Ad recovery delayed; Digital, a laggard
We believe, ad revenue recovery to pre-COVID levels may be delayed to FY23 for SUNTV due to: 1) higher share in local advertising, which remains severely affected on uncertainty over COVID Wave III and 2) poor recall for fiction shows. This is despite launching new initiatives in the non-fiction space recently in Tamil/Telugu genres, which created a buzz and may lead to near-term viewership share gains. However, sustaining this may be a challenge given high competitive intensity in the segment. SUNTV continues to ignore the high-growth OTT market – Industry average growth of ~50% in the next three years – as original content investments for SUN NXT continue to be delayed yet again. The platform has made a mark due to the release of new film content. However, we believe, web series remains an important part of the overall content strategy if an OTT were to win a large customer base on its own (rather than relying on telcos/other partners). Pricing in the ad segment may see some growth due to large non-fiction properties that may not be good enough to offset negative impact of higher investments in these shows.
1) Healthy cash balance of INR 38bn as on March 2021 with a high dividend pay-out (~65%- 80%) and 2) little or no negative impact of NTO 2.0 are the only silver linings for the stock, but are largely priced into current valuations. We maintain Reduce and roll over to September 2022 TP of INR 565 from INR 560, based on 15x (unchanged) one-year forward P/E. We believe, the successful execution on TV/digital content is the key monitorable to catalyze future upgrades.