Hold Sun TV Network; target of Rs 480: ICICI Direct

ICICI Direct's research report on Sun TV Network

Sun TV’s Q2FY21 numbers were below our expectations as subscription revenue, although maintaining growth momentum, was lower than anticipated while ad revenue recovery was slower. Ad revenues at Rs 245 crore, were down 27.3% YoY, as ad spend by corporates is yet to pick up fully post lockdown. Subscription revenues continued to remain strong with growth of 13.7% YoY at Rs 427 crore. Ex-IPL revenue fell 8.1% YoY to Rs 711.2 crore. EBITDA was Rs 502 crore, up 7.1% YoY due to lower cost of sales while margin of 66.4% was along expected lines. Consequently, reported PAT was at Rs 345.9 crore, down 5.6% YoY.

Outlook

The subdued ad outlook in the near term affects growth prospects of Sun TV. Flagship channel saw dip in viewership post lockdown that does not bode well from ad rates/volume point of view. IPL profitability will also take a hit due to shift of venue, reduced sponsorship, etc. Hence, we downgrade the stock to HOLD. We would turn constructive when we witness SunNXT ramp-up, viewership share increase coupled with sustained ad recovery. We value Sun TV at 12x FY22E EPS to arrive at revised target price of Rs 480.

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