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Sun TV’s 2QFY24 growth construct was in-line with ZEEL’s, and our expectations. Muted adrevenues, sustained subscription growth and sharp uptick in movie distribution underpinned its growth, like in case of ZEEL. Topline miss (-12.8% below JMFe) was attributable to staggered revenue recognition of Jailer’s box office collection, which should be recouped in 3Q. Adjusted EBITDA margin (net of movie amortisation expenses) was in-line too. Sun TV echoed ZEEL sentiment of cricket impacting near-term ad-revenue outlook. We however draw comfort from signs of pick-up in FMCG’s ad spend. The impact of Cricket World Cup (CWC) appears unusually high likely due to lower ad-spot rates (hence more palatable to FMCG), India’s dominance in the tournament (higher eye balls) and the event coinciding with festive season (limited additional ad-budget for GECs). These specific factors make us believe that GECs’ share will mean-revert once the tournament ends. That may push out hopes of pick-up to Q4 though. That said, Sun TV’s still low valuation (7x FY25E core PE) given 6% FCF yield and 4% dividend yield suggest value realisation, despite c.50% up-move in past six months, has just begun. We maintain BUY with an unchanged TP of INR 750.

* 2QFY24 – No surprises: Sun TV reported revenues of INR 10.2bn, up 28% YoY, 13% below JMFe: INR 11.7bn. The miss driven primarily by lower than expected revenues from movie distribution (INR 2.4bn vs JMFe: INR 3.8bn). Management explained that part of the box office collection from the movie “Jailer” will accrue in 3Q. Collating and accounting of box office revenues across regions and geographies led to staggered revenue recognition, in our view. Core revenues (Ad + Subscription) were in-line (INR 7.7bn vs JMFe: INR 7.9bn). Ad-revenues remained soft (-4% YoY) while Subscription revenues grew 5% YoY. Reported EBITDA margins came in at 70.4%, 170bps below JMFe: 72.1%. Adjusted EBITDA margins however (net of movie amortisation expenses) were in-line (JMFe). Lower top-line percolated down to PAT resulting in a 12% miss (INR 5.2bn vs JMFe: INR 4.6bn). The company raised its dividend payout to INR 5 (+33% YoY).

*Outlook – Ad pick up gets pushed out: Like ZEEL, Sun TV also indicated that cricket has taken FMCG’s ad-spend share from GECs, delaying a long overdue pick-up. Good news is that FMCG’s ad-spend is on the rise. Bad news however is that CWC and festive season have coincided. To make matters worse (for GECs), India’s dominance in the championship has diverted more eye balls to CWC. The company therefore opines that ad-budgets might be exhausted by the time Diwali/CWC is over. Any meaningful uptick in ad-growth is unlikely before Q4. On movie distribution, release of “D 50”, a Sun Pictures movie starring Dhanush, might get pushed out to 1QFY25.

* Valuations still appealing; BUY: A delayed ad-spend pick up results in 4-5% cuts in our FY24-26E ad-revenues. However, higher subscription revenue assumptions make up for that resulting in minimal changes to our revenue and EPS estimates. Even after c.50% rise in the stock over past six months, Sun TV trades at 6.8x FY25E core P/E (ex-cash) and 8.6x EV/EBITDA. For a stock with 6% FCF yield and 4% dividend yield, we believe the valuations are still attractive. We maintain BUY with an unchanged TP of INR 750.

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