Revenue Grew To Rs 8.3b, Buy This Debt Free Stock With Good Dividend For Good Returns

Motilal Oswal, the brokerage firm, has given a buy call to Sun TV Network for a target price of Rs 500. In its report, the brokerage has stated that the double-whammy of weak subscriber growth and heightened investment in content has hit profits. Other than this, the brokerage has also stated that the company has declared an increased dividend for FY22 compared to FY21.

Stock Outlook

The Current Market Price (CMP) of the Sun TV Network is Rs 431.10, opened at Rs 423.80. The target price set by the brokerage firm, Motilal Oswal, is Rs 500. Looking at the target price and the CMP, the stock has the potential to gain 17%. It has touched the 52 week low at Rs 402.95 on 19 May 2022, whereas, it touched the 52 week high at Rs 612 on 08 November 2021.

The brokerage has cut FY23 estimate by 5%, factoring in 4.2% CAGR over FY22-24. According to the brokerage, "The upbeat valuation can be attributed to the winning of a new IPL franchise at the recently held auction. This makes the stock's valuation (sub-10x on a Mar'24E basis) compelling. This, along with increased investment in content to gain market share, is a key positive, but delayed investment on OTT and heightened competition remains a concern."

Revenue/PAT up 6%/4% YoY; announces a dividend of Rs 2.5

According to the brokerage, "Revenue rose 6.5% YoY to Rs 8.3b (10% below our estimate). Advertisement revenue grew 7% YoY, while subscription revenue fell 3% to Rs 4.2b. Production costs were up 22% YoY to Rs 1.4b (4% below our estimate). SG&A expenses rose 39% YoY to Rs 763m, (which includes Rs 49.4m towards IPL franchise fees). This led to a 19% YoY increase in OPEX. EBITDA stood flat at Rs 5.5b, up 1.2% YoY (14% below our estimate), led by soft revenue growth, higher production and SG&A cost. EBITDA margin fell 350bp YoY to 66.4%. Net profit fell 10% YoY to Rs 4.04b (5% below our estimate). The board declared an interim dividend of Rs 3.8/share. For FY22, it has declared a dividend of Rs 20/share v/s Rs 5/share in FY21."

Valuation and view

The management is increasingly investing on multiple non-fiction shows in South India, along with fiction shows for prime time. This will enable it to maintain the growth momentum in viewership. Sun TV Network's healthy liquidity, with net cash of over Rs 9.2b, offers room to intensify investments in linear as well as the OTT space. This, along with a higher dividend payout potential (45-85% payout policy) and lower valuations, offers support. Adjusting for the recent high auction price from new IPL teams, the stock is trading at a FY22 P/E of 6-7x.

"We have cut our FY23 estimate by 5%, factoring in 4.2% CAGR over FY22-24. We value the stock at a FY24E P/E of 11x to arrive at our Target Price of Rs 500. We maintain our Buy rating," the brokerage has said.

Commenting on the risks, the brokerage has said, "Investments on movie production has delayed OTT spends by two years. The management has now guided at FY23 for the same, except monetization of its existing library, which remains a key concern. There exists a risk of further delays."

About The Company - Sun TV Network

Sun TV Network, with a market capitalisation of Rs 17,038 Crore, is India's as well as Asia's largest TV network. It is engaged in producing and broadcasting satellite television and radio software programming in the regional languages of South India. With Thirty Three channels in six Indian languages and 68 FM Radio Stations, the network is able to connect to the Southern Diaspora erasing geographical distances. Every single South Indian channel that boasts of a No. 1 slot among its viewers belongs to the Sun TV Network.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the author, and the 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 decisions.