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1QFY24’s operating environment is unlikely to have changed materially, in our view. A delayed monsoon pushed out any hope of an FMCG led TV-ad spend recovery. IPL would have further shrank ad-spend pool for GECs. Price hikes post NTO 3.0 are still not rolled out in most regions. We therefore expect a muted growth in ZEEL/Sun TV’s core revenues in 1Q. However, we sense an impending recovery. Conversations/engagements on ad-spend with brands have picked up with the onset of monsoons. FMCG’s A&P spends appear to be stabilising (JMFe). Broadcasters are likely to push price hikes beyond metro cities now. Festive season (Sep onwards) should add further stimulus. Besides, comps have turned favourable (weak FY23 + no FTA in the base). We therefore believe 1QFY24 could be the bottom for TV’s Ad/Subscription revenue growth. Online gaming environment, on the other hand, is already on the mend. Formation of Self Regulatory Body (SRB) is positive for online RMG while lifting of ban on BGMI is a positive development for eSports. That said, we expect c.18% YoY revenue growth in Nazara due to seasonal weakness/tough comp. From stock perspective, we see specific triggers in Sun TV (strong IPL revenues in 1Q) and ZEEL (SonyZEEL merger). We maintain BUY on Sun TV and ZEEL (in that order) and HOLD on Nazara.

* Zee Entertainment: We expect ZEEL to report 1.7% YoY growth in 1Q (-11% QoQ). Absence of Zee Anmol (FTA channel) in the base quarter makes comps better for adgrowth. However, delayed monsoon and IPL mean ad-revenues will likely still decline (- c.5% YoY). Stability in TV subscription and sustained growth in Zee5 should drive a healthy c.9% YoY growth in subscription revenues. Other sales and services, though down sharply sequentially, are likely to grow moderately on a YoY basis (+7.5%) on a low base. We expect margins to dip further to 5.1% (-200bps QoQ). Absence of ILT20 should more than offset impact of wage hikes etc. on a sequential basis. But a sharp drop in revenues QoQ would cascade down to margins. Weak results aside, progress on merger will likely drive stock performance in the near-term, which investors should monitor.

* Sun TV – IPL boost: Sun TV’s 1Q performance will be underpinned by strong IPL financials. We expect revenues of Sunrisers Hyderabad, Sun TV’s IPL franchise, to increase c.2.5x to INR 6bn. This should make up for a subdued ad/sub growth (-2.5%/+2% YoY) as well as a steep decline in movie distribution revenues. We build a healthy 16.5% YoY revenue growth for Sun TV. Trebling of media rights revenues without a concomitant rise in operational expenses mean IPL EBITDA margins will rise to 50% (from break-even), per our estimates (Exhibit 4). Additionally, absence of elevated depreciation (of aircrafts in 1QFY23) would likely drive a 28.5% YoY PAT growth. We see strong IPL performance as a key trigger in the stock as it should help unlock franchise value (INR 66bn, JMFe), which is not fully discounted in CMP, in our view.

* Nazara Technology: We estimate Nazara to report 18% YoY revenue growth in 1QFY23. A tough comp (all major acquisitions in the base), seasonal weakness in eSports and Kiddopia are likely to weigh on the headline number. We are building 10.9% YoY growth in eSports net of 10%/13% YoY growth in Nodwin/Sportskeeda. We expect muted growth in Kiddopia (2% YoY) as the company focusses on optimising profitability in an otherwise softer season. We expect Openplay, Nazara’s rummy platform, to be impacted adversely (5% YoY) due to Tamil Nadu’s ban on online gaming. We however expect Nazara’s focus on profitability to start yielding results. EBITDA margins could expand 285bps QoQ to 12.4%. Nodwin margins will likely be aided by lower revenues from low margin offline events. Kiddopia will continue to benefit from improved unit economics (lower CTC; better blended pricing). Importantly, the regulatory environment for gaming appears to be on the mend. Ministry of Electronics and IT’s (MeitY) recent order on forming SRBs to determine which games fall under “game of skills” category is a significant positive for RMGs. Similarly, lifting of ban from BGMI improves near-term outlook on eSports. While sentimentally positive, we believe impact on financials may not be immediate. Besides, 20% up-move since our upgrade factors in these positives, in our view. We maintain Hold as we await Nazara’s next steps in RMG.

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