Neutral Sun TV Network Ltd for the Target Rs. 630 by Motilal Oswal Financial Services Ltd
Weak end to a subdued FY25
* Sun TV Network (SUNTV) reported another weak result, with revenue declining ~2% YoY, primarily due to persistent weakness in ad revenue (down 13% YoY). EBITDA declined 16% YoY, impacted by the continued weakness in ad revenue and higher production costs.
* FY25 was a subdued year for SUNTV, with revenue declining 7%, primarily due to persistent weakness in ad revenue, while EBITDA dipped 19% YoY.
* Recovery in ad revenue remains the key near-term monitorable. However, we continue to believe that the Star-Viacom merger is a potential double whammy for SUNTV due to: 1) higher competition from deep-pocketed players for ad revenue in the core business and 2) the potential downward revision of IPL media rights in the next renewal cycle (from FY29), which could significantly impact the valuation of SUNTV’s IPL franchise (SRH).
* We cut our FY26-27E EBITDA by 4% each on account of lower ad revenue, while our earnings remain broadly unchanged, as lower EBITDA is offset by higher other income. We expect ~5% earnings CAGR over FY25-27.
* SUNTV trades at ~14x one-year forward P/E (vs. 12.5x average PE in the last five years). We believe the recent Star-Viacom merger could lead to multiple de-rating.
* We value SUNTV on SoTP; we assign 6x FY27 EV/sales for the Sports franchise, ~5x EV/EBITDA for the core TV business, and 1x to cash holding and potential dividends of INR102b to arrive at our unchanged TP of INR630 (implying ~13x FY27 P/E). We reiterate our Neutral rating.
Weaker ad revenue leads to 16% YoY decline in EBITDA (7% miss)
* SUNTV’s overall revenue declined 2% YoY to INR9b (vs. our est. INR9.3b).
* Advertising revenue at INR3.1b (10% below) was down 13% YoY (vs. -25% YoY for Zee).
* Domestic subscription revenue at INR4.3b (4% beat) grew 6% YoY (vs. +4% YoY for Zee).
* Operating expenses were up 15% YoY to INR4.8b, driven by an increase in production costs (+18% YoY) and other expenses (+17% YoY).
* As a result, EBITDA declined 16% YoY to INR4.3b (7% miss), as margin contracted 790bp YoY to 47% (290bp below) due to higher other expenses.
* Depreciation rose 9% YoY to INR1.1b, while other income saw a sharp 74% YoY jump to INR2.3b (vs. our estimate of INR1.4b).
* Adj PAT increased 9% YoY to INR4.4b (18% beat), primarily on account of higher other income.
Subdued FY25 on weakness in ad revenue
* For FY25, SUNTV’s revenue declined ~7% YoY to INR38.8b, as ad revenue dipped 7% YoY, while domestic subscription revenue was stable YoY.
* FY25 EBITDA at INR20.9b declined 19% YoY due to higher production expenses. EBITDA margin contracted ~830bp YoY to 54%.
* FY25 PAT declined ~12% YoY to INR16.6b as lower EBITDA was partly offset by higher other income and lower tax rate.
* SUNTV declared an overall dividend of ~INR15/share (vs. INR16.75/share YoY), implying ~36% payout ratio (vs. 35% YoY).
* Excluding IPL, SUNTV’s core business revenue/EBITDA declined 7%/20%.
Valuation and view
* We believe the Star-Viacom merged entity could be a potential double whammy for SUNTV due to: 1) higher competition from deep-pocketed players for ad revenue in the core business, and 2) the potential downward revision of IPL media rights in the next renewal cycle (from FY29), which could significantly impact the valuations of SUNTV’s IPL franchise (SRH).
* We cut our FY26-27E EBITDA by 4% each on account of lower ad revenue, while our earnings estimates remain broadly unchanged, as lower EBITDA is offset by higher other income. We expect a modest ~5% earnings CAGR over FY25-27.
* SUNTV trades at ~14x one-year forward P/E (vs. 12.5x average PE in the last five years). We believe that the recent Star-Viacom merger could lead to multiple de-rating.
* We value SUNTV on SoTP; we assign 6x FY27 EV/sales for the Sports franchise, ~5x EV/EBITDA for the core TV business, and 1x to cash holding and potential dividends of INR102b to arrive at our unchanged TP of INR630 (implying ~13x FY27 P/E). We reiterate our Neutral rating on SUNTV.
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