Shares of SUN TV Network have slipped 12.70% to ₹496.40 apiece after hitting a 52-week high of ₹568.5 on November 10. This came after the company's September quarter numbers fell short of analyst expectations.
On November 14, the company posted a marginal 3% rise in its consolidated net profit of ₹407.3 crore compared to a net profit of ₹395.5 crore in the year-ago quarter. Sequentially, the net profit was down by 17.53%. SUN TV reported a net profit of ₹493.9 crore in the preceding quarter.
The company's revenue from operations fell to ₹915.1 crore, down 0.27% YoY against ₹917.6 crore and 30.83% QoQ against ₹1,323 crore in the preceding quarter. Advertising revenue for the quarter remained flat at ₹340 crore, owing to a significant reduction in advertising by fast-moving consumer goods (FMCG) firms.
However, domestic brokerage firm IIFL Securities is bullish on the stock, and it has upgraded the stock from "ADD to "BUY" on favourable risk-reward factors. The brokerage has a 12-month target price of ₹610 per share, representing a 23% increase over the stock previous closing price.
Following its interaction with the company's management, the brokerage listed some of the key takeaways. It says the ad revenue in the second half of the current fiscal year will be flat as the recovery has been gradual. The brokerage expects subscription revenue growth to resume in FY24, with only a small chance of delaying the current NTO 2.0 implementation deadline of February 1, 2023.
The brokerage noted that when global media companies are under investor scrutiny for diminishing returns on OTT and Zee has seen rising ZEE5 Ebitda loss, Sun’s strategy of keeping original OTT content investments to a minimum has resulted in healthy FCF generation.
However, Sun’s conservative approach to content spending even in the core TV business has kept viewership share flattish and limited revenue growth. Given that IIFL expects mid-single-digit revenue and EPS growth for the SUN TV core business.
After witnessing 41% YoY ad revenue growth in 1QFY23 off a favourable base, ad revenue was flattish in 2Q due to cost pressures for FMCG players, the brokerage said.
"The third quarter of the current fiscal started on a strong note, thanks to the festive season, but there has been some weakness in November. This statement by Sun mirrors Zee's management’s commentary on the 2Q call. Sun stated that advertisers are still cautious considering overall macro challenges. It also mentioned that regional advertisers have come back, though their contribution still remains below pre-Covid levels," IIFL Said.
In 2HFY23, Sun expects flattish YoY ad revenue. Based on this, FY23 ad revenue growth is likely to be 8%, lower than the 10-12% that Sun was targeting earlier, IIFL added.
The brokerage mentioned that the company expects content costs to be steady going forward. It would stick to its approach of primarily resorting to TV serials and movies, with intermittent use of reality shows. It would only sparingly depend on big-ticket reality shows, as production costs almost always outweigh the viewership and revenue gains.
Unlike Zee, Sun decided to keep OTT investments to a minimum, by creating a catalogue of content that mostly included its own TV serials and vast movie library, it says. Adding to that, IIFL said the SUN's movie library is formidable, considering its early-mover advantage in the South Indian market even stronger in the Tamil market where the rights of most movies released before 2010 are held by Sun. The strategy has helped the company preserve profitability and consistently generate FCF, it said.
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