Shares of Sun TV Networks has been on the rise in the last of couple days, despite the company reoirtubg a drop in revenues and net profit. Sun TV on Friday reported a sharp drop in revenues to ₹606.10 for Q1 of the current fiscal, as against ₹1,080.36 crore reported in the same period year-ago. Net profit declined 26 per cent to ₹282.80 crore (₹381.87 crore).

However, analysts remained bullish on the Chennai-based company, as they expect it to do well once the lock-down is lifted completely.

Sun TV shares, after gaining about 6.5 per cent on Monday, added another 2 per cent at ₹434.75 on Tuesday. Analysts said Sun TV is likely to retain the viewership that went up during the Covid-19-triggered shutdown.

According to ICICI Securities, the Covid-19 outbreak badly affected the ad scenario and creation of fresh content. Ad flow witnessed some recovery. Its trend will be important, going forward.

Dividend or buyback?

“We expect Sun TV to capitalise on the viewership gains once the ad scenario normalises. IPL is scheduled to be held in Q2, Q3, assuring some more earnings protection,” I-Sec, while maintaining Buy with a target price of ₹490, said.

According to Elara Securities, the big cash reserve of ₹3,000 crore, which may be used for higher dividend payout or a buyback and scalability in digital offering helped by new digital content on SunNXT, is a key factor. “We revise to Buy from Accumulate with a higher target price of ₹480 from ₹450,” it said.

CLSA and Macquarie too retained their Buy and Outperform stance with a price target of ₹490 and ₹508 respectively, as they see the company overcoming the challenging condition. Subscription growth looks steady on account of healthy TV viewership and lucrative growth in Sun NXT OTT, especially in the southern regional markets, said Motilal Oswal Financial. Sun TV has a better liquidity position, which would help it maintain a stronger position in the current lockdown crisis and invest strongly in the Sun NXT platform, it added. Motilal Oswal has set a target price of ₹500 and maintained its Buy rating.

Sun TV management expects to generate ₹100 crore revenues from IPL in FY21.

Key concerns

However, Emkay Global Financial said: “Although we appreciate the increased spends for original OTT content, we believe that execution on the same would be key. We retain a Hold rating with a revised TP of ₹439”.

“Post resumption of non-fiction content in Tamil, we expect loss of share for SUNTV too, and, therefore, we expect ad decline to be in line with industry average for FY21 at nearly 25 per cent y-o-y. This means no outperformance despite sharp TRP gains,” Elara added.

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