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Sun TV Network (SUNTV IN; Mkt Cap USD4.4b, CMP Rs500, Neutral)
Sun TV 2QFY11 PAT grew 28.2% YoY but declined 2.1% QoQ (in line with our estimates) to Rs1.67b. Revenue and EBITDA were ~5-8% below estimates on lower revenues from film business. However, lower amortization (movies) resulted in an in-line earnings performance. Revenue declined 3.5% QoQ (up 32.6% YoY) to Rs4.25b. EBITDA declined 7.7% QoQ (up36.4% YoY) to Rs3.3b. EBITDA margin slipped ~350bp QoQ to 78.2% (vs est of 81.2%). Sun has released its high budget movie "Endhiran"; impact on the financials would be factored during 3QFY11.
Advertising and broadcast revenue during 2QFY11 increased 19.5% YoY (up 5.1 QoQ). The management expects revenue growth to rebound in 3QFY11 on account of festival season. Sun management maintained FY11 guidance of ~18% ad revenue growth vs an expected growth of 13-15% for the industry. Our estimates build-in a growth of ~21% in advertising and broadcast revenues in FY11. DTH revenues for 2QFY11 grew 75% YoY and 2.9% QoQ to ~Rs700m. Domestic cable revenues increased 50% YoY and 3.8% QoQ to ~Rs540m. Analog revenues have been gaining traction over the past three quarters owing to revamped distribution strategy. Sun management is confident of extracting value from analog segment.
We believe Sun TV will be able to sustain leadership in its geographical area of operations despite rising competitive activity due to: 1) Strong programming and film library, and 2) strong presence across regional genres. We continue to believe that regional players like Sun TV will grow ahead of the total advertising industry growth of 13-15%. While the management did not disclose any revenue and costs associated with "Endhiran"; we have factored-in the impact on financials in our FY11 numbers. We expect an EPS CAGR of 24% during FY10-12E. The stock trades at 27.2x FY11E EPS and 22.7x FY12E EPS. Maintain Neutral.
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