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Tag: Elara Capital

  • Media ‘investment pundit’ Karan Taurani gets his executive stripes at Elara Capital

    Media ‘investment pundit’ Karan Taurani gets his executive stripes at Elara Capital

    MUMBAI: Karan Taurani, Mumbai’s most recognisable media analyst, has bagged the executive vice president role at Elara Capital. The May 2025 promotion caps nearly seven years at the investment firm, where he’s dissected media, consumer discretionary, and internet sectors with surgical precision. Now retail has been added to his watch portfolio. 

    Taurani’s climb from vice president (October 2018) to senior vice president (April 2021) and now to the executive suite reflects his growing clout. His trajectory mirrors his expanding media footprint—from conference circuits to prime-time television punditry.

    The analyst’s journey began at Pioneer Investcorp (2008-2011), covering IT and mid-cap technology during the sector’s boom years. IFCI Financial Services expanded his remit to education whilst maintaining IT expertise. Religare offered broader horizons, juggling 15-plus companies across technology, media, telecoms, and education as lead analyst.

    Dolat Capital Market cemented his media sector reputation before Elara Capital came calling in 2018. What sets Taurani apart is his media savvy—regular television appearances and conference circuit presence make him the go-to voice for sectoral insights, whether streaming wars, retail disruption, or consumer spending patterns.
    His independent directorship at Kavithalayaa since January 2024 adds board-level strategic nous to complement analytical prowess. It’s cross-pollination that makes for rounded market commentary.

    At Elara, Taurani’s executive elevation suggests the firm recognises value beyond pure research. In an era where analyst personalities drive investment decisions, having a media-savvy executive who articulates complex trends across platforms is worth its weight in rupees.

    For Taurani, the promotion validates a career built understanding India’s evolving consumer landscape. His analytical journey mirrors the country’s economic transformation—and executive stripes suggest more commentary ahead.

  • Zee turns around, onward to healthy growth

    Zee turns around, onward to healthy growth

    Mumbai: Zee Entertainment Enterprises (Z IN) reported healthy revenue growth, led by increased subscription revenue (8.8 per cent  YoY) given price hikes due to implementation of NTO 3.0 and higher revenue from Zee5. So, expect subscription revenue to grow in the range of 6-7 per cent YoY, near term. Ad revenue was muted as it declined 3 per cent YoY, but this was on the back of ad spends moving away from GECs to properties such as T20 WC, General Elections and IPL. We expect ad revenue momentum to pick up in the near term, helped by: 1) positive impact from the festive season, 2) higher spends by FMCG companies and 3) traction in regional GECs. Ad revenue for Z may grow in the range of 3-5 per cent YoY in the near-to-medium term, as TV medium shows resilience amongst other traditional media genres.

    Much needed respite for margin

    Z has reported healthy margin improvement of 470bps YoY to 12.7 per cent, largely helped by: 1) better subscription revenue, 2) lower losses in Zee5, 3) lower employee expenses and 4) cost cutting initiatives in technology. EBITDA margin may see further acceleration, helped by better ad growth in the festive season and consistent cost cutting initiatives. Losses in the digital business (Zee5) have come down by 48 per cent, as quarterly loss is now at Rs 1,777mn (reported), versus an average quarterly loss of INR 2,718mn (average of past four quarters). Zee5 continues to report healthy performance with 15 per cent  YoY growth in Q1 revenue, despite cost cutting initiatives. We expect a sharp improvement of 550bps in EBITDA margin to 16.0 per cent by FY27E.

    Await FCCB cash deployment plan

    We believe raising capital is a mild positive for Z, basis its deployment to generate higher returns. These proceeds from FCCBs (of up to INR 20,000 mn) will come in a phased manner. This will ensure steady cash flow, to: 1) combat increased competitive intensity (merger of RIL/Disney) and 2) use in potential acquisitions, if any.

    We believe it is also likely that Z may acquire channels of RIL/Disney, if viewership share or market share in certain genres is high and is not approved by CCI (Competition Commission of India). As per our assessment, RIL/Disney have bigger overlaps in the urban GEC genre, which is Z’s weakness, given the latter’s strength in the regional markets. The cash infusion can also be used to acquire potential digital assets/OTT platforms. We believe there is a high likelihood of the funds being deployed for inorganic purposes, than organic.

