SunTV may invest Rs 1-1.5 bn in OTT platform post March 2022

SunTV’s Q2 ad revenues strongly recovered, breaching pre-COVID levels (Q2FY20) on a quarterly basis. As per Elara Capital’s analysis, the festive season is expected to prop SunTV’s ad revenue momentum, though the group may still post 5-7% lower ad revenue versus pre-COVID level in FY22 (annualised).

Some signs indicate SunTV reviving to industry growth on ad revenues. But excluding the impact of launches – Marathi and Bangla genres – core ad revenues are tepid. SunTv’s Q2 ad revenues were propped by many large non-fiction launches, thus boosting: 1) realization, and 2) Tamil viewership share. But sustained ad revenue growth (above industry average) may mainly trigger upgrade, medium-to-long term. SunTV is among the few broadcasters to be immune from NTO 2.0 affect, as its discounting on bouquet versus sum of à la carte prices has been lower (33% discounting allowed now). Profitability will continue to be lower, medium term, on content investment in Sun NXT (digital offering).

Ad revenue-led growth; low amortize, high other income prop PAT

SunTV’s overall revenues grew 9.6% YoY (up 2.3% QoQ; up 4.2% versus pre-COVID levels) to Rs 8,287 million, better than Rs 7,562 million estimated. Ad revenues positively surprised, growing 39.8% YoY to Rs 3,417 million (up 40% QoQ; up 1.4% versus pre-COVID levels) Non-ad revenues decelerated 5% YoY (up 6.2% versus pre-COVID levels) to Rs 4,869 million. EBITDA margin declined 357bp YoY to 62.8%, on 33.8%/30% YoY rise in operational costs/ other expenses.

Employee cost dipped 7% YoY. Profit after tax (PAT) grew 13.7% YoY to Rs 3,933 million, largely on 61% YoY depreciation dip. This was partly offset by sharp interest cost rise (income tax assessment related one-off interest charge) and 28% YoY other income rise in Q2.

Key takeaways

Movie segment

Five movies are in the pipeline, of which one starring Rajinikant was released during Diwali. In the past three days, the movie has opened to an overwhelming response.
Earlier, only 50% capacity was allowed by the government in the theatres, but from November 1, 100% capacity has been allowed.
Only two movies have been released. Other regular films were telecast on the OTT platform as theatres are not seeing full recovery, as yet.
SunTV will invest more than Rs 2.50 billion annually in movies.
Movies’ satellite rights may garner an estimated Rs 4-5 billion revenues.
Once SunTV monetizes its movie projects, it may invest in OTT, post FY22.

OTT platform

SunTV may not invest in the OTT platform till March 2022 as it has invested in other projects such as movies and content for TV shows (under progress).
Post March 2022, the management may invest in OTT platform – ~Rs 1-1.5 billion investment expected.
Subscription addition will be organic as and when a new movie is released.

Subscription

In Q2, subscription growth was low given that an international distributor was facing financial difficulties.
The management is confident of reporting double digit subscription base growth on run-rate uptick from December.

Broadcasting business

Bangla regional channel has more or less touched break-even – Expect further bounce-back post Covid.
SunTV has invested in a Marathi channel – Breakeven likely post 2-3 years.

Advertising

Through September-October, SunTV’s ad segment revenues touched record levels.
Good ad traction was led by uptick in retail segment, followed by e-commerce and FMCG.
Advertisements from e-commerce companies picked up suddenly given their forthcoming IPOs.
Advertising revenues grew MoM – If this momentum is sustained, past records may be breached to touch FY19 revenue levels.

IPL

IPL investment is a perpetually in nature. SunTV bought the franchise in 2012. In the first five years, Rs 1.47 billion loss was posted. And only from the sixth year, SunTV started to recover, paying 20% of the revenue share to the BCCI.
On divestment, its value unlocking and benefit to the shareholders may be crucial.
SunTV expects Q3FY22 revenues to be lower as only 4/3 IPL matches were played in September/ October, respectively. Ticket revenues were absent as the matches were shifted to Dubai. Further, sponsorship was lower.