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Sun TV Network Ltd. (STNL) established in 1992, is engaged in producing and broadcasting satellite television and radio software programming. It is one of the largest Television & Radio entertainment company, with a dominant position in the southern states of India. STNL’s flagship channel, Sun TV is one of the most watched channels in India.

STNL’s revenue in Q4 FY21 stood at Rs. 802.6cr, up 5.8% YoY. Ad revenues grew by 8% YoY and stood at Rs.314.9 cr. Subscription revenue grew by ~7% YoY. EBITDA came in at Rs.550.9cr, up by 8.9% YoY with a margin of 68.64%. PAT margin expanded sequentially by 1395 bps due to one time tax credit and creation of deferred tax asset. In FY21 revenue came in at Rs. 3,176.9cr.

EBITDA stood at Rs. 2,070.2 cr. EBITDA margin expanded by 50 bps and stood at 65.2% in FY21.There was a significant reduction in dividend payout in FY21 which stood at 13%. This reduction was for cash conservation due to volatility in the business environment. Dividend paid for FY21 was Rs.5 per share

STNL’s primetime viewership in Tamil market has improved to 42% from 37% over the past few quarters. The company is continuously planning to bring the market share to 50%. In Telugu and Malayalam segment, there are two big nonfiction shows in pipeline with an investment of Rs.20-25cr per show for a limited time. This will improve viewership share in Telugu and Malayalam market as well.

Ad revenues for the quarter remained impacted by the second wave of the pandemic. Majority of its share comes from local retail players like local jewelers, silk saree retailers, etc. With improved focus in increasing viewership market share and ease in lockdown restrictions, ad revenues are expected to recover at FY20 levels in FY22.

The management has not commented on the upcoming launches on SunNXT. Consistent investments in content for its OTT platform SunNXT is required to boost the subscription revenues. The company has eight movies in pipeline with a total project cost of Rs.1000- 1200 cr over the next two years.

Four movies are under production, out of which one movie is near completion and 2-3 movies are 30-40% completed. Capex for procurement of satellite rights of movies will be in the range of around Rs.200-250 cr in FY22. The management expects subscription revenue to witness double digit growth in the coming years. We expect its subscription revenue to grow at 10.7% CAGR over FY21-FY23E.

Valuation:

With the release of new shows and digitization of more households in Tamil Nadu, we expect an upward trend in Tamil viewership which will aid ad revenues. However the delayed investment in OTT platform will remain a concern. Considering all these factors we value STNL at a P/E multiple of 14x to its FY23E earnings to arrive at a target price of Rs. 608 per share. Thus we maintain ‘BUY’ rating to the stock.

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