Sun TV: Rising IPL revenue to counter tepid ad spends

Sun TV’s Q4 revenues grew 6.5% YoY (down 19.4% QoQ; up 13% versus pre-COVID levels of FY20) to INR 8,330mn (Elara E: INR. 8,819mn), led by 7% YoY ad growth on a low base of INR 3,371mn (down11% QoQ; up 16% versus pre-COVID levels of FY20). Subscription revenue declined 2.8% YoY to INR 4,160mn (down 9% QoQ and 5% versus pre-Covid levels of FY20).

According to Karan Taurani, senior analyst at Elara Capital, Sun TV’s Q4 EBITDA was INR 5,533mn, with margin at 66.4%, down 350bp YoY (down 350bp QoQ and 207bp versus pre-Covid levels of FY20), mainly due to rise in programming costs/other expenses by 21.7% YoY/39.1% YoY respectively. This was led by higher content investment, ensuing an overall EBITDA margin dip. Q4 PAT declined 10% YoY to INR 4,043mn (down 11.6% QoQ), largely impacted by higher tax rate of 25% (versus 11% in Q4FY21). This was partially offset by lower depreciation (down 15.4% YoY) on change in amortization policy and increased other income (up 6.3% YoY).

Sun TV’s ad revenues have recovered 95% versus pre-COVID levels in FY20. But the base is low as ad revenues dropped 9% YoY in FY20, underperforming industry average growth – Recovery versus FY19 levels is 87%. Ad revenue growth is estimated to be in line with the industry average in the medium term, helped by momentum in local advertising, which should benefit regional genres. Subscription revenue growth too remains muted at a CAGR of 5% in FY22-24E, due to strained TV viewership and intensifying competition in the regional genre. We expect some original content investment for OTT, which should check EBITDA margin (to dip 140bps in the next two years). However, the adverse impact of higher content cost will be offset by rising IPL revenue as IPL costs may not spike as much as revenue growth (to multiply led by renewal in media rights). We believe SUN TV’s digital strategy, original show launches and better content strategy in South Indian TV market are key monitorable.