will likely de-rate back to 12x PE on which we base our revised target price of Rs198 (prior Rs300),” CLSA said.

Zee has reported muted growth performance in the past two years, as revenue growth has converged (flat in FY20-23) and EBITDA margin dipped to 10.7% (6MFY24), due to losses in the OTT segment and lower growth in the linear TV segment.

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