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Our Take:

Sun TV Network has presence across genres like general entertainment, movies, music, news, kids, action and life with a dominant market share in the five southern states of India (Tamil Nadu, Kerala, Karnataka, and Andhra Pradesh). This ensures continued and sustained viewership and prominent role in the Media and Entertainment Industry. Its flagship channel Sun TV corners more than 40% market share in the Tamil GEC (General Entertainment Channels) genre. Along with Tamil and Malayalam channels; the company also has strong presence in Kannada and Telugu GEC segment through Gemini TV and Udaya TV. The steady flow of highly popular programs and a dominant share of audience viewership have given the tremendous pricing power compare to its competitors. Also Sun TV commands best-in-class margins across the media industry due to its strong presence across value chain along with higher pie of subscription income which come at zero cost.

Company is confident both in terms of revival in advertisement revenue, Q4FY21 will be much better than Q3FY21 and it foresees, advertisement revenue to see de-growth in FY21. However, Advertisement, could see some better numbers going forward. Positive surprise has been led by 3% YoY growth in Q3FY21 in subscriptions. New shows and higher spends from regional advertisers could drive advertisement revenue and earnings growth going forward.

The state assembly elections to be held in Tamil Nadu and Kerala in next few days. Tamil Nadu is expected to spend in the range of Rs 30- 40cr and ad spend is expected to remain in the range of Rs 15cr – Rs 20cr in Kerala. The up-coming elections could help the electronic as well as print industry to regain its ground. Sun Group dominates the southern markets, especially in television. Considering the wide presence and strong relationship with clients could help Sun TV to generate more ad revenue amid election time.

The ongoing digitalization of content, shift to online and mobile distribution of content and the rapid pace of innovation will create opportunities to serve new customers in new markets. The presence of large and wealthy Indian diaspora abroad is another powerful enabler for market expansion abroad. The M&E industry influenced by digitalization, the convergence of TV, mobile telephony and the Internet poised for a growth trend. The fact that significant households of India are still without television connectivity highlights the scope of growth in the segment.

View & Recommendation :

Sun TV Network is an established player in Indian Media and television broadcasting industry. Over FY15-FY20, the company’s Revenue and PAT grew at a CAGR of 8% and 12% respectively. The company has been consistently operating with cash rich, debt free status with dividend pay-outs (average 49% over last 5 years). The Covid-19 outbreak and dependence on local advertisement has badly affected the ad scenario and creation of fresh content in 9MFY21. We believe it to continue its recovery quarter on quarter, going forward.

Strong growth projected in DTH (Direct To Home), Digital Cable segment would result in substantial increase in subscription revenue over the years to come. Increasing interest in regional content among Indian population across the borders, results in increased overseas viewership thereby attracting foreign investment. Taking into the consideration of future growth, healthy cash balance and robust dividend payout, we have a positive view on the stock. We feel the Base case fair value of the stock is Rs. 488 (10.75x FY23E EPS) and the Bull case fair value is Rs. 521.5 (11.5x FY23E EPS) over the next two quarters. Investors could buy the stock on dips to Rs 440-444 band (9.75x FY23E EPS) and add more on dips to Rs. 395-399 (8.75xFY23E EPS). At the CMP of Rs 454 the stock trades at 10.0x FY23E EPS.

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