Mumbai: The Zee Entertainment Enterprises' stock tumbled the most in nearly five years after the cancellation of a planned $10 billion merger with Sony Group Corp. sparked a flurry of downgrades, with analysts predicting a sharp contraction in its valuations.
At least eleven brokers including Citigroup Inc. and CLSA reduced their ratings on the stock as efforts to create an entertainment giant in Asia's biggest streaming market collapsed amid a stalemate over who will head the combined entity.
Zee shares dropped as low as 30 per cent in Mumbai, the most since January 2019, the worst performer on the S&P BSE 500 Index. The stock trades at about 23 times its one-year forward earnings versus 17 times in September 2021, just before the company announced it had agreed to merge with a Sony Group entity, data compiled by Bloomberg show.
'De-rate' Zee stock
"Zee's stock valuation will likely de-rate," CLSA analyst including Deepti Chaturvedi wrote in a note dated January 22, downgrading stock to sell from buy. "Zee's PE will slump back to 12x levels, seen prior to the Sony merger announcement."
The planned merger had played a part in helping India's media stocks outperform the nation's equity gauges in the past year. The Nifty Media Index dropped as much as 10 per cent on Monday to its lowest since October 26, as investors reassess the sector's pricey valuations against the potential for future growth.
Massive content library
Sony was expected to benefit from Zee's deep library of content in regional Indian languages and dozens of local television channels. Zee's in precarious financial health and will facing growing competition, as Reliance Industries Ltd. and Walt Disney Co. near their own merger.
"Competition should intensify with the reported merger of Reliance and Disney Star," CLSA analysts wrote.