Sun TV may face challenges from 'deep-pocketed' Star-Viacom18 JV: Motilal Oswal

The upcoming merger between Star and Viacom could pose a significant challenge or "double whammy" for SUN TV, as it will face increased competition from a "deep-pocketed" player, alongside potential declines in ad revenue within its core business, according to Motilal Oswal Financial Services in its analysis of SUN TV’s Q2 earnings.

The report also notes that the IPL media rights renewal cycle starting from FY28 could lead to a downward revision, which would notably affect SUN TV’s IPL franchise, Sunrisers Hyderabad.

SUN TV reported a largely in-line 2QFY25, with revenue/EBITDA declining 12%/26% YoY (on a high base). A modest 2% YoY recovery in ad revenue (vs. -5% YoY in 1Q, -8% YoY for Zee) was offset by lower movie production revenue, higher direct costs and other expenses.

 “Our FY25-26 earnings estimates are broadly unchanged. We build in a revenue/EBITDA CAGR of 4% over FY24-27, with core business recording 5%/8% revenue/EBITDA CAGR,” said the report.

Motilal Oswal Financial Services also maintained its neutral rating on SUN TV, adding that the Star-Viacom18 merger could lead to a de-rating.

According to the analysis, SUN TV’s revenue/EBITDA was down 12%/26% YoY on a high base. Its overall revenue declined 12% YoY as 2QFY24 had a boost from the release of Jailer.

Ad revenue stood at Rs 3.4 billion, up 2% YoY, and its subscription revenue was at Rs 4.4 billion 4% up Yoy.

Operating expenses were up 23% YoY to Rs 3.7b driven by a spike in production cost (+29% YoY) and higher other expenses (+34% YoY).

Its EBITDA declined 26% YoY to Rs 5.3 billion (in line) as margin contracted 1160bp YoY to 58.8% (220bp below).

Depreciation inched up sharply QoQ to RS.  1.9b (vs. Motilal Oswal's estimate of Rs.  1.2 billion) while other income grew 53% YoY to Rs. 1.6 billion (vs. our estimate of Rs.  1.3 billion.

Net profit declined 13% YoY to Rs.  4 billion (3% miss) as the higher other income and lower tax rate were offset by higher depreciation and slightly lower EBITDA.

SUN TV declared an interim dividend of Rs.  5/share. (1H dividend at RS.  10/share).

For 1HFY25, SUN TV’s revenue/EBITDA/PAT declined 7%/18%/9% YoY due to the lower contribution from movie production and higher opex.

1HFY25, OCF declined 19% YoY to Rs 9.2 billion due to Rs. 18% decline in EBITDA. Capex decline of Rs. 37% YoY to Rs. 1.7b led to FCF generation of RS.  7.4b (-13% YoY). Despite paying a dividend of RS.  2b, SUN TV’s net cash increased to Rs 76 billion (from Rs. 67 billion at end-Mar’24.

For 2HFY25, the ask-rate for revenue/EBITDA growth is 8%/14%, contingent on recovery in ad revenue.

Sun TV Network Limited has reported a decline in Profit After Taxes (PAT) for the quarter ended September 30, 2024. PAT for Q2 stood at Rs. 398.17 crore, down from Rs. 456.24 crore in the same period last year, reflecting challenges in sustaining profit margins.

Excluding movies and sports, revenue for the quarter grew by approximately 3.26%, reaching Rs. 799.36 crore, compared to Rs. 774.12 crore in Q2 of 2023. However, Total Income decreased to Rs. 1,064.14 crore from Rs. 1,125.08 crore, indicating pressure on broader income streams.

The network’s advertising revenue showed a slight increase of 2.13%, totalling Rs. 335.42 crore, up from Rs. 328.42 crore in the corresponding quarter last year. Despite this growth, EBITDA for Q2 dropped significantly to Rs. 528.98 crore from Rs. 716.21 crore in the prior year’s quarter, suggesting an impact from rising operational expenses.

Profit Before Taxes was recorded at Rs 498.40 crore, down from Rs 608.24 crore in Q2 of 2023, highlighting continued financial pressures.