Buy This Mid Cap Media Sector Stock For 20% Gains, Turning 100% Ex-Dividend Today

Motilal Oswal, a leading brokerage firm in its recent report on Sun TV Network, a Mid-cap Media Sector company, has suggested buy the stocks of the company for a target price of Rs 550/share. Considering this, it has the potential to gain 20% in 12 months if stocks are purchased at the Current Market Price. The company's PAT is up 29% from pre-COVID levels. Sun TV Network Limited has a Market Capitalization of Rs 26,679.88 crore.

Stock outlook

The Current Market Price (CMP) of stock is Rs 500/share. Currently, the stock is trading Rs 97.45 above its 52-week low levels and Rs 112 below its 52-week high, respectively. The stock's 52 week low is Rs 402.55/share and 52 week high is Rs 612/share, respectively.

Returns of Investment

In the past 1 week, the stocks gave a positive return of 4.78%. Whereas, in the past 1 and 3 months, it gave a positive return of 13.29% and 14,06%, respectively. In the past 1 year, the stocks surged 3.54% and in the past 3 years, the shares gave a positive 20.45% return. In the past 5 years, the stock slid down nearly 28.38%.

Healthy earnings despite a weak ad growth

SUN TV reported a revenue/PAT growth of 11%/28% from pre-COVID levels, even though ad revenue was weak (down 7% from pre-COVID levels). This may be due to higher contributions from the movie business. We expect a soft EPS CAGR of 6% over FY22-24, on the back of low ad and subscription growth and lower margin. A loss in market share loss and delayed OTT investments remain a key concern. The recent upbeat valuation in the recently concluded auction of new IPL teams makes the stock's valuation compelling at below 6-7x.

PAT up 29% from pre-COVID levels

• Revenue rose 11% from pre-COVID levels and 48% YoY to Rs11.9b (15% beat). Revenue from advertising fell 7% from pre-COVID levels but grew 40% YoY to Rs 3.4b. IPL revenue stood flat at Rs2.4b in comparison to pre-COVID levels.
• Production costs rose 33% YoY to Rs 1.5b (11% below our estimate). SG&A grew 58% YoY to Rs 2.1b, which includes Rs 1.5b towards IPL franchisee fees. This was apportioned throughout Apr-Dec'21, which led to a 37% YoY increase in OPEX (20% above our estimate).
• EBITDA grew 12% from pre-COVID levels to Rs 7.6b, with an 80bp improvement in margin to 64%. On a YoY basis, it grew 54% (12% beat), with a 290bp improvement in margin.
• Depreciation surged by 5x YoY to Rs 5.6b (in line), possibly due to amortization of movie production costs.
• PAT grew 28% from pre-COVID levels and 26% YoY to Rs 4.9b (5% above our estimate).

Announces a dividend of Rs 5/share

The board declared an interim dividend of Rs 5/share (annualized dividend yield of 4.2%). For FY22, it has declared a dividend of Rs 20/share.

According to the company's filing to stock exchanges on 12 August said, "The Board of Directors at its meeting held on 12th August 2022, (commenced at 2.30 p.m. and concluded at 4.40 p.m.) has approved and taken on record the Unaudited Financial Results of the Company for the quarter ended 30th June 2022."

The declared Interim Dividend is turning ex-dividend today i.e. August 23, 2022. The record date for the same is August 24, 2022.

Brokerage Views

SUN TV is expected to maintain the growth momentum in viewership, with greater investment towards multiple non-fiction shows in the southern market and on prime-time fiction shows. Healthy liquidity, with a net cash of over Rs 9.2b, offers room to intensify investments in the linear as well as OTT space. This, along with its high dividend payout potential (a 45-85% payout policy) and reasonable valuation, offers support.

Brokerage suggests buy for target price of Rs 550

Adjusting for the recent high auction price for the new IPL teams, the stock is barely trading at a P/E of 6-7x on a FY22 basis. The key risk is that investments in its movie production have delayed its OTT investments by two years, except monetization of its existing library. Moreover, there exists a risk of further delays. "We have raised our FY23 EPS estimate by 4% and factor in 6% CAGR over FY22-24. We value the stock at 12x FY24 P/E of to arrive at our Target Price of Rs 550. We maintain our Buy rating," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.