HDFC Securities is bullish on Zee Entertainment has recommended buy rating on the stock with a target price of Rs 487 in its research report dated November 14, 2018.
HDFC Securities' research report on Zee Entertainment
We downgrade Zee Entertainment (Zee’s) target multiple from 30x to 25x Sep-20E EPS to factor in the divestment by promoters of upto 50% of their holding to a strategic partner by Apr19. Promoters even remain open for complete exit. Promoters hold 41.6% (59% pledged) amounting to ~$2.4bn at CMP. Potential exit by capable and efficient management and the resultant business disruption in the interim during transaction closure and management change is key concern, especially when industry is witnessing structural shifts.
Outlook
Yet, we maintain BUY with revised TP of Rs 487. Despite promoters’ desperation to sell (due to high pledged shares across companies and problems in other group businesses, in our view), significant acquisition premium by a potential buyer is probable and likely trigger. This is to gain access to a profitable franchise like Zee in large market like India. We highlight that promoters sold 1.44% stake in Jan-18 for ~Rs 595/sh.
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