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Zee’s stock rallied over 12% last week, after a decline of ~15% from Aug (post NCLT merger approval) to Oct, when the market also took a fall. A major portion of this rally has come post SAT’s order, setting aside SEBI’s ruling, which had restricted Punit Goenka from holding Directorial position or KMP in any listed company, including Zee. After an uncertain period regarding top management of the merged entity, the market believes Punit Goenka’s return is positive owing to perception of his superior execution skills. This order paves the way for his appointment as MD of the merged entity and minimizes the risk of further delay of the merger. We now expect re-listing of the merged entity in Jan-24. The stock trades at 8.4x Sep-25 broadcasting EV/EBITDA, which is reasonable. We maintain BUY, with TP of Rs335/sh (9.5x Sep-25E broadcasting EV/EBITDA), with a comprehensive review under way, owing to the merger.

Key Events’ Timeline

The Zee-Sony merger has faced multiple roadblocks since it was first announced in Sep21. Post approval from the stock exchanges in Jul-22, the CCI granted approval in Oct22 after Zee agreed to sell 3 channels to address concerns on competition. The NCLT approved the merger in Aug-23, quashing all objections from lenders. The merger is now close to completion, and we expect Zee’s delisting in another 3-4 weeks. We believe the merged entity should relist in Jan-24. Axis Finance and IDBI Bank have challenged NCLT’s ruling in the NCLAT which is being heard in the appellate tribunal.

Outlook

On the business front, advertising recovery is expected to be gradual, after four straight quarters of revenue de-growth (on YoY basis), with the company seeing some green shoots led by FMCG players. Subscription growth is likely to be steady, aided by implementation of NTO3.0. Synergies should also start accruing—post completion of the merger—from the consequential enhanced bargaining power with advertisers, content producers and distributors, cost optimization by rationalization of channels and other scale benefits. We believe the proposed deal between Reliance and Disney also augurs well for the Zee-Sony merged entity, and will alleviate pricing concerns to a certain extent while also limiting increase in content cost. We expect the market share to gradually improve, as the management’s focus returns to business. We are currently building-in revenue growth of 9-10% over the next two years, coupled with margin enhancement, as the overall advertising environment improves and synergies are realized. The stock has traded at a 10-year average of ~17x, at 1-year forward EV/EBITDA (our valuation adjusts the OTT losses), but has meaningfully de-rated in the last few years, post emergence of corporate governance issues and merger delay.

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