Advertising recovery, near-term gains from IPL to support Sun TV stock

Subscription growth is expected to remain healthy in the near term

The pickup in spends led by fast-moving consumer goods companies, expectations of revival in regional advertising, near-term gains from the Indian Premier League and regional elections are positive for the Sun TV Network stock. 

The near-term trigger would be a 10-15 per cent year-on-year (YoY) growth in advertising revenues for the sector in the March quarter (Q4), which should help the company. Sun TV had reported a 10 per cent decline in ad revenues in Q3 due to slower recovery in retail, lower number of movies, and muted market share in Tamil Nadu. 

The gains in Q4, according to analysts at Nomura, would be led by strong spends by the FMCG segment, e-commerce, and banking. 

The upcoming IPL season is also likely to aid the advertising industry’s recovery, they add. Election-related spends pegged at Rs 15-40 crore in Tamil Nadu and Kerala, too, could boost advertising revenue growth for Sun TV, which has the highest share in the southern markets. Growth will also be dependent on spends by regional advertisers and the company’s ability to launch new shows and gain market share.

After 3 per cent growth in Q3, analysts expect the subscription segment to post a 10-12 per cent revenue growth, led by ongoing digitisation and shift to direct-to-home or DTH from the cable segment. 

While the company is confident of double-digit growth in the segment, the Street will keep an eye out for clarity on New Tariff Order 2.0 as well as traction for SunNXT, the company’s online video streaming platform. It has invested in creating original content with an initial focus in Telugu and Tamil and its ability to monetise this medium will be looked at. 

In addition to the improvement in the two key segments and growth prospects, analysts at HDFC Securities are positive on the stock due to healthy cash balance and robust dividend payout. 

At the current price, the stock is trading at 11 times its FY22 earnings estimates. While the prospects are improving, investors should await Q4 numbers and digital traction before considering the stock.