Sun TV Network tanks 10% on weak Q1 earnings; analysts divided on outlook

Sun TV stock outlook: Prolonged weakness in ad revenue, coupled with risk around market share loss, and strong competition from deep-pocketed OTT players continued to pose concerns

Sun TV Network share price today slipped 11 per cent to Rs 815 on the BSE on Monday. The shares fell amid heavy volumes after Sun TV reported a weak performance in the June 2024 quarter (Q1FY25), with revenue down 3.2 per cent year-on-year (Y-o-Y) at Rs 1,276 crore.

At 01:39 PM, the stock was trading 10 per cent lower at Rs 820.60 as compared to 0.25 per cent rise in the BSE Sensex. The average trading volume on the counter jumped over six-fold with a combined nearly 4.8 million shares changing hands on the NSE and BSE. In the past four months, the market price of Sun TV has surged 49 per cent.

In Q1FY25, the company's profit after tax declined 6 per cent Y-o-Y to Rs 546.94 crore as against Rs 582.80 crore in the corresponding quarter of the previous fiscal. Earnings before interest, taxes, depreciation, and amortisation (Ebitda) down 10.2 per cent Y-o-Y at Rs 706 crore; margins contracted 433 bps Y-o-Y at 55.4 per cent.

Sun TV reported a weak Q1FY25 performance in its core business, with ad/subscription revenue declining 5 per cent/2 per cent Y-o-Y owing to cricket and general elections. Higher direct costs (up 720bp Y-o-Y) and operating deleverage led to a margin contraction.

The key spoiler for the quarter was weak ad growth. ICICI Securities believes festive season-led recovery will be key. Furthermore, Sun TV has launched Hindi Free to Air channel and performance of the same will be key monitorable.

"Prolonged weakness in ad revenue, coupled with risk around market share loss, and strong competition from deep-pocketed OTT players continued to pose concerns. However, the potential tailwinds from the ad revenue from Q3FY25 could be a key positive," according to Motilal Oswal Financial Services (MOFSL).

The stock is trading at 18x P/E on FY26E with earnings likely to remain under pressure due to higher channel costs on the launch of SunNeo (a new Hindi channel) and weak core revenue. The brokerage firm has downgraded ratings on the stock to 'Neutral' (from Buy), with a target price of Rs 860.

The prolonged weakness visible within ad revenue has hit revenue growth. Recovery within ad spends and signs of revival in the FMCG segment would remain the key monitorables for the stock. The continued conservative approach towards investments in OTT, with the focus remaining on movie production and monetisation of its existing library, however, remains a key risk within the fast-growing OTT space," MOFSL said.

Analysts at JM Financial Institutional Securities, meanwhile, believe the outlook for Sun TV is stable for both ad/sub revenues.

"Absence of marquee cricket tournaments through the rest of FY25 should help re-direct FMCG's ad-budgets towards General Entertainment Channels (GECs). Decent box office collection by "Raayan" should support Q2 numbers, followed by festive uptick in Q3," the brokerage firm said.

Sun TV’s stable operations (54 per cent adjusted Ebitda margin), healthy cash generation (13 per cent FCF CAGR over FY20-24) and pole position in South India's TV landscape merit a better multiple than ZEEL, in our view, the analysts said.

JM FInancial maintained its 'Buy' rating on the stock with a revised target price of Rs 1,180 (from Rs 750).