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MOSL: SUN TV NETWORK (Buy)-Healthy recovery in place; investments in OTT hold key

SUN TV NETWORK: Healthy recovery in place; investments in OTT hold key

(SUNTV IN, Mkt Cap USD3.1b, CMP INR577, TP INR670, 16% Upside, Buy)

 

• Sun TV (SUNTV) reported in-line nos - revenue/PAT was up 10%/14% YoY, with ad revenues reaching pre-pandemic (2QFY20) levels and delayed benefit from the IPL offering spillover. This was offset by a sluggish subscription revenue run-rate.
• Our FY23E/FY24E estimates are largely maintained; we build in a 6% CAGR over FY20-23E. The recent upbeat valuation for the new IPL team auction makes the stock valuation compelling at below 10x on Sept'23E. Along with intensifying content investments to win market share, this is a key positive. However, delayed investments in OTT remain a concern. We maintain a Buy rating. 

Rev/PAT up 34%/38% YoY (below est); INR3.75 dividend announced

• SUNTV's 2QFY22 revenues increased 9.6% YoY to INR8.3b (in-line), with advertising revenue increasing 40% YoY to INR3.4b - revenues reached the pre-pandemic levels of INR3.4b as of 2QFY20. Subscription revenue declined 4.5%. Overall revenues exceeded pre-pandemic levels and were up 7% v/s pre-COVID levels of 2QFY20. This was largely attributable to the spillover of delayed IPL revenues of INR520m.
• Thus, EBITDA came in at INR5.2b, up 3.7% YoY (in-line), aided by revenue growth. EBITDA margins stood at 62.8% (down 350bps YoY). Production/SG&A costs were up 34%/31% YoY (incl. INR103.2m towards IPL franchise fees), which led to overall opex increasing 21.2% YoY.
• EBITDA came in at INR4.9b, up 18.8% YoY (11% miss), aided by strong revenue growth. However, it was partly offset by opex increasing 66% YoY, primarily led by the IPL. EBITDA margins stood at 61.1% (down 760bps YoY).