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Shines again
Sun TV’s 2QFY11 result fell marginally short of our estimate, on higher costs. Growth momentum in
both advertising and subscription revenues continues unabated. Advertising revenue growth will pick
up in 3Q as we get into the festive season. Sun’s focus on subscription revenues has started yielding
results, with total subscription revenues growing 60% YoY in 2Q. In 3QFY11, the company released its
much-awaited movie Endhiran starring superstar Rajnikanth, which is doing very well at the box
office. We raise our earnings estimates for FY11 by 5% and for FY12 by 9% to factor in stronger than
expected growth in revenues and also earnings from Endhiran. We Retain ADD and upgrade our target
price to Rs553.
Revenues growth momentum stronger than headline number suggest: Sun’s 2QFY11 revenues,
down 3.6% QoQ at Rs4.3bn, should be seen in context of the fact that the festive season this year falls in
3Q instead of 2Q, and the dearth of new releases in 2Q caused a QoQ drop of Rs340m in movie revenues.
Costs were marginally higher than our estimates, contributing to the small disappointment in earnings.
We raise earnings estimates: Management hiked its FY11 guidance for analogue cable revenues from
Rs1.8bn to Rs2bn, and is now targeting 25% growth in this revenue stream in FY12. Additionally, it expects
DTH revenues to grow at over 20% annually over the next three years. A focus on international distribution
could throw up a positive surprise. Accordingly, we raise our EPS estimate for FY11 by 5% and for FY12 by 9%.
Premium justified; we reiterate ADD: The stock is trading at a P/E of 23.6x on FY12ii—not inexpensive,
but still at the median of its historical trading band. We believe the strong earnings visibility and possibility
of positive surprises in both advertising and subscription revenue is not fully captured in valuations. Our
price target of Rs553 (26x FY12ii EPS) represents an upside of 11%. We reiterate ADD.
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