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Sun TV marches on
With growth continuing across divisions (advertising,
analogue and DTH subscription rates) and a strong
movie portfolio, we revise our earnings estimates
upwards and continue to maintain a BUY rating on the
stock with a target price of Rs594.
Advertisement growth robust; rate hike expected:
We believe the buoyancy in advertising, especially by
FMCG and local advertisers which form the bulk of
advertisement revenue for Sun TV Network, will
continue. We have modelled 25.2% ad revenue
growth in FY11 but the company has already achieved
32% in H1FY11 itself and we expect further upside to
our estimates. For FY12 and FY13 we have modelled
22.8% and 17.7% ad revenue growth respectively.
DTH subscription revenues expand: DTH
subscription revenues grew by 82% in H1FY11 and we
expect it to grow 56% in FY11 to Rs2.85bn and to
Rs4.1bn by FY13E. It currently has 6.6mn subscribers
with an average ARPU of Rs35.
Strong focus on international and analogue
subscriptions: We believe the Sun 18 JV, new
management team with its focus on North and
Southern India and higher collection efforts at the
ground level are having a positive affect on
subscription revenues. Internationally too the
management expects revenues to cross Rs1bn mark in
the next two years due to new per subscriber based
model and tie-ups with Global Media Management
LLC and World Media Connect LLC for North America.
Movie portfolio stays strong: Though the
management continues to be tight lipped on numbers
for Endhiran, we have modelled Rs1.5bn in revenues
from this movie for H2FY11 against the cost of
Rs1.2bn.
Estimates increased: We are increasing our FY11 and
FY12 revenue estimates by 1.8% and 3.1% respectively
and PAT by 1.9% and 4.7% and introducing FY13
estimates.
Maintain BUY: We continue to maintain BUY rating
on the stock with all growth drivers for the company
still in place. The stock is currently trading at 23x
FY12E and 19.5x FY13E EPS and we value the stock at
Rs594 (previous Rs526), 22x FY13 EPS.
Advertisement growth robust; Rate hike expected
We believe the buoyancy in advertising, especially from FMCG and local advertisers which form the
bulk of advertisement revenue for Sun TV Network, will continue. We have modelled 25.2% ad
revenue growth in FY11 but the company has already achieved 32% in H1FY11 itself and we expect
further upside from our estimates. For FY12 and FY13 we have modelled 22.8% and 17.7% ad
revenue growth respectively due to increasing inventory utilisation on weekends and non-prime
timeslots. Also, new channels launched during the last couple of years are bearing fruit now helping
to aid growth further. We also believe the company could take a rate hike in Q4FY11 which could
help it attain higher ad revenues.
DTH subscription revenues continue to expand
DTH subscription revenues grew 82% in H1FY11 and we expect the company to grow by 56% in
FY11 to Rs2.85bn and to Rs4.1bn by FY13E. The pace of subscriber addition continues to remain
robust and is currently at 6.6mn subscribers with an average ARPU of Rs35.
...with strong focus on international and analogue subscription revenues
We believe the company is focussed on increasing its analogue subscription revenues. In H1FY11 it
posted an impressive 44% YoY growth and we expect it to register Rs2.1bn in revenues in FY11 and
Rs2.66bn by FY13E. We believe the Sun 18 JV, new management team with a focus on North and
Southern India and higher collection efforts at the ground level are having a positive affect on
subscription revenues.
Internationally too the management expects revenues to cross Rs1bn mark in the next two years
due to the new per subscriber based model and tie-ups with Global Media Management LLC and
World Media Connect LLC for North America. Though we have modelled Rs0.85bn in revenues from
international subscription by FY13E, we believe there is further scope for an upside.
Movies portfolio continues to be strong
Though the management continues to be tight lipped on numbers for Endhiran, we have modelled
Rs1.5bn in revenues from this movie for H2FY11 against the cost of Rs1.2bn considering that only
60-70% of the cost would be amortised now and the remaining later when broadcasting rights are
monetised. We believe revenue numbers could surprise on the positive side though this would only
be a one time affair.
Estimates increased; Maintain Buy rating
We introduce FY13 estimates and increase our FY11 and FY12 PAT estimates by 1.9% and 4.7%
respectively on back of higher ad growth and subscription revenues. We continue to have a BUY
rating on the stock with all the growth drivers for the company still in place. We believe advertising
growth would be strong in the coming quarter while subscription and the DTH business are set to
get bigger. The movie business could throw positive surprises which could keep the stock price firm.
The stock is currently trading at 23x FY12E and 19.5x FY13E EPS. We value the stock at Rs594, 22x
FY13 EPS giving 10% premium to our ZEEL target multiple considering its dominance and historic
premium.
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