I just want to talk about this overhang. Now, this is further going to seem like it is going to delay the Sony and Zee merger. How do you see this shaping up for Zee? What could we be watching out for now in terms of after this announcement that has come in?
I think definitely we were expecting all that the NCLT hearing was supposed to happen on the 9th of March, and this process has actually begun in second week of Jan. Usually NCLT processes take around two to three months, and then you have the cool off period in terms of applying to ROC and the relisting and then the merged entity is formed.
So this will definitely delay the process because I think the NCLT approval on the merger cannot come in until these cases are resolved. But nonetheless, I think the amounts therein are very low. So if you look at the amounts due from most of these companies, right from Yes Bank to IndusInd to Aditya Birla Capital, and also there is IPRS royalty, which is pending. In our view, the amounts are not more than Rs 500-700 crores in terms of overall outstanding.
And we believe there is a very low likelihood of the merger being called off because the amounts are phenomenally small here. And as far as valuations are concerned, I think this is the worst that could happened for Zee. So valuations definitely are important, but what happens from here on in terms of up move will only depend in terms of timelines for the merger.
So what I infer from what you are saying is that, it is not a material development, at least from the point of view of balance sheet and P&L. What it is doing is it is creating an overhang for that delay in terms of the merger. So what are you recommending your clients at this point of time? Should they use the dips as buying opportunity or given the fact that there is this uncertainty, at least for the next six to eight months, should one just stay away?
I think one can definitely use this dip as a buying opportunity and one can start accumulating because if you look at the valuations, clearly, even if we include the OTT losses and you assume that the merger is not going to happen, it is trading at almost 16 times one year forward PE. And if you look at other scenarios that we have built in that if the merger happens and then there is cash infusion. And even if you exclude or include OTT losses of Sony Liv and Zee5, both as OTT platforms put together, the valuations are in the range of 6.5-10 times.
So valuations are compelling provided that the merger basically goes through. But assuming that the merger does not go through, even then, I think the valuations are at a reasonable level and do not offer too much of a downside.
So we believe that nothing worse can actually happen from here on and had the outstanding liabilities been larger in terms of the overall value, we would have taken a cautious stance over there.
But because the amounts are so small, because there is cash available, there is also a potential cash infusion which is going to come in after the merger. We believe these are very small events and I think the price has kind of overreacted basis that.
You did mention about OTT and we have to talk about IPL then and obviously that media report which is suggesting that JioCinema will actually offer free IPL content on its app is a big move that if that actually does happen. So how should we be viewing this specially coming in for TV broadcasters? How does that work out then?
I think this is definitely a big negative for the industry. I mean, for JioCinema, it can be a win-win situation because this will kind of help them drive a very large subscriber base. So if you look at JioCinema as an app, they are fairly new in this market because this market is highly fragmented as far as OTT platforms are concerned. We have got somewhere close to 45 OTT platforms in the country. So they are offering sports and if this content was put behind a pay wall, it would have been challenging for them to actually scale up the number of subscribers and that could potentially not generate high ad revenues as well.
But making IPL free, of course, I think will drive a large subscriber base on JioCinema as an app. I think they will actually breach numbers of YouTube India, which is the largest app today in the country in terms of video consumption over the next one to two years, even if IPL is available free next year as well. So I think definitely it is good news for JioCinema. But again, I think the economics do not work here because I think if you look at what is the potential ad revenue that they could generate from this kind of property, we do not foresee an ad revenue generation of more than Rs 2000 odd crores, even in the best case scenario.
And the content cost here in this for about Rs 5000 crores in terms of the media rights given for digital on an annualized basis. So that way, I think economics are not working out for now, but potentially if the ad revenue improves and if they start charging the customer, they could even start breaking even after third or fourth year. That purely depends in terms of how things pan out.
But definitely this is a fight between TV and digital because the first time that, IPL rights have gone separately to two different players on TV and on digital. But again, we do not see a big pinch in terms of overall TV ad revenue for Star because I think sports is one genre which has sustained in a very strong manner for the TV medium. And if you look at sports addicts, it has been growing consistently because other genres have seen a severe decline right from movies, infotainment and many others put together.
So we believe that digital will have its own path in terms of growth rate and TV will also sustain in terms of whatever growth they have been getting.
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