Near-term advertising revenue and margin pressure for Sun TV Network

A sports-heavy calendar and digital shift cloud visibility; stock trades above five-year average P/E

Sun TV Network’s 2024–25 (FY25) January–March quarter (Q4) results mirrored its FY25 trends, with declining advertising (ad) revenues and higher costs denting its revenues and operational performance. After a weak Q4 showing, most brokerages have cut their 2025–26 (FY26) and 2026–27 (FY27) earnings estimates by 4–9 per cent.

 

Gains for the South India-based television (TV) broadcaster will depend on a recovery in revenues, its control over costs, and the impact of competitive pressures. While there are multiple headwinds, what could support the stock is a gradual recovery in ad revenues, high margins, and dividends.

 

The stock has shed about 14 per cent over the past six months and is priced at ₹623 a share. It is trading at 13.7x its FY26 earnings estimates, higher than the 12.5x average price-to-earnings valuation over the past five years.

 

Revenue for the quarter fell 2 per cent year-on-year (Y-o-Y) due to a 7.3 per cent dip in ad revenues. The decline in ad revenues was on account of a sports-heavy calendar, which included the Champions Trophy as well as the Indian Premier League (IPL). This hit general entertainment channel viewership and, consequently, ad revenue. The fast-moving consumer goods (FMCG) sector, a major contributor to ad revenues, has been allocating a higher share to the digital medium, putting pressure on TV spends.

 

While the overall ad market remains sluggish, the company expects a pickup in the second half of FY26. FMCG companies are expected to increase their TV spends, given a good monsoon and a pickup in rural consumption. 

 

Subscription revenue fell 1.1 per cent Y-o-Y on a high base and accounted for half of the total revenues. The price hike taken in FY25 is expected to support growth over the next two years, following sub-1 per cent growth in 2023–24 and FY25.

 

Given the investment in better content for its over-the-top platform and the price hike, Elara Capital expects 2 per cent annual growth over FY25 through 2027–28. In addition to ad and subscriptions, triggers for the stock could include movie releases in FY26/27 (Rajinikanth-starrer Coolie in August this year and Jailer 2 in 2026) and the newly acquired cricket franchise in the UK — Northern Superchargers, points out IIFL Research.

 

Weak top line and higher costs reflected in the operating performance, with gross margins falling 426 basis points (bps) Y-o-Y and 325 bps sequentially to 76 per cent. With other expenditures rising 27 per cent and staff costs increasing 3.8 per cent, operating profit margins fell 879 bps Y-o-Y to 45.6 per cent.

 

Moderation in production costs and a recovery in linear ads are key drivers for a margin upgrade, says Elara Capital. Though analyst Karan Taurani of the brokerage has cut operating profit by 3–4 per cent and earnings per share by 5–7 per cent for FY26–27, he points out that the company offers the best margins among peers and maintains a consistent dividend distribution policy. The brokerage has a ‘neutral’ rating on the stock, with a sum-of-the-parts valuation of ₹750.

 

While a recovery in ad revenue is the key near-term monitorable, Motilal Oswal Research believes that the Star India–Viacom18 merger poses a potential double whammy for Sun TV. Analysts at the brokerage, led by Aditya Bansal, believe that higher competition from deep-pocket players for ad revenue in the core business, along with a potential downward revision of IPL media rights in the next renewal cycle (from 2028–29), could sizeably impact the valuation of Sun TV’s IPL franchise, Sunrisers Hyderabad.

 

The brokerage has cut its FY26–27 operating profit by 4 per cent each, due to lower ad revenue. Earnings remain broadly unchanged, as the lower operating profit is offset by higher other income. It has a ‘neutral’ rating with a target price of ₹630 and expects 5 per cent earnings growth over FY25–27.