Sun TV Network Stock Research Report

Some green shoots, but still a long way to go…..

In Q2FY25, Sun TV’s ad revenue grew 2.1% YoY, which we believe is higher than the sector (Linear TV sector (GEC) ad revenues were down 2-3% YoY). Our channel checks reveal linear broadcasters had decent festive season ad revenue recovery. However, there has been some pullback post Diwali as concerns regarding demand slowdown in consumption have increased. This continues to be a key monitorable for the stock in H2FY25. Subscription revenue continued to grow at 4.4% YoY and ~INR 1bn in revenue came in from movie production due to strong performance of ‘Raayan’. IPL revenue was negligible in Q2FY25. We estimate cash & equivalent of ~ INR 75bn as on H1FY25. We believe Sun TV is likely to be a key beneficiary if ad spends recover, and given the inexpensive valuations, core EV/EBITDA of ~5x (40-50% lower than its own historical average), we reiterate BUY.

Q2FY25 performance (consolidated)

Sun TV’s revenue was down 28.8% QoQ/10.9% YoY (in line with I-Sec est.) to INR 9.3bn due to lack of IPL revenue and absence of large movie releases. EBITDA was INR 5.4bn, down 24.8% QoQ/25.7% YoY, with EBITDA margin at 57.9%. Net profit was down 26.9% QoQ/11.9% YoY to INR 4.1bn. The company declared interim dividend of INR 5.00/sh in Q2FY25.

Q2FY25 performance (standalone)

Domestic subscription revenue was up 2.6% QoQ/4.4% YoY to INR 4.4bn. Advertisement revenue was up 3.6% QoQ/2.1% YoY to INR 3.4bn. Sun TV’s revenue was down 29.5% QoQ/11.6% YoY to INR 9.0bn, in line with our estimates. EBITDA was INR 5.3bn (down 25.1% QoQ/26.1% YoY), against I-Sec’s INR 5.6bn estimate. EBITDA margin was 58.8% (up 341bps QoQ/down 1159bps YoY). Net profit was INR 4.0bn.

Valuation

Given the broad-based signs of improvement in ad spends of FMCG companies, we believe ad revenue for Sun TV is poised to grow in FY25 over a weak base. Also, revenue from cricketing franchise is likely to grow steadily henceforth. We believe given the inexpensive valuations; the stock is likely to rerate once there are signs of recovery in ad revenue; hence, we maintain BUY on the stock. We value the stock at a revised target price of INR 1,111 (earlier INR 1,140) based on ~20x 1-year forward, as we roll forward its valuation by three months.
Key risks: Slower-than-expected recovery in ad spends in GEC and decline in revenue from IPL.