Neutral Sun TV Network Ltd For Target Rs.590 by Motilal Oswal Financial Services Ltd
Jailer 2-led growth expected in 3Q; core advertising remains weak
* Sun TV Network (SUNTV) reported a weak 2QFY27, with revenue declining ~31% YoY, primarily due to a high base of movie-related revenue (Coolie) in 2QFY26. Advertising revenue declined ~14% YoY (vs. flat for Zee), while domestic subscription revenue grew a modest ~2% YoY, reflecting continued weakness in the core broadcasting business.
* Given the boost from Coolie release in base quarter, EBIT is more comparable. Reported EBIT declined ~13% YoY to INR3b (in line), largely reflecting the operating deleverage from weaker ad revenue.
* Adjusted PAT declined a modest ~4% YoY, cushioned by significantly lower depreciation and a reduced effective tax rate.
* A gradual shift in FMCG ad spends toward digital platforms remains a key structural headwind for linear TV broadcasters such as SUNTV.
* A sustained recovery in ad revenue, along with a potential demerger of IPL franchise (SRH), remains the key trigger for any meaningful re-rating.
* Upcoming renewal of IPL media rights (mid-CY27) is a key monitorable for valuations and earnings of SUNTV’s IPL franchise; SunRisers Hyderabad.
* We fine-tune our estimates and expect a CAGR of ~2% in SUNTV’s revenue/EBITDA over FY26-29. Our FY29 EBITDA/PAT estimates remain below FY24 levels, due to persistent weakness in advertising revenue weighing on core business profitability.
* We value SUNTV on an SoTP basis: 8x Dec'28E EV/sales for SRH, ~4x EV/EBITDA for the core TV business, 0.5x investments for Northern Superchargers, and 1x for cash/dividends (~INR93b), to arrive at our TP of INR590 (implies ~12.8x FY29E P/E). We reiterate our Neutral rating.
Weak revenue performance; EBITDA margin ahead of estimates
* SUNTV’s revenue declined ~31% YoY to INR8.0b (3% miss), primarily driven by a decline in revenues from movies (Coolie in 2QFY26), coupled with continued weakness in domestic advertising revenue.
* Advertising revenue declined by sharp ~14% YoY (flat YoY for Zee) to INR2.5b (11% miss), due to BARC not publishing its viewership share.
* Subscription revenue grew modest ~2% YoY (+30% YoY for Zee) to INR4.9b (3% miss).
* Revenue from movies, IPL, and other businesses declined sharply by ~90% YoY to INR0.4b, largely due to high base in 2QFY26 (release of Coolie).
* Operating expenses declined ~8% YoY to INR3.8b (8% below estimates), primarily led by a ~15% YoY decline in production costs.
* Employee expenses declined ~1% YoY, while other expenses rose 3% YoY.
* Reported EBITDA fell ~44% YoY to INR4.2b (~3% beat), as margin contracted ~12pp YoY to 52% (base had benefit from Coolie release).
* Depreciation and amortization declined ~72% YoY to INR1.1b (15% above estimates, amortization of Coolie in base quarter), resulting in a relatively modest ~13% YoY decline in EBIT to INR3.1b (in line).
* Other income remained largely flat YoY at INR1.3b (13% miss), while the effective tax rate declined ~530bp YoY to 21.8%.
* Adjusted net profit declined ~4% YoY to INR3.4b (1% miss), reflecting weaker operating profitability, partly offset by lower depreciation and tax expenses.
* For 1HFY27, consolidated revenue declined ~8% YoY due to weaker ad revenue and contribution from Coolie in 1HFY26. 1HFY27 EBIT/PAT grew ~6%/11% YoY driven by the boost from IPL in 1QFY27.
* 1HFY27 OCF came in at INR8.9b (vs. INR 9.5b in 1HFY26). However, an increase in capex to INR11.8b (vs. INR5.5b in 1HFY26) led to FCF outflow of INR3.6b (vs. FCF generation of INR 3.3b in 1HFY26).
* SUNTV declared an interim dividend of INR3.75/share, taking the cumulative dividend declared during 1HFY27 to INR8.75/share.
Valuation and view
* A gradual shift in FMCG ad spends toward digital platforms remains a key structural headwind for linear TV broadcasters such as SUNTV. A sustained recovery in ad revenue, along with a potential demerger of IPL franchise (SRH), remains the key trigger for any meaningful re-rating.
* We fine-tune our estimates and expect a CAGR of ~2% in SUNTV’s revenue/EBITDA over FY26-29. Our FY29 EBITDA/PAT estimates remain below FY24 levels, due to persistent weakness in advertising revenue weighing on core business profitability.
* Upcoming renewal of IPL media rights (mid-CY27) is a key monitorable for valuations and earnings of SUNTV’s IPL franchise; SunRisers Hyderabad.
* At ~13x one-year forward P/E, valuations remain ~20% below historical averages, but pickup in ad revenue remains imperative for re-rating.
* We value SUNTV on an SoTP basis: 8x Dec'28E EV/sales for SRH, ~4x EV/EBITDA for the core TV business, 0.5x investments for Northern Superchargers, and 1x for cash/dividends (~INR93b), to arrive at our TP of INR590 (implies ~12.8x FY29E P/E). We reiterate our Neutral rating.
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