 "sun tv digital")
The stock of Sun TV Network is down 17 per cent from its January highs on weaker-than-expected December quarter performance, delays in the pickup of advertising revenues, and a cut in earnings expectations. Brokerages are positive on the stock given its attractive valuations and expect a re-rating if there is value unlocking for its IPL franchise.
The company's revenues were up 3 per cent year-on-year (y-o-y) but missed brokerage expectations. JM Financial Research says revenues were 7 per cent below its estimates and were driven by lower movie distribution revenues. While overall core revenues were in line, advertising revenue growth was down 3 per cent y-o-y as the Cricket World Cup likely diverted FMCG ad spend towards cricket.
Abhishek Kumar and Anuj Kotewar of JM Financial Research expect a more gradual recovery in advertising revenues as still soft volume growth and weak rural demand will likely cap FMCG ad spend. However, subscription revenue is likely to sustain its momentum. The brokerage has a buy rating with an unchanged target price of Rs 750.
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While Sun TV has a strong regional presence in the South, Nuvama Research highlights that forays by national players such as Zee into the southern market have been successful, while Sun TV's foray into the northern market needs to be more focused.
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The other area where Sun TV needs to improve is the over-the-top (OTT) segment. According to analysts led by Abneesh Roy of Nuvama Research, "At present, it is recycling linear and movie content into OTT. It would have to be more aggressive in creating originals and obtaining movie rights for its OTT platform, apart from marketing, to benefit from the fast-expanding digital media segment." The brokerage has a buy rating on the company with a target price of Rs 800 a share.
Elara Capital is bullish on the company given that Sun Network has outperformed on the advertising revenue growth front with an uptick of 19 per cent over the FY21-23 period compared to the overall India TV industry growth of 16.7 per cent.
According to Karan Taurani and Rounak Ray of the brokerage, "We believe the regional genre may not see a rapid decline in consumption and cord-cutting compared to the Hindi genre, due to limited adoption of regional content on digital and higher time spent on linear TV within the South vs pan-India averages."
Its operating profit margins at 64-66 per cent remain well ahead of peers due to a regional content focus, which has a lower content cost, production of exclusive fictional content with a higher return on investment, the absence of involvement in sports properties, and no investment in originals for SUN NXT, say the analysts.
The brokerage has a buy rating on the stock with a target price of Rs 800 and believes that the core broadcasting segment is trading at an inexpensive valuation of 7.0 times the FY26 price-to-earnings ratio despite outperformance in TV advertising and healthy profitability. Elara Capital expects a re-rating towards a 12.0 times one-year forward price-to-earnings ratio for the core TV segment. In addition to the valuations, brokerages point out that a healthy 4 per cent dividend yield and 6 per cent free cash flow yield are positive from an investment standpoint.
