Analysts betting big on a Nifty Media stock's growth prospects, reasonable valuation

Broadcaster Sun TV Network's shares have rewarded investors with a return of almost 50 per cent in six months, and many analysts believe the stock is poised for more upside given its growth prospects, reasonable valuation, and dividend payouts. With that, the stock has sharply outperformed a 7.6 per cent rise in the headline index Nifty50 and even a 31 per cent rally in sectoral gauge Nifty Media.

Analysts at two brokerages see about 15 per cent more upside in the stock.

Sun TV Networks results and dividend

Sun TV Network shares hit a 52-week high this week after the Chennai-headquartered private sector company reported a strong set of quarterly results and declared a dividend.

Its net profit increased 14.3 per cent on a year-on-year basis to Rs 465 crore for the July-September period, with revenue growth of 26.9 per cent to Rs 1,048 crore, according to a regulatory filing. The media and entertainment company registered Rs 729 crore in earnings before interest, taxes, depreciation and amortisation (EBITDA), up 35.5 per cent compared with the year-ago period, and its margin improved by 450 basis points (4.5 percentage points) to 69.6 per cent.

For FY24, the company announced an interim dividend of Rs 5 per equity share--a 100 per cent dividend given the face value of Rs 5 per share. The company announced dividends to the tune of Rs 15 per share for the previous financial year, which, at the current price, amounts to a dividend yield of 2.2 per cent.

What analysts say

According to brokerage Motilal Oswal Financial Services, while the stock's overall outlook remains clouded, it is expected to find support from its reasonable valuation and a healthy dividend payout. The brokerage reiterated its 'buy' rating on the stock with a target price of Rs 750, which suggests an upside of more than 15 per cent from the current level.

"Improved subscription revenue and positive trends in FMCG spending and the onset of festive demand could aid recovery in the coming period. This, along with an upbeat valuation for the new IPL team at the recently concluded auction makes the stock’s valuation compelling at 8.6x EV/EBITDA on FY25E basis," analysts at Motilal Oswal Financial Services wrote in a report.

Continued investments in multiple non-fiction shows in the southern parts of the country and primetime fiction shows should help the company sustain viewership, according to the analysts, who also highlighted the company's good fundamentals with healthy liquidity and cash balance of Rs 290 crore, as of September 2023.

Brokerage JM Financial pointed out that there was no surprise in the Sun TV Networks results, as it maintained its 'buy' rating on the stock with a target of Rs 750. The brokerage said that Sun TV’s valuation remains low, at a price-to-earnings multiple of seven times its estimated FY25 earnings.

JM Financial also said that despite its 50 per cent upmove in the past six months, the rise in Sun TV shares has just begun.

Brokerage ICICI Direct continued with a 'neutral' stance on Sun TV Networks, stating that the ad environment is expected to be challenging for the TV space and that pushing back of the OTT content spending remains a key concern for the company. "We also await management outlook/commentary on content strategy, growth outlook and capital allocation ahead," added the brokerage.

The key risks for the stock, however, according to Motilal Oswal Financial Services, are persistent weakness in ad revenue growth, the risk of market share loss and strong competition from deep-pocketed OTT players.

What does Sun TV Networks do?

The company is engaged in producing and broadcasting satellite television and radio software programming in the regional languages of the southern parts of the country.