Sun TV Network - Ad revenues underperform - ICICI Securities

Sun TV Network's Q3FY21 performance suggests continued loss of ad revenue market share, which could be due to higher dependence on local advertisers (the segment most impacted from Covid) and loss of viewership share in Tamil GEC. Company plans to aggressively invest in content to drive higher share, and aims to return to its FY20 ad revenue base in FY22, which means likely margin compression in FY22E. It also lags investment in OTT, which may start hurting terminal value, in our view. We cut our EPS estimates for FY21E/FY22E by 1%/6%, but increase the target price to Rs542 (from Rs462) on valuation rollover to FY23E, and increase the multiple to 13x P/E (from 11x). Downgrade to HOLD (from Add).

- Ad revenues underperform. Ad revenues dipped 9.4% YoY to Rs3bn compared to 7.5% YoY growth for Zee Entertainment. Sun TV believes the under-performance was due to weak adspend by local retailers who contribute significantly to revenues, and lower movie releases. Local advertisers contributed ~30% to ad revenues, depressing their share to just ~10%. Company has also lost viewership share in Tamil primetime GEC, which too must have hurt. Further, Sun TV's emphasis on improving yield could also have impacted. Company remains ambitious, and expects to reach its FY20 ad revenue level in FY22, helped by revamp of shows and big-budget non-fiction shows.

- Subscription revenues grew just 2.9% YoY to Rs4.2bn, and was disappointing considering it also includes revenues from SunNXT. Thus, we suspect decline in cable/DTH subscription revenues in Q3FY21. Company remains hopeful of subscription growth from rise in digitisation in Tamil Nadu where ~30% of subscribers are still on analog, and rise in adoption of SunNXT. SunNXT subscriber growth was flat QoQ at 18mn, which again fails to cheer, and is probably attributable to under-investment. Notably, Amazon Prime Video has broadcast the Tamil blockbuster movie Master, thus indicating OTTs are aggressively pushing content even in regional languages.

- IPL profitability was lower. Sun TV's IPL revenues for FY21 came in at Rs2.5bn (vs Rs3bn in FY20) and EBITDA at Rs0.5bn (vs Rs1.25bn in FY20).

- Risk of rising content cost. Sun TV has lost significant viewership in Tamil GEC primetime and, to recoup the lost share, it is in the process of completely revamping content. Further, in languages other than Tamil, it plans to launch big-budget non-fiction shows to drive higher viewership share. It also aims to launch a Marathi GEC channel in FY22. It expects content cost to rise by 20-25% in FY22 over FY20 levels while its ambition is to reach FY20 ad revenues in FY22. This implies significant compression in margin. Company also sees amortisation cost jump to Rs3.5bn in FY22 (from Rs2.5bn in FY21) with upside risks if more movies see theatrical release.

Sun TV also has plans to aggressively invest in movie production business with five big-budget movies already in process, of which 3-4 could be released in FY22.

Shares of SUN TV NETWORK LTD. was last trading in BSE at Rs.511.8 as compared to the previous close of Rs. 516.45. The total number of shares traded during the day was 151755 in over 2950 trades.

The stock hit an intraday high of Rs. 529 and intraday low of 508.6. The net turnover during the day was Rs. 78414442.

Source : Equity Bulls

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