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Post the 3QFY2011 result con-call we have tweaked our estimates to factor in
lower DTH revenues, increase in analogue revenues, high broadcast fees and rise
in movie amortisation costs. We maintain an 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 driven by higher movie revenues (Endhiran got recorded) and
~43%yoy growth in international revenues (positive surprise). Operating margins
expanded by 481bp yoy aided by cost rationalisation and incremental growth in
movie revenues, driving a 48% yoy growth in earnings of the company.
Outlook and Valuation: Over FY2010-12, we have modeled in 23.5%, 25.3%
and 27.9% CAGR in top-line, core EBIT (post amortisation) and earnings
respectively, for STNL. Moreover, we expect STNL’s cash balance to swell to a
whopping `12bn (~`32/share) in FY2012 driven by strong rise in free cash flow
(almost tripling over FY2010-12E) on the back of strong earnings growth. Hence,
we expect STNL’s RoE to sustain at ~29–30% levels and RoIC to rise to 58% (36%
in FY2010). We maintain an Accumulate on the stock, with a revised Target Price
of `518 (`523), based on 24x revised consolidated EPS of `21.6.
Recurring earnings growth robust at 48% despite 97% jump in
depreciation/amortisation
For 3QFY2011, STNL posted a robust growth of 48.2% yoy to `225.5cr (`152cr) in
earnings on a recurring basis, despite the increase in depreciation/amortisation
expense (up 97% yoy) aided by operating margin expansion and 9% yoy increase in
other income.
Cost rationalisation, higher operating leverage aid OPM expansion by 481bp
At the operating level, STNL posted a 481bp yoy expansion, driving a whopping 61%
yoy growth in operating profit to `502cr (`312.5cr) aided by cost rationalisation,
incremental growth in movie revenues (contributes ~25% to total revenues), which
was largely on account of revenue traction from Endhiran, and increase in the pay
slots resulting in 20% yoy increase in the broadcast fees, which directly reflected in
margins (due to no cost attached). The company‘s focus on reducing operating costs
saw a decline in the cost of revenues (down 258bp yoy), staff cost (down 116bp yoy)
and other expense (down 108bp yoy).
Investment Arguments
STNL’s ad revenues to outpace regional advt., we peg 21% CAGR: During
FY2010-12, we peg STNL’s standalone ad revenues to post 21% CAGR, ahead
of 14% CAGR in regional advertising during the period, driven by –
1) absorption of rate hikes (5-33% hike in ad rates across channels effective Jan
2010), 2) increased traction in niche kids/comedy channels launched in
1QFY2010, and 3) strong management focus on utilising inventory during
off-peak hours and new weekend programming.
Multiple levers led by DTH to drive 31% CAGR in pay revenues: During
FY2010-12, we expect STNL to register a robust 31% CAGR in overall
subscription revenues aided by – 1) strong 39% CAGR in DTH revenues on the
back of 19% CAGR in DTH subscribers and rise in ARPU’s to `36, and 2) 20%
CAGR in analogue revenues aided by restructuring of distribution business and
Malayalam channels (Surya TV, Kiran TV) turning pay from April 1, 2010.
Radio to near break-even at operating level by FY2012: On a consolidated
basis (Kal and SAFM), we expect the radio subsidiaries to report top-line CAGR
of 20% during FY2010-12 to `81cr (`56cr) driven by – 1) uniform brand identity
of the radio channels to Red FM (will act as an effective tool for marketing the
stations with agencies and customers), and 2) Ad rate hike of 12-15%
announced by Red FM effective June 2010. The government regulations on
radio broadcasting, paving way to Phase-III of radio licensing auction, will act as
a further upside to our estimates.
Sun Pictures – ‘Endhiran’ broke all records: Sun Pictures released Endhiran (with
a budget of over `132cr) in 3QFY2011in three languages, viz. Tamil, Telugu
and Hindi. The movie registered returns of ~26% at EBIT level (marginally above
our estimate of 20-25%). For FY2011, we estimate STNL’s revenues from movie
distribution (including release of Endhiran) to post 196% yoy growth to `200cr
(`67.5cr) and then taper down to `135cr in FY2012, as the revenue traction
from Endhiran wanes.
Outlook and Valuation
Post the 3QFY2011 result con-call we have tweaked our estimates to factor in lower
DTH revenue, increase in analogue revenues, high broadcast fees and rise in movie
amortisation costs.
Over FY2010-12, we have modeled in 23.5%, 25.3% and 27.9% CAGR in
top-line, core EBIT (post amortisation) and earnings respectively, for STNL.
Moreover, we expect STNL’s cash balance to swell to a whopping `12bn
(~`32/share) in FY2012 driven by strong rise in free cash flow (almost tripling over
FY2010-12) on the back of strong earnings growth. Hence, we expect STNL’s RoE
to sustain at ~29–30% levels and RoIC to rise to 58% (36% in FY2010) during the
mentioned.
