Sun TV zooms 10% post June quarter earnings; Nomura maintains 'Buy'

Shares of Sun TV surged 10 per cent to Rs 440.20 on the BSE after the company shared a healthy subscription outlook going forward and said that revenues were already close to 75 per cent of the pre-Covid levels. Meanwhile, the company reported consolidated profit after tax (PAT) of Rs 257.41 crore for the quarter ending June 30, 2020 (Q1FY21) as compared to Rs 386.61 crore reported in the corresponding quarter last year.

The broadcasting major's profit before tax dropped by 40 per cent YoY to Rs 352 crore during the quarter. Total income for the quarter was at Rs 714.71 crore as against Rs 1,137.07 crore for the corresponding quarter ended June 30, 2019.

The Subscription revenues for the quarter was up by 18 per cent to Rs 442.25 crore as against Rs 375.95 crore, a year ago.

Earnings before interest, tax, depreciation, and ammortisation (Ebitda) for the quarter was at Rs 416.49 crore as against Rs 682.91 crore in the corresponding quarter last year.

The media conglomerate said that revenues are close to 75 per cent of the pre-COVID levels. "If things stabilise and if the market really opens up, overall decline could be restricted to 15-20 per cent," it said. Meanwhile, the company guided around Rs 250 crore capex towards digital, creating content to drive subscription revenue and on movies.

S L Narayanan, Group CFO, Sun TV Network said, the capex depends on how quickly the theaters restart. "If it is going to go late into Q3 or early Q4, then possibly, it should be in the range of Rs 225-250 crore," he said.

Narayanan said that investment in exclusive content for its OTT platform Sun NXT will be around Rs 100 crore. "When things return to normal, these investments will be much higher," he said.

The company's net cash rose to Rs 3,000 crore in June from about Rs 2,800 crore in March.

Subscription revenue in Q1FY21 grew by 18 per cent to Rs.442.25 crore from Rs.375.95 crore, a year ago. “It is really going to be the saving grace for this year,” said Narayanan, adding that Sun will continue to invest in content to increase the subscription revenues at a very high level. "There is substantial headroom to raise prices in the subscription business," he said.

Moreover, Sun TV which owns IPL team SunRisers Hyderabad said it is not planning to list or divest stake in SunRisers.

At 10:30 AM, the stock was trading 6.77 per cent higher as compared to 0.28 per cent gain in the S&P BSE Sensex. Around 1.18crore shares have changed hands on the NSE and BSE, combined, so far.

Nomura maintained 'BUY' on the stock and also raised its target price to Rs 568.

"Sun TV's management maintains 15-20 per cent decline in advertisement revenues in FY21F. Current Ad revenues are at ~75% of last year’s levels. The company has already started airing original content from July and is showing new content in 4 slots in prime time, compared to 6 slots last year. We note that TV viewership for SUN in Tamil Nadu has continued to inch up to ~45% in past few weeks, compared to ~43% in 1QFY21 and ~41% in 4QFY20, which is a positive. This should drive ad recovery as economic activity improves. Hence, we raise our ad growth forecast to -20% now for FY21F (-22% earlier) and expect strong recovery to 19%/8% y-y in FY22/23F," the brokerage said.

"On subscription, demand trend remains strong and we maintain our 12%/6%/5% revenue growth estimates for FY21/22F/23F. However, implementation of New Tariff Order (NTO 2) can have some downside risk to our estimates. With the Indian Premier League (IPL) cricket tournament now scheduled for 3QFY21, we incorporate Rs 250 crore/Rs 90 crore revenue/EBITDA in FY21F for Sun. Overall, we raise FY21F/22F revenue by 9%/1%, EBITDA by 6%/2% and EPS by 7%/2%," it said.