    Issuance of FCCBs will be treated as a debt instrument for now, until converted into equity shares post maturity or earlier. Assuming that every tranche is of Rs 2bn, there will be an interest expense of Rs 100 mn for Z, which will have a natural forex hedge, as 5-7 per cent of Z’s revenue (Rs 6,000-7,000mn) is international ($ based). So, there may be no hit on earnings for now each time a tranche is raised, as the money may be deployed in liquid funds temporarily, until the final purpose is decided per opportunities. Post deployment, each tranche of Rs 2,000mn will have a negative impact of 1.2 per cent  on Z’s earnings due to interest outgo.

    Overall, this could be a win-win for FCCB investors, as they get to pay a coupon rate of 5 per cent and purchase bonds at CMP of Z. This is attractive at 8x forward P/E – core broadcasting segment (basis FY26E). There is a high likelihood of incremental upside over coupon rates for the investors, basis: 1) pick up in TV advertising, 2) margin improvement, and 3) strong growth in the digital segment. Some part of the FCCB proceeds can also be used internally to fund content acquisitions on digital/OTT side, which can drive scale for Zee5 as a platform, and positively impact digital business’ valuations. We do not foresee any major investment in sports by Z in the near term, as all major properties such as IPL, World Cup and BCCI rights, will come up for renewal in the next 3-4years.

    The management has largely identified a plan to deploy this cash and allocation towards growth initiatives is a key monitorable, as per our assessment.

    Valuation: Reiterate BUY with a higher TP of Rs 210

    Z is estimated to report strong earnings CAGR of 17.2 per cent  (FY25E-27E), led by strong margin improvement and better revenue growth. Raising FCCBs in tranches will not hit earnings, but allocation of this capital is a monitorable. The management has guided for an EBITDA margin of 18-20 per cent by FY26, which could provide respite and drive valuation re-rating.

    Z (core broadcasting) is currently trading at inexpensive valuation of 8.0x FY26E P/E. We raise earnings estimates by 8.4 per cent/6.9 per cent for FY26E/27E, factoring in better margin performance – Maintain BUY. We roll over to raised Sep’25E SoTP-TP of INR 210 (from INR 180). We value the broadcasting business at 11x (from 10x) one-year forward P/E and OTT at 3.0x (unchanged) one-year forward EV/sales.

    The credit of this article goes to Elara Capital SVP Karan Taurani. 

  • The Content Hub 2024 – Changing Business of Content: How big is the shift and how long is it to stay?

    The Content Hub 2024 – Changing Business of Content: How big is the shift and how long is it to stay?

    Mumbai: The eighth edition of The Content Hub Summit delved into the ever-changing world of content creation. With the consolidation of platforms, creators face new hurdles in gaining visibility, maximizing revenue, and maintaining creative freedom. The event explored the remarkable theatrical success of Indian cinema and unraveled the secrets behind its unprecedented profits, with a critical eye towards its sustainability.

    The esteemed panel of industry leaders have shared their expertise on adapting to the shifting landscape, tackling daily challenges, and envisioning the future of production. 

    The session was moderated by Elara Capital senior vice president Karan Taurani which included panelists: Fremantle India managing director Aradhana Bhola, House of Talkies founder & producer Sidharth Jain, Jio Studios Head – Originals Tejkarran Singh Bajaj and producer & content head Ashima Avasthi Chaudhuri.

    Guiding the dialogue was Taurani, who steered the conversation towards the imminent trends in content consumption. Bhola espoused the paradigm shift in storytelling possibilities post-COVID, elucidating on the burgeoning spectrum of narratives that now captivate both creators and consumers alike.

    Bajaj gave a nuanced perspective on the role of data in decision-making, cautioning against its exclusive reliance. With eloquence, he delineated the delicate balance between leveraging data insights and preserving the intangible essence of creativity that distinguishes human ingenuity from algorithmic predictability.

