Zee’s Stock Falls After Merger Talks Collapse: Brokerages Advise Sell

Summary

  • Post company’s announcement, at least six brokerages, according to LSEG data, have suggested that investors sell Zee’s stock.
  • Analysts believe that if a Zee-Sony merger occurred, it could have posed significant competition to Disney, Reliance and foreign streaming giants like Netflix and Amazon.
  • Zee’s net earnings plummeted by 68% in the first half of the current fiscal year due to a 3.5% drop in advertising revenue and a nearly 20% surge in expenses.
  • The company’s stock dipped 29% to 164.45 rupees, resulting in a staggering loss of over $800 million in market value.
  • Out of the 19 analysts that cover Zee, their average rating dropped from “buy” to “hold”, with one analyst predicting the stock to fall further to 150 rupees.

Portfolio Advisory After Announcement

Following the announcement by the companies, LSEG data shows that at least six brokerages recommended investors to offload Zee’s stock. This has led to speculation that if a merger between Zee and Sony had happened, it would have been a significant contender to Disney, Reliance, and internationally acclaimed streaming behemoths like Netflix and Amazon.

Decline in Zee’s Profitability

Zee’s profitability took a hit with a staggering 68% decrease in net profit during the first six months of the current financial year, attributed to a 3.5% slump in advertising revenue and a sharp rise in expenses, nearly 20%. The company’s stock witnessed a 29% drop, trading down at 164.45 rupees, causing a market value depreciation of over $800 million.

Analysts Prediction on Zee’s Stock

Following the announcement, the average rating among the 19 analysts covering Zee fell from “buy” to “hold”. Their collective median price target has also declined by 16% to 253 rupees. One analyst predicts a further fall in the stock to 150 rupees, while others expect it to trade between 170 rupees and 340 rupees in the medium to long run.

Future Course

Brokerage firm Emkay Global expects Zee to attract other suitors and does not anticipate it will go solo. However, it warned that the failed deal could trigger shareholder activism against Zee’s management.

Merger Complication

The intended merger did not materialize as Sony stated that certain “closing conditions” were not fulfilled despite engaging in “good faith discussions” with Zee. The specifics of these unfulfilled conditions have not been provided by either firm, but it is known the companies had disagreements over who would head the merged entity.

Estimated Value

The estimated exchange rate utilized in this financial analysis equates to $1 being equal to 83.1080 Indian rupees.

Given these financial revelations, a substantial shift concerning Zee’s stock can lead to a significant impact on forex trading, particularly affecting assets tied to media and entertainment stocks in the Indian market.

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