#Zee shares hit 30% lower circuit today to sink to lowest level since August 2020.
Elara Capital's Karan Taurani discussed the stock movement with Tamanna Inamdar in 'Indian Market Open' today.
Elara Capital's Karan Taurani discussed the stock movement with Tamanna Inamdar in 'Indian Market Open' today.
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TVTranscript
00:00 Karan, a very good morning. A whole host of news and insights and information since we
00:06 last spoke nearly, you know, a little over 24 hours ago. What is clear is that the deal
00:12 is dead in the water and there is a huge legal battle going ahead. What is the kind of cut
00:16 you expect to the stock today?
00:20 So I think in terms of, you know, a potential downside, we have a target price of 170, which
00:25 is about 25, 26% lower as compared to the current price. I think that the bigger delta
00:32 here is the cut on the valuation multiple. You know, Sony as a company was supposed to
00:39 also get cash infusion, the merged company. Secondly, you know, there was a very big spike
00:44 to the valuation multiple because both the companies could have, you know, worked for
00:48 multiple synergies. Both companies could have worked for gaining potential market share
00:53 in the M&E ecosystem, which is already heavily consolidated. So this is that, you know, we
00:58 are building a very good scenario, you know, for Sony Z Merge Co. But because of the deal
01:03 not going through, I think Z on a standalone basis will struggle in the M&E market. And
01:08 so it was Sony as well, right? I mean, both companies are going to see negative impact
01:12 of this merger. And why Z more is because, frankly, you know, they've also kind of entered
01:18 into the sports contract with Disney for TV rights. Now, it depends in terms of whether
01:23 they honor it or not. That's still not known. But if at all, they honor that, it could be
01:28 even tougher for Z because, you know, even that segment could see hefty losses because
01:33 of, you know, sports being available free on OTT, if at all, going ahead as well. And
01:37 also there are multiple legal proceedings, the legal proceedings with Sony, which could
01:41 happen, legal proceedings with the current creditors, you know, right from Axis Finance
01:46 to IDBI from the from the SL side. So I think it's going to be it's going to be tough for
01:51 Z. And I think valuation multiples for the core broadcasting will never will not be able
01:56 to move, you know, beyond 10 times. You might find, you know, some kind of a strategic partner,
02:01 if at all, that is someone which could lead to some kind of a spike for valuation multiples.
02:06 But multiples will never go to the band of 18, 20 times forward P what we had assumed,
02:12 you know, in the case of Z Sony merger, because a lot more was being bought into the company
02:16 apart from, you know, just a part of it, a lot of synergies, a lot of technological expertise
02:21 and the MNC backing. And I don't think there are too many options right now in the MNC
02:25 industry, right? I mean, Disney already is in talks with RIL. So I think apart from Sony,
02:29 they do not have any large company to, you know, kind of get talks with. So I think it's
02:33 going to be a tough time, you know, for Z in the middle of all these things.
02:37 In fact, the stock already nearly 10% down in pre-open and we're likely to see up to
02:43 a 25% cut as per Karan Torani of Ilara. Karan, the fact is that this company still has about
02:52 a 16% market share. And like you're saying that they are going to fight back with a strong
02:59 legal battle. Do you see any kind of a bottom for this company or is it something that you
03:06 would write off any kind of investment list completely?
03:11 I think yes. So tactically, if you look at the bottom, if they do not honor the Disney
03:17 contract, the bottom could be around 170. But if at all they go ahead and honor the
03:21 Disney contract, the losses because of sports will increase and that will impose more pressure
03:27 on profitability. And in that case, the bottom could even be 130. Now, the only point is
03:33 that what are the triggers for the stock? What will lead to, you know, the surprise
03:37 in terms of earnings or potential market share? Obviously, the business performance. But the
03:43 business performance has been quite volatile. And it's not about blaming Zewail. Business
03:48 performance is also a matter of the market. So market dynamics are not being favorable.
03:52 Linear TV is not growing. Digital is growing, but there's a struggle for profitability.
03:58 ZeeFi, the OTP platform is also making hefty losses. So not much of triggers here to play
04:04 even at that bottom of 130, 160 or 170, which is there for the stock to move to 250 unless
04:11 there is some sort of a strategic partner who comes in and there is a minor risk to
04:15 valuation multiples basis. So if there is some strategic partner, yes, potentially the
04:19 stock can move again back to 250. But going back to 350, 400 is highly unlikely, as I
04:26 told you, because what Sony was getting on the table, no other strategic partner will
04:30 be able to get that kind of thing. Okay. Karan, appreciate that clarity. Thanks so much for
04:36 taking the time out and being with us today and giving us those thoughts.
04:38 Thank you.
04:40 Thank you.
04:41 (electronic music)