    Jain elucidated on the challenges inherent in curating compelling narratives, underscoring the pivotal role of assembling adept teams to actualise creative visions seamlessly.

    Lastly, Chaudhari offered profound reflections on the evolving palate of the audience, emphasizing the imperatives of captivating their increasingly discerning sensibilities. With perspicacity, she underscored the exigency of recalibrating cinematic endeavors to resonate with the evolving expectations of the viewer, amidst the segmentation of diverse entertainment mediums.

    In essence, the session forged a roadmap for content creators to navigate the landscape of the digital age. 

  • VBS 2024: Stopping the leakages in the pay TV ecosystem

    VBS 2024: Stopping the leakages in the pay TV ecosystem

    Mumbai: India is in the grips of seisnic changes regarding video and broadband consumption. Pay TV cord-cutting is rampant even as free TV subscriptions are on the rise and OTT buy-ins are churning with the signs up for certain platforms stagnating even as others are seeing rapid increases and some are seeing cataclysmic drops. Aggregators of OTTs are popping up on the horizon promising cheap bundles along with value-added services for cable TV and DTH. There’s a rush to set up free advertising-supported TV channels by TV set manufacturers and smart TV device makers. There’s the Jio factor where it seeks to convert most pay TV customers to free streaming of video content by offering free access to consumers at no cost. The consumer continues to demand bandwidth higher than ever imagined even as prices drop. Margins are under pressure as every player goes one-up on each other to acquire and retain customers.

    The video and broadband distribution landscape has not been as vibrant as it is now.. How long will this pot-boiling continue? What will the magic potion of video and broadband look and taste like? And what’s the end game? Indiantelevision.com has held the 20th edition of Video and Broadband Summit better known as VBS at Sahara Star Hotel, Mumbai.

    The session chair for this panel is Elara Capital senior VP Karan Taurani along with the panellists: NXT Digital COO Rouse Koshi, MetroCast Network India promoter Nagesh Chhabria, Sabot One Pvt. Ltd. chairman & managing director Atul Saraf, Epic On & Stream-Sense CEO Sourajya Mohanty and KCCL and KVBL CEO Padmakumar N.

    In this session, Taurani discussed the TV industry, issues of piracy, decrease in pay TV subscribers, shift from traditional TV to connected TV.

    He asked Koshi on the assessment of piracy and the kind of loss the industry is suffering to which he said, “ Piracy has come down. On the linear side of it, I don’t see piracy as much of a problem right now. After digitisation, piracy has come down. Also on the technological front, we have good regulations in place. There is a concern though in a lot of illegal streaming apps rather than in the pay TV side. “

    Taurani then turned around towards Chhabria where he asked him his perspective on any innovation or data tracking he might have done towards his subscribers to see if piracy is there to which he said piracy is there first through our net and secondly in cable TVs where privacy is there in rural areas. In those areas, whichever state you go, there are small MSOs who are running with 2000 and 1500 base. When a businessman sees that they question how do they survive with such a small base? It is through privacy.”

    After an elaborating response, Taurani asked Padmukar on the lack of digitisation and household penetration level in South markets to which he said, “In protecting the content, we have done all the steps so there’s no chance of privacy as we give correct reports to the broadcasters and there is no suppressing data. As far as Kerala Vision is concerned, we are doing a good business. I’m Kerala our total cable TV homes will be 70 lakhs and out of this around 35 lakhs is dominated by Kerala Vision. We have more than 50 per cent market share in Kerala TV and more than 50 per cent in broadband also.

    Saraf said on the issue, “Piracy has been happening for the last three decades. As an OTT aggregator, we are not allowing anybody to download our app if they are not able to put their telephone number. We are doing B2B and doing B2C. There is one thing sure from our OTT department that piracy won’t happen from our end.

    Last but not the least, Mohanty replied, “First of all we will acknowledge the fact that piracy has been a menace not only in India but globally also. We have a three fold approach that we have adopted. First is to take initiatives around DRM. Secondly, we have taken our initiatives with the video URLs which are very minimal yet very effective. Third is we have taken initiatives in deploying agencies.

    Taurani ended the session by saying bundling is the way ahead and consolidation which will be beneficial to the platforms and distributors. 

