Buy Zee Entertainment Enterprises, target price Rs 360: LKP Securities

LKP Securities has buy call on Zee Entertainment Enterprises with a target price of Rs 360. The current market price of Zee Entertainment Enterprises is Rs 290.2. Time period given by analyst is one year when Zee Entertainment Enterprises Ltd. price can reach defined target.

Zee Entertainment Enterprises Ltd., incorporated in the year 1982, is a Large Cap company (having a market cap of Rs 28344.82 Crore) operating in Media & Entertainment sector.

Zee Entertainment Enterprises Ltd. key Products/Revenue Segments include Income From Advertisement, Subscription Income, Television Content, Transmission Revenue, Other Operating Revenue and Commission for the year ending 31-Mar-2021.


Financials
For the quarter ended 31-12-2021, the company reported a Consolidated Total Income of Rs 2130.44 Crore, up 5.97 % from last quarter Total Income of Rs 2010.47 Crore and down -22.72 % from last year same quarter Total Income of Rs 2756.93 Crore. Company reported net profit after tax of Rs 298.91 Crore in latest quarter.

Investment Rationale
Zee lost share in the last few years due to the promoter pledge and corporate governance issues post growing network and revenue market share consistently for a long period. However, the recent merger with Sony has the potential to transform the company into a media titan. The deal with Sony would enable 1) a strong dominance in the Broadcasting space and 2) the capability to be a force in the Digital Media space. With a capital infusion of ₹113 bn from Sony post-merger and a steady annual EBITDA generation capability, the combined entity could certainly leverage the large-scale opportunity in the Digital Entertainment space. Additionally, the company’s deep understanding of the Indian Entertainment market and ability to produce a significant quantum of content every week should allow it to have a strong play despite Amazon Prime, Hotstar, and Netflix dominating the segment. In our opinion, this is not fully captured in the combined entity’s valuation. Additionally, from the legal point of view, the overhang on the stock is away now as Zee’s single largest investor Invesco has given a green signal for the merger and now expects the merger to be accretive to the shareholders. Now the focus will be on the timeline of the merger and operation performance thereafter. The brokerage believes that the stock is attractively placed and it recommends BUY on the stock with a target price of ₹360 ( valued @20x FY 24E earnings)

Promoter/FII Holdings
Promoters held 3.99 per cent stake in the company as of 31-Dec-2021, while FIIs owned 52.21 per cent, DIIs 20.86 per cent.