Sun TV : 2QFY2011 Result Update- Accumulate -Angel Broking

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We have revised our estimates: 1) revenue estimates for FY2012E are kept flat,
while for FY2011E have been marginally revised upwards to account for high
broadcast fees and movie distribution revenues, which is offset by lower DTH
subscriber addition this quarter (~0.05mn addition), 2) operating margins are
pruned down by 30bp for FY2011E to account for high SG&A expenses, while for
FY2012E, we have kept our OPM estimates flat, and 3) ~1% increase in earnings,
as we factor in lower losses in Radio. We recommend Accumulate on the stock.
Strong results led by advertising and subscription revenues: Sun TV (STNL) posted
yet another quarter of robust results on both the revenue and earnings front.

Revenues were aided by robust yoy advertising, broadcasting fees (positive
surprise) and pay revenues. OPM expanded by 221bp yoy driven by incremental
revenue gains from the hikes in the advertising rate and increase in pay slots
driving 28% yoy growth in earnings though partially impacted by the 59% jump in
depreciation/amortisation charges (resulting in the EBIT margin contraction of
134bp yoy).

Outlook and Valuation: We have valued STNL at 24x FY2012 EPS of 21.8, 5%
discount to its historical average P/E of 25.4x to account for– 1) risk associated
with high ARPUs in the DTH subscription model, and 2) expenditure associated
with their maiden production, Endhiran. At the CMP of `498, the stock is trading
at 22.3x FY2012E EPS. We recommend an Accumulate on the stock, with a
revised Target Price of `523 (`518). Positive surprise from the revenues booked
from Endhiran will result in re-rating of the stock and pose an upside risk to our
estimates (we would wait for 3QFY2011 results before updating our numbers).