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Ad revenue growth was relatively better

Sun TV Network’s Q1FY23 ad revenue performance was better than ZEEL, and on YoY basis, it benefited from low base of covid. Sun TV expects ad revenue to grow at 10- 12% in FY23, which may be aided by easing inflation pressure on advertisers. Subscription revenue continues to be hurt from impasse in NTO 2.0, and also likely due to no major payment hikes for SunNXT in B2B deals which was hurt by low investment in originals. IPL should see one-time rebase of revenue higher by Rs3bn on increased bid for broadcasting and digital rights. However, company continues to delay investments in originals in OTT on unfavourable economics, and we are unsure of its long-term impact. It is largely dependent on movies for push to SunNXT for now. We have cut our revenue estimates by 4-5%, and our EPS estimates by 22-23% over FY23-FY24 on higher amortisation cost. We reduce our target price to Rs470 (from Rs571) with an unchanged P/E multiple at 11x FY24E EPS. Maintain HOLD.

* Ad revenue recovery was relatively better. Ad revenue rose 40.8% YoY (up 1.8% QoQ) to Rs3.4bn which was 6.7% lower than Q1FY20 levels. The quarter had headwinds on ad revenue from 1) pressure on advertisers’ margins due to higher inflation and 2) IPL, which takes a large pie of the ad revenue. Company said viewership rating was stable for Sun TV and 2) ad revenue from Bangla and Marathi GECs. This compared to ZEEL’s domestic ad revenue, which was up 5.8% YoY, but down 13.8% QoQ and was 18.2% below Q1FY20 ad revenues. Our discussion with the management indicates the company is aiming for ad revenue growth of 10-12% in FY23; Q1FY23 had benefit of very low base (Q1FY22) which was hurt by covid.

* Subscription revenue declined by 1% YoY (down 1.2% QoQ) to Rs4.1bn. Subscription revenue was impacted from impasse on NTO 2.0 implementation which it has started implementing in few locations, and is likely to be completely implemented by Nov’22. The dip was in DTH segment where subscription revenue dipped 3.3% each QoQ and YoY; probably it was also impacted by lower price hikes in B2B deals. Sun TV has not invested in originals for SunNXT which should have put the company relatively in disadvantageous position. It remains cautious on heavy investment in OTT considering weak economics, and large cash losses for peers.

IPL revenue may see jump due to massive winning price for broadcasting and digital rights. In Q1FY23, IPL revenue was Rs2.4bn and EBITDA contribution was Rs0.9bn. The entire season revenue and EBITDA were Rs2.7bn and Rs1bn, respectively. Company believes large winning prices paid for broadcasting and digital rights may add Rs3bn to revenue and Rs2bn to EBITDA.

PAT growth at 35% to Rs4.9bn was restricted by higher amortisation cost. In Q1FY23, revenue also benefited from Rs1.7bn of theatrical collection for Beast movie; and correspondingly also had higher amortisation cost. EBITDA rose sharply by 59% YoY to Rs7.7bn; it also had higher other income of Rs1bn on few one-off gains during the quarter.

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