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Higher opex drags profitability

* SUNTV reported an EBITDA growth of 3% YoY to INR7.9b (15% beat), driven by a revenue increase of 10.4% YoY. However, the rise in production and operating expenses has somewhat mitigated this positive momentum. The revenue growth was mainly driven by income from IPL and domestic subscription revenue growth as advertisement revenues remained flattish YoY.

* Continued weakness around ad revenue growth, coupled with the looming risk of market share erosion and intensified competition from well-funded OTT players continue to pose concerns. However, improved subscription revenues along with the possibility of festive demand could aid recovery in the coming period. This, coupled with upbeat valuation for the new IPL team at the recently concluded auction, makes the stock’s valuation compelling at 7.2x EV/EBITDA on FY25 basis. We reiterate our BUY rating on the stock with a TP of INR630.

EBITDA up 3% YoY (15% beat), driven by revenue growth

* Revenues grew 10.4% YoY (beat) to INR13.2b, mainly driven by income from IPL and revenue growth in domestic subscription as advertisement revenues remained flattish YoY.

* Advertisement revenue marginally declined 1% YoY to INR3.4b.

* Domestic subscription revenues, on the other hand, reported a growth of 6% YoY to INR4.4b.

* The quarter included revenue from IPL to the tune of INR5.1b vs. INR2.4b in 1QFY23.

* Total opex grew 23.5% YoY to INR5.3b (14% above est.)

* Production costs grew 20.8% YoY to INR1.8b (12% above est.).

* Other expenses grew 32.9% on a YoY basis to INR2.8b (22% above est). This was mainly on account of inclusion of IPL franchisee fee cost of INR1.1b in 1QFY24 vs. INR474.7m in 1QFY23.

* EBITDA therefore reported a mere 3% YoY growth to INR7.9b (15% beat) as the revenue growth was partially offset by higher production and other expenses. As a result, margins contracted 430bp YoY to 59.7%.

* Adjusted for IPL, EBITDA was down ~25% at INR5b, with a margin of 62% for 1QFY24.

* Depreciation declined 59% YoY on a YoY basis to INR852m, while Other income grew 14.5% YoY to INR1.2b.

* Consequently, PAT stood at INR5.8b (21% beat), driven by better operating performance and lower depreciation costs.

* The Board of Directors declared an interim dividend of INR6.25 per share.

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