  • Merger terminated, Sony demands $ 90mn termination fee

    Merger terminated, Sony demands $ 90mn termination fee

    Mumbai: Sony India terminated the merger agreement with Zee Entertainment Enterprisers on 22 January 2024, seeking a termination fee of $ 90mn on account of alleged breaches of merger cooperation agreement (MCA) terms by Zee, invoking arbitration and seeking interim relief against Zee. Zee has denied all such assertions by Sony regarding the alleged breach of the MCA, including the latter’s demand of termination fee. Zee is evaluating all available legal options to contest Sony India’s claims.  

    Stiff competition from digital media and RIL/Disney merger

    We believe the above termination may hit both the parties as both are facing stiff competition from digital media as also potential threat from the merger of RIL-Disney, near term. Zee has reported muted growth/profitability performance in the past two years, as revenue growth has converged (flat in FY20-23) and EBITDA margin dipped to 10.7 per cent (6MFY24), due to: 1) losses in the OTT segment and 2) lower growth in linear TV segment.        

    On the brink of multiple legal proceedings

    Zee had also signed a contract with Disney for sub franchise of sports rights (ICC tournaments) in linear TV. We had estimated related annual losses of ~Rs 15.2bn in FY25E and beyond, given: 1) hefty content cost, 2) lower sports ad revenue and 3) cricket content being available free on OTT. Zee may now not fulfil this commitment (cash balance of mere Rs 6bn, versus potential contractual obligation of Rs 40 bn per year) as it was entered into given its strategic-synergistic contiguity with Zee-Sony merger. Also, Zee could see a hit from related penalty/legal proceedings due to 1) battle with Sony over the non-compete fee, 2) ongoing legal proceedings by various creditors of the Essel group (Axis Finance, IDBI Bank etc.) and 3) dishonouring of contract with Disney.

    Valuation: Downgrade to sell; TP pared to RS 170

    Zee may see a sharp de-rating in P/E valuation of its broadcasting business to at least 10x one-year forward or lower, due to the unfinished merger, as: 1) linear TV growth has converged sharply, 2) Zee may not have any potential to scale-up OTT offering in a highly fragmented market, 3) lower profitability – EBITDA margin, ex-Sports losses, could converge to 14 per cent and 4) any further write-offs on the inventory side or matters pertaining to related parties’ creditors or not honouring the sports contract with Disney (ICC tournaments – Zee could have potentially paid half of the $ 3bn value for TV rights). Merger with Sony was the key valuation driver to move up in the past two years. But given the termination, we downgrade Zee to Sell with March 2025E TP pared to Rs 170 from Rs 340. But if the Disney contract is honoured, TP may move to Rs 130, citing losses in the sports segment. We value the broadcasting business at 10x one-year forward P/E and OTT at 3.0x one-year forward EV/sales. Possibility of any other strategic/financial partner buying majority stake in Zee could provide respite to valuation multiples.

    The credit of this article goes to Elara Capital SVP Karan Taurani.

  • Sony likely to call off merger – a low probability event for now

    Sony likely to call off merger – a low probability event for now

    Mumbai: According to media reports, Sony is expected to call of USD 10bn merger with Zee due to a standoff over whether Zee’s CEO Punit Goenka would lead the merged entity.

    Sony plans to file the termination notice before a 20 Jan 2024, extended deadline for closing the deal, saying some of the conditions necessary for the merger had not been met.

    Discussions are still ongoing between the two sides and a resolution can still emerge before the deadline.

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    We don’t foresee any negative impact of above so far. As per our checks, deal conversations continue and will most likely go ahead without Goenka as CEO; we expect a final clarity on the extension of the deal by third of week of January’24, which is almost a month ahead of the 20 Dec’2023 agreement cut off date. Conversations continue to happen for both parties, however no final outcome has been reached yet on terms of the deal.

    We continue to believe that the deal is equally important for both entities with competitive intensity growing due to Disney/RIL talks gaining traction.

    Maintain our view the likelihood of the deal going through remains high, Zee had made a statement on 20 Dec, 2023 on entering fair negotiations with Sony, which indicates that they too are very much in favour of the deal going through.

