This media stock offering a decent dividend yield gets a ‘buy’ rating amid no surprises

Amid no surprises, brokerage firm JM Financial has reiterated its buy view on the stock of Sun TV Network. The target has been pegged at Rs 750 for one year. This, considering Wednesday's close, implies a decent return of around 20 per cent.

This is even as the company missed its Q3 performance by a margin. The brokerage noted that Sun TV’s 3QFY24 performance was marginally below estimates. Revenues grew by 3 per cent year-on-year (YoY), 7 per cent below the brokerage's estimates.

The miss was, however, driven by lower movie distribution revenues, in our view. Importantly, core (ad + Subscription) revenues were likely in line. That said, ad-revenue growth (-3% YoY; JMFe) remained muted as the Cricket World Cup likely diverted FMCG ad spend towards cricket.

Nevertheless, JM Financial expects a more gradual recovery in ad revenues as soft volume growth and weak rural demand will likely cap FMCG ad spend. Subscription revenue, however, is likely to sustain its momentum, the brokerage noted.

The brokerage further stated that it estimates a mid-single-digit growth in Sun TV’s subscription revenue growth in 3Q, driven by the post-NTO 3.0 price hike. EBITDA margin, net of movie amortisation costs, was a tad below expectations, which was highlighted by the brokerage. 

Overall, an in-line core performance meant the quarter had little bearing on the brokerage’s estimates and has indeed made the stock’s valuation appealing again. Excluding IPL, the stock is trading at a core EV/PAT ratio of 6x. This appears cheap, especially given a healthy 4 per cent dividend and 6 per cent free-cash-flow (FCF) yield.

The stock of Sun TV Network has gained 38 per cent in the past one year, outperforming the Nifty index by a decent margin.