SUN TV NETWORK Strong performance continues:: Edelweiss

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􀂃 Revenue up 32.6% Y-o-Y; robust growth across revenue streams
Sun TV Network (Sun TV) reported Q2FY11 revenue of INR 4,248 mn against our
estimate of INR 4,450 mn. Ad revenue grew 18.6% Y-o-Y in spite of a huge base
as last year festive season overlapped Q2. Broadcast fees jumped 25% Y-o-Y.
Subscription revenue growth was driven by 75%, 50%, and 23.1% Y-o-Y growth
in the DTH, cable, and international subscription revenue streams, respectively.
The cable subscription revenue growth has been driven by huge collection
drives, two Malayalam channels becoming encrypted in April 1, 2010 and some
contribution from Sun 18. Movie business revenue declined from INR 480 mn in
Q1FY11 to INR 140 mn during the quarter as the quarter was muted in terms of
movie releases.
􀂃 EBITDA margins expand 221bps Y-o-Y
Q2FY11 EBITDA stood at INR 3,323 mn, below our estimate of INR 3,640 mn.
EBITDA margin expanded 221bps Y-o-Y; Q-o-Q, however, it dipped 348bps,
driven by a sharp rise of 93.5% in SG&A expenses as Sun TV booked some
promotional costs in Q2FY11 for Indhiran/Robot. The movie was released in
Q3FY11.
􀂃 Net profit jumps 28.2% Y-o-Y, slightly below our estimate
Sun TV reported profit of INR 1,674 mn, below our estimate of INR 1,720 mn.
Net profit margin, however, dipped 133bps Y-o-Y driven by a dip of 19.4% in
other income and 59% increase in amortisation and depreciation expenses.
Q2FY11 numbers included INR 710 mn of amortisation expenses on account of
movie (INR 110 mn) and satellite rights (INR 600 mn) .
􀂃 Outlook and valuations: Attractive; maintain ‘BUY’
We consider Sun TV as one of the least risky business models in the
broadcasting space. The company’s near monopolistic market standing will
enable it to outperform peers. Its premium is expected to be maintained due to
presence in high-growth regional markets, higher earnings growth, and strong
dominance. We are bullish on the TV broadcasting space and maintain ‘BUY’
recommendation on the stock. On relative return basis, we rate the stock
‘Sector Outperformer’.