    We will await more updates and any official statement from both parties, in case of change in stance. We don’t foresee Sony agreeing on Mr Punit becoming CEO, due to the ongoing investigation against him. However, there is a very small chance of Goenka putting the deal at risk due to him wanting to become CEO, even if term sheet and deal condition mentions that Zee has moved up 50 per cent over the last one year, despite a muted financial performance , largely on the back of valuation multiple re-rating due to the merger with Sony Corp; any potential risk of the merger getting called off by Sony will have a significant negative impact on valuations.

    Post the change in deal terms/ potential name of a new CEO for the merged Co, shareholder, Board, ROC (Registrar of Companies) and MIB (Ministry of Information and Broadcasting) approval may be needed which may only take a few weeks; our legal experts indicate that a fresh NCLT/CCI approval will not be needed for change in CEO of the merged co; further, as per our assessment – the NCLT/CCI  approval isn’t time bound, which means any potential extension has no negative impact on the merger.

    The credit of this article is attributed to Elara Capital SVP Karan Taurani. 

  • Google Chrome starts blocking data tracking cookies

    Google Chrome starts blocking data tracking cookies

    Mumbai: This is largely in line. Alphabet wanted to implement privacy measures and go completely cookie less in the next six months in June/July in a phased manner which they mentioned in their last two earning calls. Advertisers are likely to face challenges, especially in terms of conversions, as many third-party programmatic platforms heavily depend on cookies for data. Furthermore, programmatic platforms may seek to mitigate the impact by considering price hikes for their services. These shifts underscore the evolving landscape of digital advertising, posing challenges for advertisers and reshaping industry dynamics.

    This move will have a threefold impact. 1) The restriction imposed on platforms for third-party data usage for advertising is expected to lead to a substantial increase in data costs. 2) The shift towards a cookie-less environment and the limited availability of third-party data for advertising is likely to drive a significant surge in e-commerce advertising spends. Advertisers are expected to increasingly favour e-commerce platforms due to their access to valuable first-party data, providing a substantial boost to advertising investments in the e-commerce sector. 3) Platforms/ad tech companies  may also try to raise the prices from the advertisers to recover the high data costs.

    The transition towards a cookie-less environment and potential privacy measures, especially considering the dominance of Android in the global smartphone ecosystem and Apple’s prevalence mainly in emerging nations, is expected to be a disruptive force. While Apple holds less than 10 per cent market share in emerging markets like India, the move is anticipated to reshape the landscape of digital advertising, influencing privacy standards and impacting conversion dynamics. The move is very much in line with our expectation and marks a significant change in the digital advertising landscape.

    The credit of this article is attributed to Elara Capital SVP Karan Taurani.

  • TV18 & E18 to merge with Network 18

    TV18 & E18 to merge with Network 18

    Mumbai: Merger of TV18 and NW18 is a serious attempt made to target a larger share in the fragmented M&E market of India, specifically within digital media (search, display, social, e commerce, video, news , audio), which also has a larger set of advertisers spread across SME’s, apart from large verticals. India’s M&E market for TV, print and digital put together is quite large at Rs 1,530bn (CY22); having a bundled offering with a larger target audience/reach will help scalability on revenues and also help a better reach amongst varied set of advertisers. The merger could be a potential win-win for both entities as NW/TV18 have reported a tepid EBITDA margin of a mere 12.3 per cent/13.4 per cent (average of last four years); we believe 1) cost control measures, and 2) synergy benefits will drive efficiencies for the merged business. Further, a bundled offering under the NW18 umbrella, with a subscription plan at discounted price augurs well for a price sensitive market like India, coupled with a large reach of more than 450mn smartphone users by Jio (part of RIL, which is NW18 parent Co.).

    India market is all about aggregation of content across various mediums, which will offer better subscription revenue and visibility over content spends across mediums to create a strong pay/subscription-based model via bundling in a price sensitive market like India; higher subscription revenue can offer better visibility over content costs (across mediums). A superior user experience across all offerings coupled with differentiated and good quality content will be the only factor to drive a potential subscription revenue base. We don’t foresee any negative impact of above for listed peers like Z and SUNTV, as they don’t have presence in the news segment; however, in case of NW18 forming a media super app, providing all variety of content could pose a threat for the M&E ecosystem. Listed news players like TVT could see a negative impact of the above merger as they have digital news assets and TV channels.

