Sun TV Network faces muted advertising despite subscription growth and strong net cash

Investment View and Recommendation

Motilal Oswal Financial Services Limited (MOFSL), in its May 21, 2026 results update, retained a Neutral rating on Sun TV Network with a revised target price of Rs 575, compared with the report CMP of Rs 519. The target indicates approximately 11 per cent upside.

MOFSL considers Sun TV's valuation undemanding, supported by net cash of about Rs 62 billion. However, the broker believes a sustained recovery in core advertising revenue is necessary for a meaningful re-rating. The shift in FMCG spending towards digital platforms remains a structural medium-term headwind for linear television broadcasters.

Weak Fourth-Quarter Operating Performance

Sun TV reported subdued operating performance in 4QFY26. Revenue declined 7 per cent year on year to Rs 8.5 billion, missing MOFSL's estimate by 9 per cent, primarily due to weakness in domestic advertising revenue.

MOFSL attributed the advertising weakness to FMCG advertisers reducing their spending on linear television. Domestic subscription revenue was in line with estimates and grew 11 per cent year on year. IPL revenue declined approximately 48 per cent year on year, mainly because the season began later than it did in FY25.

Fourth-quarter operating expenses declined 3 per cent year on year to Rs 4.7 billion, led by a 15 per cent reduction in other expenses. Employee expenses increased about 6 per cent, while other expenses increased about 2 per cent. EBITDA margin contracted to 44.7 per cent. Adjusted net profit was affected by weaker core profitability, a 59 per cent decline in other income and a higher tax rate.

FY26 Financial Performance and Cash Flows

For FY26, Sun TV's revenue grew 6 per cent year on year, supported by higher collections from the movie Coolie and approximately 10 per cent growth in domestic subscription revenue. Domestic advertising revenue nevertheless declined about 11 per cent year on year, broadly comparable with Zee's decline.

Weak advertising and operating deleverage resulted in FY26 EBIT and PAT declines of 11 per cent and 19 per cent, respectively. Operating cash flow increased about 8 per cent to Rs 17.3 billion. However, capex rose sharply to Rs 10 billion from Rs 3.8 billion in FY25, reducing free cash flow to Rs 4.6 billion.

Sun TV invested about Rs 11.9 billion to acquire franchise rights for Northern Superchargers, a Leeds-based cricket team in The Hundred league. The FY26 dividend was Rs 12.5 per share, compared with Rs 15 per share in FY25, while the payout remained approximately 35 per cent.

Estimates and Growth Outlook

MOFSL tweaked its FY26 actual estimates and forecasts Sun TV to deliver FY26-FY28E revenue, EBITDA and adjusted PAT compound annual growth rates of 4 per cent, 3 per cent and 9 per cent, respectively.

The broker views the movement of FMCG spending towards digital platforms as a structural medium-term challenge for linear television broadcasters. Recent IPL-team transactions are considered sentimentally positive, but MOFSL believes IPL valuations are stretched and could correct if competition for media rights weakens at renewals from FY29.

Valuation Framework

MOFSL's revised target price of Rs 575 is based on a sum-of-the-parts valuation framework.

• SunRisers Hyderabad: 9 times FY28E EV/sales.
• Core television business: Approximately 4 times EV/EBITDA.
• Northern Superchargers: 0.5 times investment value.
• Cash and dividends: 1 times the value of about Rs 81 billion.

The target price implies approximately 13 times FY28E P/E. At the report CMP of Rs 519, the target indicates approximately 11 per cent upside.