Sun TV tanks 6% on weak Q4 results; brokerages cut price target

At the operating level, EBITDA (earnings before interest, tax, depreciation and amortisation) grew by 16 percent to Rs 608 crore and margin contracted 450 bps to 68.4 percent compared to the year-ago period.

Numbers were far below analyst expectations. CNBC-TV18 poll estimates for profit were Rs 353 crore and revenue Rs 936 crore. EBITDA was estimated at Rs 675 crore and margin at 72 percent for the quarter.

Sun TV posted weaker-than-expected operating results, with advertisement and subscription growth impacted by the implementation of the New Tariff Order (NTO).

Viewership market share of its flagship channel, SUN TV (Tamil), has remained subdued, while management expects incremental investments in original content to revive the market share going forward.

Advertising revenue growth was flat in Q4FY19 against expectations of 5-7 percent growth, while subscription revenue growth was 4 percent during the quarter against expectations of 15-17 percent.

Brokerages were mixed in their opinion after March quarter earnings. Here are their views on the company:

Brokerage: Emkay | Rating: Sell | Target: Rs 529

Channel reach was impacted by around 15 percent but it is expected to improve to around 5 percent by the second half of FY20. The Marathi channel launch is expected to get delayed.

Efforts on forming a digital strategy are still ongoing and the company remains elusive in sharing any details. The delay on that front, along with rising competition with aggressive investments in regional content, remains a concern on the traditional business.

NTO implementation is transitory and expected to impact revenue growth in the first half of FY20 as well, while the pace of new content launches, viewership market share gains, progress on digital investments are key monitorables. Maintain sell, with a DCF-based target price of Rs 529.

Brokerage: Motilal Oswal | Rating: Buy | Target: Reduced to Rs 690

The brokerage lowered target price to Rs 690 (prior: Rs 740), ascribing 15x (around 30 percent discount to three-year average) to FY21 EPS.

They said that till the time the flux gets settled, the impact from TRAI's tariff order along with mounting pressure on viewership share and margins, warrants a discount to the average multiple.

Yet, the current price largely captures the negatives. Maintain Buy.

Brokerage: Kotak | Rating: Reduce | Target: Reduced to Rs 575

The brokerage cut FY2019-21E earnings by 4-7 percent as it factored in the near-term impact of NTO (lower advertising and subscription revenue growth).

Inexpensive valuations aside, it said they would wait for fundamentals of the business to improve before turning constructive.

"We revise our fair value to Rs 575 (Rs 600 earlier); it implies 14.5X FY2021E earnings." Maintain reduce.

Brokerage: Macquarie | Rating: Outperform | Target: Reduced to Rs 700

The brokerage maintained outperform call and reduced price target to Rs 700 from Rs 725 earlier as tariff order impacted March quarter's topline.

Tariff order impact is expected to normalise by September 2019, the brokerage said.

Increased churn from Arasu augured well for the company and telco deals with Sun Nxt should drive subscription growth.

Brokerage: CLSA | Rating: Buy | Target: Reduced to Rs 730

The brokerage maintained buy rating and cut price target to Rs 730 from Rs 770 earlier as weak March quarter performance hit by TRAI's new regime.

OTT/SunNXT are ramping up well and caluations are inexpensive, the brokerage said.

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