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Sun TV’s 3QFY24 performance was marginally below estimates. Revenues grew by 3% YoY, 7% below JMFe. The miss was however driven by lower movie distribution revenues, in our view. Importantly, core (Ad + Subscription) revenues were likely in-line. That said, ad-revenue growth (-3% YoY; JMFe) remained muted as Cricket World Cup likely diverted FMCG adspend towards cricket. We now expect a more gradual recovery in ad-revenues as a still soft volume growth and soft weak rural demand will likely cap FMCG ad-spend. Subscription revenue however is likely to sustain its momentum. We estimate a mid-single digit growth in Sun TV’s subscription revenue growth in 3Q driven by post NTO 3.0 price hike. EBITDA margin, net of movie amortization cost, was a tad below expectations, per our estimates (62% vs 63%). Overall, an in-line core performance meant the quarter had little bearing on our estimates. c.9% correction in the stock over past one month has made the valuation appealing again. Ex-IPL, the stock is trading at a core EV/PAT ratio of 6x. This appears cheap especially given a healthy 4% dividend and 6% FCF yield. We maintain BUY with an unchanged TP of INR 750.

* 3QFY24 – no surprises: Sun TV reported revenues of INR 8.85bn (+3% YoY) vs our estimates of INR 9.5bn. The company did not provide revenue break-down. However, per our estimates, we believe ad/subscription revenues grew by -3%/+5% YoY. These appear in-line with estimates. The miss was therefore, in our view, driven by lower movie distribution revenues. Note, we had baked in INR 1,250mn spill over revenues from movie Jailer. However, we estimate that actual movie revenues in 3Q would have been much lower at INR 569mn. Reported EBITDA margins were down 200bps YoY to 64.8%, below JMFe: 68.8%, again driven by lower movie revenues. However, ex-movie amotization expenses, the miss was lower (c.100bps: JMFe). This was further offset by higher than expected other income resulting an in-line PAT (INR 4.1bn vs JMFe: INR 4.2bn). The company declared a dividend payout of INR 2.5/share, vs INR 3.75/share in 3QFY23.

* Outlook: We expect meaningful ad-revenue pick up to get further pushed out. Accordingly, we have lowered our FY25E ad-revenue growth for Sun TV to 5% (from 7% earlier). We have however maintained subscription revenue growth at 7.5%. Near-term, Sun TV’s revenues in 4Q will benefit from SAT20, South Africa’s franchise cricket league, where Sun TV owns Sunrisers Eastern Cape team. Q1FY25 will see contribution from IPL as well as Rajnikanth’s next movie “Vettaiyan”. We therefore see a softer core business to be offset to a large extent over the next two quarters. However, a sustainable growth will require a more conducive ad-growth environment, in our view.

* Maintain BUY with an unchanged TP of INR 750: Our FY24-26E EPS is down 0-2% as we moderate our ad-revenue assumptions. Sun TV is up 39% over past one year. In spite of the upmove, the valuations appear cheap. Core EV/PAT (ex-IPL EV and cash) is at 6x. Moreover, 9% correction over past one month offers a good entry point to play the value unlocking story. We continue to value the core business at 7x EV/EBITDA and IPL at an EV of INR 65bn. Our SOTP based TP is unchanged at INR 750. Maintain BUY.

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