Shares of Zee Entertainment Enterprises nosedived 30.50 percent on January, breaking a series of extended lower circuits through the day and hitting its 52-week low of Rs 152.50 on January 23.
The sharp fall comes a day after Japan’s Sony Pictures’ Indian arm scrapped its $10-billion merger with the Indian media giant.
Anticipating a sharp slump in Zee's valuation, a number of brokerages have downgraded the stock. Among them, was global brokerage firm CLSA which forecasted a slump in valuation from the 18x to 12x after the merger termination. Delivering right onto Citi's concern's the freefall in Zee's stock eroded all the gains it made since August 2021, when its merger plans with Sony Pictures was first announced.
At close, Zee settled 30.50 percent lower at Rs 160.90 on the National Stock Exchange, after opening at the first lower circuit of Rs 208.3, down 10 percent from the previous close.
The circuit levels were subsequently lowered to 15 percent, 20 percent, 25 percent and 30 percent.
Sony cited delays in closing the deal by the end date and lapses in meeting closing conditions of the agreement as reasons for calling off the merger. The firm is also seeking a termination fee of $90 million on account of alleged breaches of the Merger Co-operation Agreement (MCA).
Zee Entertainment has denied Sony's claim of breach of the MCA terms, including the demand for the termination fee.
UBS Securities said the cancellation of the merger is a negative development for Zee, anticipating its implied value per share to drop 20 percent from the current Rs 190.
CLSA also expects Zee's challenge of low promoter ownership to further put pressure on the stock. Accordingly, it downgraded the stock to a "sell" from the earlier "buy" and slashed the price target for the stock by 34 percent to Rs 198.
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Citi has also downgraded the stock to "sell" and reduced its price target by nearly half to Rs 180. With the merger having called off, the increasing competitive intensity in the media sector in the backdrop of the expected Reliance-Disney merger will take the centre stage. The firm also slashed is FY24-26 earnings estimate for Zee by 22-38 percent, assuming slower margin recovery.
Also read | CLSA downgrades Zee to 'sell' as Sony calls off merger; expects valuation to slump
On similar grounds, Motilal Oswal Financial Services also revised its rating for the stock downwards to "neutral" from "buy", with a price target of Rs 200.
"We do not expect a recovery in earnings in the near term. Zee has not stated whether it will pursue the merger while the litigation with Sony could hinder improvements in operations or explore a merger with other players. It is unclear what path Zee may take going ahead and there is limited clarity on the long-term outlook of the business," MOFSL said in a note.
Also read | Zee refutes all claims by Sony, says evaluating options
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