    Implications of the event (Impact analysis):

    •  Large market opportunity (TAM)for the merged co., as India’s M&E market for print, TV and digital is at Rs 1,530 (CY22) , poised to grow at a CAGR of 8.2 per cent over CY22-25.

    •  This move will bring all mediums of media by NW18 under one umbrella; Print, TV and other mediums have seen a disruption over the last few years due to consumption moving to digital; this will provide respite to NW18 traditional media assets as it can be bundled with digital offerings

    •  NW18 will be able to cross sell strengths of all media assets and target better advertising revenue with scale over the medium to long term

    •  The merger will be an advantage for driving efficiencies with all operations, employee, and all other expenses (marketing, operations) under one umbrella to enhance portfolio strength and operating leverage

    •  NW18 may be able to offer all services and subscription on a bundled basis – subscription of the print magazines ,premium plan of Jio cinema and Moneycontrol pro

    •  The merged co. can target a larger variety of advertisers who can provide ad budgets to be split across various mediums

    •  A media based super app could also be formed offering all types of media content – 1) digital news 2) TV content 3) sports 4) web series/movies 5) ticket booking, which in turn can have a large customer base and can be used potentially for better ad revenue/monetisation of eyeballs. This kind of app with varied offerings could pose a serious threat to other video/broadcaster OTT apps.

    •  NW18 will also have a big advantage of last mile with Jio having a subs base of more than 450mn smartphone users

    Background of the event

    Network18 Media & Investments Ltd and TV18 Broadcast Ltd have announced a scheme of arrangement under which TV18 and E18, which owns and operates the Moneycontrol website and app, will merge with Network18. The proposed Scheme will consolidate TV and Digital news businesses of the Network18 group in one company and will help create India’s largest platform-agnostic news media powerhouse with the widest footprint across languages, straddling both TV and Digital. The merged entity will comprise the TV portfolio of TV18 (20 news channels in 16 languages and CNBCTV18.com), Digital assets of Network18 (News18.com platform across 13 languages and Firstpost) as also Moneycontrol website and app. Viacom18 with its portfolio of JioCinema and 40 TV channels will be a direct subsidiary of Network18. The appointed date for the merger is set as 1 April 2023 and the share exchange ratio stipulates that for every 172 shares of TV18, shareholders will receive 100 shares of Network18 and for every share of E18, shareholders will receive 19 shares of Network18. Post the merger, promoter shareholding in Network 18 will decrease to 56.9 per cent from 75 per cent while the public shareholding will move up to 43.1 per cent from 25 per cent.

    The credit of this article goes to Elara Capital SVP Karan Taurani.

  • Freemium model in OTT is the future

    Freemium model in OTT is the future

    Mumbai: US subscriber base of Netflix and Disney+ reported growth of 5.4 per cent YoY and 0.2 per cent YoY in Q3CY23, respectively; the international segment outperformed with subscriber growth of 10.5 per cent YoY and 17.0 per cent YoY for Netflix and Disney+, respectively. Netflix continues to lead as it has a paid subscriber base of 247.2mn vs 150.2mn of Disney+. Disney+Hotstar(India and other Asia nations) paid subscribers declined for the fourth consecutive quarter, as it fell 38.7 per cent YoY; Disney+ Hotstar has lost 37 per cent of its paid subscriber base (now at 37.6 mn paid subs) over the four quarters after 1) losing Indian Premier League (IPL) digital rights and 2) offering World Cup content free of cost, which also has led to a loss in paid subscriber base over the past two months. We believe Disney+Hotstar subscriber loss has bottomed and may see mid-single digit growth over the next few quarters based on new content offerings – movies and web series slate. Netflix (US) average revenue per user (ARPU) declined 0.5 per cent YoY whereas Disney+ (US) posted ARPU growth of 23 per cent YoY (on a low base) during the quarter. In India, Disney+Hotstar was the only platform that grew 20.7 per cent YoY to USD 0.7 or Rs 58 per month on low base.

