Q4FY21 revenue/EBITDA at Rs 7.8/ 5.5 bn were largely in line with our estimates (Rs 8/5.4 bn) but above consensus (Rs 7.7/5.2 bn). Advertisement revenue rose ~7% y-o-y (-11% vs Q4FY19), weaker than peer Zee (~9% y-o-y, -8% vs Q4FY19). Subscriptions rose ~7% y-o-y. But, DPS of only Rs 5 (~13% payout) in FY21 vs Rs 25 (72% payout) in FY20 and no buy-back announcement were key disappointments.
Commentary: Sun’s prime time market share in its flagship channel, SunTV, improved to 42% in April from ~37% in FY21. Going ahead, it plans high-cost non-fiction shows in Telugu/Malayalam and regain share. It targets to grow subscription revenue in double-digits in FY22F led by ongoing digitisation. On movie production, it plans to spend ~Rs 10 bn over the next two years.
Our view: While Sun’s Tamil viewership share has remained stable, it has lost share in the Telugu and Malayalam genres. We believe the structural growth recovery of Sun is contingent on: (i) sustained market share gains in existing genres (Tamil, Telugu etc); (ii) success in new genres like Marathi, Bengali; and (iii) increasing focus on OTT content (to date, Sun’s focus has been limited compared with peers) and risk of potential shift in advertising/subscription trends towards digital platforms.
We marginally revise estimates – ad revenue growth of 27%/10% in FY22/23F (+29%/8% earlier), subscription revenue growth of 7%/8% (6%/5% earlier), leading to a -2%/-1% change in revenue estimates for FY22/23F. We factor in 65.8%/62.2% Ebitda margins (63.7%/61.6% earlier), leading to largely unchanged EPS estimates.
Valuation: Trim TP to Rs 601
Current valuation at ~13.3x FY23F EPS is not expensive, considering Sun has net cash of Rs 41 bn or ~Rs 102 per share, ~20% of market cap and ~8%/7% FCF yield on FY22/23F. However, re-rating catalysts will depend on improving growth visibility. We maintain our target PE at 15x on FY23F EPS to arrive at our TP of Rs 601 (Rs 602 earlier). Maintain Neutral. Significantly higher value of IPL team in longer term is a potential upside. Further market share loss in Tamil genre is a downside risk.