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Profitability sustains despite weak revenue growth

* SUNTV reported a flat EBITDA. PAT too stood flat on a YoY basis at INR5.2b, despite a weak revenue decline of 4%, aided by cost controls and higher other income.

* We expect a soft PAT CAGR of 6% over FY22-24 on lower revenue growth visibility and lesser margin. Market share loss and lower investment in the OTT segment as compared to its peers remain a key concern. The recent upbeat valuation for the new IPL team at the recently concluded auction, makes the stock’s valuation compelling at 6-7x EV/EBITDA. We maintain our Buy rating with a TP of INR640.

EBITDA/PAT remained flat YoY despite a revenue decline

* Revenue declined by 3.9% YoY (3% above pre-COVID levels) to INR8b (6% miss).

* Total revenue in 2QFY22, included a revenue of INR520m from the IPL. Excluding this, revenue rose 3% YoY.

* Production costs rose 10% YoY to INR1.5b (inline). SG&A declined by 48.4% YoY on account of the inclusion of IPL franchisee fee cost of INR103.2m/INR474m in 2QFY22/1QFY23. ? EBITDA stood flat on a YoY basis at INR5.2b (in-line, 12% higher than preCOVID levels), with a 310bp improvement in margin to 65.9%

* Ad revenue, at INR3.4b, remained flat when compared to 2QFY22 and 2QFY20 levels.

* Adjusted for revenue and cost related to IPL in 2QFY22, EBITDA rose 9.6% YoY.

*  Depreciation grew by ~2x YoY to INR755m (27% below our estimate). Other income grew 30.5% YoY to INR861m (45% above our estimate).

* PAT grew 2% YoY to INR4b. The 10% beat is due to higher other income, partly offset by depreciation.

* SUNTV declared an interim dividend of INR3.75/share. This is in addition to the INR5 per share declared in 1QFY23.

Valuation and view

* Continued investment on multiple non-fiction shows in South India and on primetime fiction shows is expected to maintain the growth momentum in viewership.

* SUNTV’s healthy liquidity and a net cash of over INR9.2b offers room to intensify investments in the linear and OTT space. This, along with a high dividend payout potential (45-85% payout policy) and a reasonable valuation, offer support to the stock.

* Adjusting for the high price paid for the new IPL team at the recently concluded auction, the stock is barely trading at 6-7x FY22 P/E.

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