    Focus on cost optimisation driving increased monetisation

    Netflix’s innovative move on paid sharing has reaped rich dividends, as it has led to better subscriber growth, which was 9.4 per cent YoY (average) over the past two quarters since the introduction of this feature in May’23 ; the ad tier model too has received a positive response and can become big, led by connected TV adoption globally, as Netflix also plans to make inroads in the gaming business too. Disney+ has also seen success in the ad supported plan, as 50 per cent of new subscriber addition is on ad-supported model. Disney+ plans to reduce losses in the streaming business and has cut annual content budget by 7 per cent YoY to USD 25bn. Disney continues to evaluate strategic options for its linear TV networks while maintaining focus on cost optimisation and high-quality content delivery.

    Read through for Indian OTT

    Zee5, India’s larger broadcaster peer, too has focused on efficiency in its digital business, as losses narrowed marginally by 8.3 per cent YoY to Rs 2.5bn. India’s OTT market has seen a big disruption post Jio Cinema’s free offering of IPL content, which, in turn, will negatively affect subscription video on-demand (SVOD) revenue growth, as platforms may be unable to raise prices; innovative measures, such as ad-supported streaming and password-sharing initiatives may be the only levers for better monetization. Disney+Hotstar continues to look for a strategic partner, and high probability of the Z-Sony merger, we still believe India’s OTT market will see early signs of consolidation in the near to medium term, which is the only way content cost would climb down and enable platforms to move closer to break-even & profitability.

    The credit of this article goes to Elara Capital SVP Karan Taurani.

  • Ad environment muted; growth led by subscribers

    Ad environment muted; growth led by subscribers

    Mumbai: Zee Entertainment (Z IN) posted ad. revenue drop of 3.5 per cent YoY in H1, as demand environment was volatile despite recovery in ad spend. We estimate H2FY24E to report ad spend growth of mere 5-6 per cent YoY, as large portion of spends could be diverted to sports due to the Cricket World Cup (CWC). Subscription revenue was strong due to NTO 3.0, which led to price hikes after three years. Expect growth to be in the range of 7-8 per cent YoY in H2FY24E as well. Overall revenue grew a sharp 20.2 per cent YoY, largely led by performance of Gadar 2, excluding which overall revenue grew mere 5.4 per cent YoY. Zee5 also reported a revenue growth of 59 per cent YoY to Rs 2,652mn, helped by a syndication deal. Z gained viewership share in linear TV too, as its share grew 90bps QoQ to 17.9 per cent, helped by gain in selective regional genres.

    Probability of merger going through high

    Z’s share price performance will largely be led by valuation re-rating, hinged on the merger with Sony. The recent order passed by SAT allows Punit Goenka to remain the CEO of the merged entity, but the SEBI may continue to investigate Punit Goenka. As per our assessment (https://tinyurl.com/2wu5bxc7), the probability of the merger going through is high, with or without Punit Goenka, unless he does not change his stance (maintaining his view that he will give utmost importance to the merger going through for shareholder interest, even if he has to let go of his designation as CEO of the merged entity). Per our legal checks, there is a low likelihood of Sony wanting Goenka to remain as CEO, until the investigation outcome is known; further, the investigation outcome may take 12-15 months and Sony may not wait that long for the merger to be executed. This potentially increases the risk for Z/Sony merger, which may lead to valuations being under check.

    Valuation: Reiterate Buy; TP unchanged at Rs 340

    We reiterate buy with SoTP-TP of Rs 340 (unchanged) after factoring in merger synergies and potential medium-term play backed by the strength of Z and Sony in the TV and OTT businesses. We assume a cash infusion of $1.5bn by Sony and value the merged company broadcasting business at 20x (unchanged) one-year forward P/E and the OTT business at 4.0x one-year forward EV/sales. Our PAT estimate incorporates potential OTT losses.

    The credit for this article goes to Elara Capital Sr VP – research analyst (media, consumer discretionary & internet) Karan Taurani.