Strong growth in subscription revenue drives gains for Sun TV in June qtr

Further uptick depends on recovery in advertising rates

The Sun TV Network stock gained 6.4 per cent in trade on Monday after brokerages upgraded it over robust subscription revenue growth in the June quarter. Expectations of a recovery in advertising revenues, traction in the digital segment, and strong cash balance were the other positives.

The immediate trigger was 18 per cent growth in subscription revenues on the back of an uptick in viewership because of the lockdown. The company is confident of achieving double-digit growth in subscription revenue in FY21.

On a sequential basis, subscription revenues could increase as DTH recharge was impacted in some regions. The company indicated original programmes across languages resumed with up to 90 per cent of slots being filled. Further with headroom for an increase in subscription prices, revenues could see an uptick. Analysts expect revenues from this segment to grow at 15 per cent for FY21.

 

 

The disappointment was the muted advertising revenues in the quarter which fell 67 per cent YoY due to the decline in ad spends by corporates on account of Covid-19. Advertising revenues have, however, recovered from April lows and are now at 75 per cent of pre-Covid levels, supported by sectors, such as pharma, health insurance, and e-commerce.

What’s positive is that TV viewership for Sun in Tamil Nadu has inched up to 45 per cent in recent weeks, compared to 41 per cent in the March quarter and 43 per cent in the June quarter. This, according to Nomura analysts, should help drive recovery in ad revenues as economic activity improves. Brokerages expect ad revenues to see a decline of 15-20 per cent in FY21.

 

 

The sharp fall in ad revenues dented overall revenue growth by 45 per cent. However, the year-ago quarter included IPL revenues of Rs 240 crore which, coupled with revenues from the movie business, translates to a higher base. Adjusted for this, revenues were down 22 per cent. The IPL is expected to be held in September in the UAE and Sun expects a pre-tax 

profit of Rs 150-170 crore, but lower than earlier because of increased travel and health costs.

Analysts at Motilal Oswal Financial Services have revised their FY21 operating profit estimates by 9 per cent to factor in IPL earnings for FY21, better subscription revenues and the benefit from sharp cost rationalisation.

The company’s digital platform SunNXT is witnessing strong traction doubling its presence with subscribers at 17.5 million. Most customers present on the over-the-top platform are through a partnership arrangement with telecom firms. While growth is expected to continue, spends on content are expected to rise as it ramps up offerings.

A key positive for Sun TV is its cash pile of Rs 3,000 crore, which will help it tide over the current situation. The cash not only helps it invest in digital assets but can also be used to increase the dividend payout or opt for a buyback. The stock trades at an attractive valuation of under 10 times its FY22 earning estimates.