Motilal Oswal has given a buy rating to Sun TV Network with a target price of Rs 500. The share price moved down by -4.68 per cent from its previous close of Rs 421.20. The stock’s last traded price is Rs 401.50.
According to the brokerage, slowdown in ad spend, a high base of movie revenues, and loss of IPL revenues have led to an overall drop in revenues and EBITDA, partially offset by strong growth in subscription revenues. Ad revenue is expected to drop 20 per cent going ahead in FY21E, while subscription revenues would grow at 12 per cent in FY21E. The brokerage has cut its FY21E/FY22E EPS by 4 per cent/1 per cent.
Investment Rationale
According to the brokerage, subscription growth looks steady on account of healthy TV viewership and lucrative growth in SUN NXT OTT, especially in the southern regional markets, which could add to subscription revenue. However, ad spend is expected to plummet in FY21E, due to a drop in consumption spend and the ad market being the last sector to rebound in the current recessionary environment.
The brokerage has cut its revenue estimate for FY21E/FY22E by 11 per cent/5 per cent and EBITDA estimate by 14 per cent/2 per cent, weighed by lockdown-related challenges and a weak economic outlook. It has factored in a revenue/EBITDA/PAT growth of 6 per cent/6 per cent/6 per cent over FY20–22E. At a time when many companies in the Media sector are facing a cash crunch, Sun TV has a better liquidity position with Rs 5.2 billion in cash, which would help it maintain a stronger position in the current crisis.
Sun TV’s leading channels have witnessed significant improvement in viewership ratings across genres in the current lockdown phase as well, and the company is likely to hold its ratings going ahead. The stock trades at 11 times FY22E EPS. The brokerage values Sun TV at 13 times FY22E P/E to arrive at a target price of Rs 500.
Source: Motilal Oswal
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 758.13 crore, down -10.58 per cent from last quarter sales of Rs 847.81 crore and down -17.36 per cent from last year’s same quarter sales of Rs 917.34 crore. The company reported net profit after tax of Rs 249.43 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 75 per cent stake in the company as of March 31, 2020, while FIIs held 8.96 per cent, DIIs 7.21 per cent and public & others 8.83 per cent.
