Zee Entertainment's shares plunged as much as 30% on Tuesday, set for their worst day ever, as investors piled out of the Indian broadcaster after its failed $10 billion merger with Sony's local unit fanned worries about its survival in a competitive industry.
At least six brokerages also said investors should sell Zee's stock, according to LSEG data. Zee's tumbles saw it lose over $800 million in market value, almost four time the entire market capitalisation of news broadcaster NDTV.
The merger could have helped Zee and Sony compete against the soon-to-be-united Indian media businesses of Disney and billionaire Mukesh Ambani's Reliance, as well as streaming giants Netflix and Amazon.
The collapse of the two-year-long talks on Monday creates more uncertainty for Zee, which has already seen declines in profit, advertising revenues and cash reserves.
Vivekanand Subbaraman, an analyst at brokerage Ambit Capital, said Zee's troubles with scaling up the business could see it lose its No.2 position.
"The challenge that Zee is facing is that the TV business has been declining at a fairly fast pace -- its fiscal 2023 ad revenue is still 22% below 2019 levels."
Zee's profit slid 68% in the first six months of the current fiscal year, while its cash reserves dropped 40%.
The stock is now down 35% since the merger was announced in September 2021 and has tumbled nearly 40% so far in 2024, with a chunk of those losses coming earlier this month on reports of the deal falling through.
The average rating of the 19 analysts covering Zee has dropped to "hold" from "buy," while their overall median price target has tumbled 16% to 253 rupees, according to LSEG data.
The stock was last trading down 28% at 166.25 rupees. Only one analyst expects the stock to fall further, to 150 rupees, while the others expect it to trade between 170 rupees and 340 rupees in the medium to long term.
Brokerage Emkay Global said Zee "going it alone" is a low-probability event and believes it will attract other suitors. However, it cautioned the failed deal could spur shareholder activism against Zee's management.
While neither Japan's Sony Group nor Zee said why the deal collapsed, a stalemate over who would lead the combined company had put the merger in danger.
CLSA double-downgraded Zee to "sell" and slashed its target price by 34%, estimating the stock's price-to-earnings ratio, a key valuation metric, will from 18x currently to the 12x-levels when the merger was announced.
