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Steady performance with strong contribution from Movies

* Sun TV reported a better-than-expected performance with revenue/PAT up 6.2%/3.5% YoY, respectively. The result was driven by: a) growth in ad revenue, which rose 11% above pre-pandemic level, and b) contribution from the Movie segment with release of the blockbuster movie ‘Annaatthe’ in 3QFY22. 

* Our FY23/24 estimates are largely retained building in 8%/5% CAGR in revenue/ EBITDA over FY22-24, respectively. The recent upbeat valuation for new IPL team auction makes the stock valuation compelling with P/E below 12x on Mar’24. This along with intensifying investment in content, to win market share, is a key positive. However, the delayed investment in OTT and heightened competition remain as concerns. Maintain BUY.

Revenue/PAT up 6%/4% YoY; announced INR2.5/sh interim dividend

* SUNTV’s 3QY22 revenue grew 6.2% YoY at INR10.3b (12.6% beat). Excluding IPL, revenue grew ~27.76% YoY for 3QFY22.

* Advertising revenue shot up 22.45% YoY. Compared with pre-COVID levels (3QFY20), advertising revenue grew ~11%. As per our calculations, the Movie segment contributed markedly with the release of the blockbuster movie – ‘Annaatthe’.

* EBITDA thus came at INR7.2b, up 20.2% YoY (21% beat) aided by strong growth in revenue and controlled opex; EBITDA margin stood at 69.9%, expanding 810bp YoY.

* Net profit increased by a mere 3.5% YoY to INR4.6b (6.4% beat).

* Sun TV declared an interim dividend of INR2.5/share. In 9MFY22, it has declared a dividend of INR8.8/share v/s INR5/share and INR25/share in FY20 and FY21, respectively.

Valuation & view

* Our FY23/24 estimates are largely maintained building in 8%/5% CAGR in revenue/EBITDA over FY22-24E. Advertisement growth has picked up in the quarter, but we estimate a soft subscription revenue trend. 

* Intensifying content investment towards multiple non-fiction shows in the southern market along with fiction shows during prime time is likely to retain the viewership growth momentum.

* Sun TV’s healthy liquidity with net cash of over INR32.3b offers room to intensify investments in linear as well as OTT space. This along with high dividend payout potential (45-85% payout policy) and low valuation offer support.

* However, we note that investment in Movie production has delayed OTT investment by two years and now guided for FY23. This, except the monetization of the existing library, remains a key concern.

* We value Sun TV at a P/E of 14x on FY24E to arrive at target price of INR650, implying 26% potential upside. Maintain BUY.

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