Sun TV losing share in ad market worries analysts

Our Bureau Chennai | Updated on February 09, 2021 Published on February 09, 2021

Stock slides 7%, but recovers some losses, thanks to trading ban in F&O

Shares of Sun TV Network slumped almost 7 per cent to ₹513.65 on the BSE in early deals on Tuesday, after the company came out with lower-than-expected quarterly results for the period ended December 2020.

However, the stock made a pull-back and recovered some of the losses. It was ruling at ₹537.80, down 2.54 per cent, from the previous day's close. According to analysts, the bounce-back was on account of the F&O trading ban imposed by the NSE on the stock the as market-wide open position breached the maximum 95 per cent limit.

"Fresh short positions could not be initiated on the stock in F&O due to a trading ban by the NSE. Fresh positions are allowed only if the current open positions are brought down to 85 per cent. This has cushioned the slide and forced some of the short-sellers to unwind their position," said a Chennai-based market analyst.

'Miss on all fronts'

Analysts are not impressed with the Q3 performance of the company. Emkay Global has maintained its ‘Hold’ stance on the stock with a revised price target of ₹541 (earlier ₹439). "It was a weaker-than-anticipated quarter with miss on all fronts. Advertisement revenues were down 10 per cent y-o-y, steeper than our estimate of negative 6 per cent and got impacted by slower recovery in retail/local ad spends, lower number of movie telecasts and weak market share in TN," said Emkay.

Domestic subscription revenues grew 3 per cent y-o-y, the weakest in the last many quarters, impacted by delayed agreements in some States. EBITDA was impacted due to a rise in programming and content cost and one-off provision in other opex, Emaky added.

ICICI Securities downgraded the stock to ‘Hold’ from ‘Add’ with a target price of ₹542. Sun TV Network’s Q3FY21 performance suggests continued loss of ad revenue market share, which could be due to higher dependence on local advertisers (the segment most impacted by Covid) and loss of viewership share in Tamil GEC.

"The company plans to aggressively invest in content to drive higher share and aims to return to its FY20 ad revenue base in FY22, which means likely margin compression in FY22. It also lags investment in OTT, which may start hurting terminal value, in our view," it added.

Elara Securities also downgraded the stock to ‘Reduce’ from ‘Accumulate’ with a price target of ₹535. The management has laid down plans to launch large non-fiction properties, which will improve gross rating points (GRP) and advertising; however, we will await performance of these shows, given strong competition and first-mover advantage of Star TV and Zee Entertainment in the regional non-fiction space, it added.

'Buy' calls

But not all brokerages were bearish on the stock.

Though ad revenues recovered sharply q-o-q, they were still low on a y-o-y basis as the pandemic is still not faded off completely, said LKP Securities. "This is due to lower business from local retailers (10 per cent contribution from 13 per cent earlier) and jewellers, while FMCG firms (about 55 per cent of the total ad pie) remained firm. However, in January and February, the company is seeing a strong revival in retail share," LKP, which maintained its ‘Buy’ rating with enhanced target price of ₹638, added further.

For Motilal Oswal, Sun TV’s healthy liquidity, with ₹3,600 crore net cash (H1-FY21), offers room to intensify investments in the linear as well as OTT space. "This, along with high dividend payout potential and low valuations, offers support," Motilal Oswal said, with a ‘Buy’ stance and a target price of ₹640.

Foreign brokering firms CLSA and Macquarie are also remained bullish on the stock as they expect growth pick-up and attractive dividend yield. The former maintained its ‘Buy’ stance with an enhanced target price of ₹645 while latter retained its ‘Outperformance’ rating with a target price of ₹612.

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Published on February 09, 2021
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