Hold Sun TV Network Ltd For Target Rs.520 - Emkay Global
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
https://t.me/InvestmentGuruIndiacom
Download Telegram App before Joining the Channel
Ad recovery slower than expected
* Revenue/EBITDA missed our estimates by 8%/6% due to weak ad and subscription revenues. Ad revenue was down 35% over Q1FY20 vs. a 22% decline for Zee. The higher dependence on retail advertisers in the South market led to a greater impact on Sun TV.
* Clarity on domestic subscription revenue should emerge after implementation of NTO 2.0. Sun has changed its amortization policy for film satellite rights from 100% in 1st year to spreading it over 4 years, resulting in Rs703mn rise in PAT, with no impact on cash flows.
* Management stated that it is on track to strengthen its content offerings across markets and has started with the launch of Master Chef in Tamil in August. It has a strong line-up of non-fiction shows across the South markets for the coming weeks.
* Retail ad revenues were still below pre-Covid levels. We cut FY22-23E EBITDA by 3-5%, while earnings were compensated by the lower amortization charge. Retain Hold & roll forward to Sept’23E, with a revised TP of Rs520 (12x Sep’23E EPS) from Rs505 earlier.
Change in depreciation and amortization policy supports bottom-line:
Although revenue rose 34% yoy, it was 8% below our expectations. The revenue miss was on account of subdued performance by all segments - ad revenue missed by 9%, domestic subscription revenue by 5% and international subscription revenue by 29%. EBITDA margins contracted by 762bps yoy, primarily due to IPL-related expenses. Adjusting for it, margins expanded by 197bps yoy.
Other income was significantly lower yoy as the base quarter had a one-off MTM gain and an income tax refund. Beginning from this year, the company has changed its amortization policy, under which it has reassessed the useful life of film broadcasting rights and should now amortize it over four years instead of expensing it fully upon the first telecast. This led to a Rs703mn bump-up in RPAT.
Outlook:
Although positive revenue growth is expected ahead with the recovery in ad revenues, we believe it will be restricted in the near term. The higher dependence on local advertisers who are refraining from ramping up spends due to the uncertainty around a third Covid wave could potentially confine Sun’s ad revenues. In addition, the impending implementation of NTO 2.0 after the SC hearing should also dictate domestic subscription revenue growth. The company has been emphasizing on content launches, with a healthy pipeline of shows across markets.
The increased focus on the Bangla market with new content releases should also augur well. That said, the constant delay and ambiguity about the timelines for investments in Sun NXT are negative as competitors have been aggressively investing in their own OTT platforms. Key risks: 1) faster market share recovery and ad growth; 2) better-than-expected subscription growth; 3) minimal impact of OTT on traditional TV in the medium term; and 4) higher-than-expected spends on the OTT platform.
To Read Complete Report & Disclaimer Click Here
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
Above views are of the author and not of the website kindly read disclaimer