We believe higher valuations for STNL are justified given its -1) strong earnings
(recurring) CAGR of 29.6% over FY2010-12E, 2) dominant leadership in 3 out of 4
lucrative southern markets, which account for ~73% of regional TV ad market, 3)
strong group strength including political clout and presence across media value
chains (distribution via Kal cables and DTH via Sun Direct), 4) unique low-cost
business model (broadcast fees and low SG&A expenses), which enables it to
garner significantly higher operating margins, and 5) significant reduction in losses
in radio subsidiaries (management has indicated breakeven at the operating level
for SAFM this quarter, Kal is already breaking even at the operating level). We
maintain an Accumulate on the stock, with a revised Target Price of `518 (`523),
based on 24x FY2012E EPS of `21.6.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SUN TV Network – 3QFY2011 Result Update
Angel Broking maintains an Accumulate on SUN TV Network with a Target Price of Rs. 518.
Post the 3QFY2011 result con-call we have tweaked our estimates to factor in
lower DTH revenues, increase in analogue revenues, high broadcast fees and rise
in movie amortisation costs. We maintain an 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 driven by higher movie revenues (Endhiran got recorded) and
~43%yoy growth in international revenues (positive surprise). Operating margins
expanded by 481bp yoy aided by cost rationalisation and incremental growth in
movie revenues, driving a 48% yoy growth in earnings of the company.
Outlook and Valuation: Over FY2010-12, we have modeled in 23.5%, 25.3%
and 27.9% CAGR in top-line, core EBIT (post amortisation) and earnings
respectively, for STNL. Moreover, we expect STNL’s cash balance to swell to a
whopping `12bn (~`32/share) in FY2012 driven by strong rise in free cash flow
(almost tripling over FY2010-12E) on the back of strong earnings growth. Hence,
we expect STNL’s RoE to sustain at ~29–30% levels and RoIC to rise to 58% (36%
in FY2010). We maintain an Accumulate on the stock, with a revised Target Price
of `518 (`523), based on 24x revised consolidated EPS of `21.6.
Multiple levers drive strong top-line growth
STNL continued its growth momentum, reporting robust 51% yoy top-line growth, led
by 1)~16% yoy/13% qoq growth in advertising revenues, 2) 20% yoy/4% qoq growth
in broadcast fees, 3) ~59% yoy/ flattish qoq growth in DTH revenues (6.72mn
subscriber base, `35–36 ARPU), 4) ~43%yoy/ 23.5% qoq growth in international
revenue (positive surprise), and 5) ~40% yoy jump/ 2% qoq decline in analogue
revenues. Ad revenues grew largely on account of higher ad-volumes (FMCG
contributed ~75% to the ad-volumes), better inventory utilisation and increased
traction in the niche channels (kids/comedy) launched in 1QFY2010. Broadcast fees
increased on the back of higher pay slots. Analogue subscription revenues registered
robust growth on account of distribution re-jig done by management with the
establishment of new teams, and DTH subscription revenues were flat qoq despite
the ~2% qoq rise in DTH subscribers, on account of lower ARPU of ~`35-36
(~`40 earlier).
The Rajnikanth starrer, Endhiran/Robot, recorded revenues of `151cr during the
quarter and revenue from sale of satellite rights of the movie of `15cr will be
recorded in 4QFY2011. Endhiran have been a profitable venture for STNL (~`47cr
profit). Although, management has denied any plans of producing another movie,
the possibility cannot be ruled out.
Recurring earnings growth robust at 48% despite 97% jump in
depreciation/amortisation
For 3QFY2011, STNL posted a robust growth of 48.2% yoy to `225.5cr (`152cr) in
earnings on a recurring basis, despite the increase in depreciation/amortisation
expense (up 97% yoy) aided by operating margin expansion and 9% yoy increase in
other income.
Cost rationalisation, higher operating leverage aid OPM expansion by 481bp
At the operating level, STNL posted a 481bp yoy expansion, driving a whopping 61%
yoy growth in operating profit to `502cr (`312.5cr) aided by cost rationalisation,
incremental growth in movie revenues (contributes ~25% to total revenues), which
was largely on account of revenue traction from Endhiran, and increase in the pay
slots resulting in 20% yoy increase in the broadcast fees, which directly reflected in
margins (due to no cost attached). The company‘s focus on reducing operating costs
saw a decline in the cost of revenues (down 258bp yoy), staff cost (down 116bp yoy)
and other expense (down 108bp yoy).
Investment Arguments
STNL’s ad revenues to outpace regional advt., we peg 21% CAGR: During
FY2010-12, we peg STNL’s standalone ad revenues to post 21% CAGR, ahead
of 14% CAGR in regional advertising during the period, driven by –
1) absorption of rate hikes (5-33% hike in ad rates across channels effective Jan
2010), 2) increased traction in niche kids/comedy channels launched in
1QFY2010, and 3) strong management focus on utilising inventory during
off-peak hours and new weekend programming.
Multiple levers led by DTH to drive 31% CAGR in pay revenues: During
FY2010-12, we expect STNL to register a robust 31% CAGR in overall
subscription revenues aided by – 1) strong 39% CAGR in DTH revenues on the
back of 19% CAGR in DTH subscribers and rise in ARPU’s to `36, and 2) 20%
CAGR in analogue revenues aided by restructuring of distribution business and
Malayalam channels (Surya TV, Kiran TV) turning pay from April 1, 2010.
Radio to near break-even at operating level by FY2012: On a consolidated
basis (Kal and SAFM), we expect the radio subsidiaries to report top-line CAGR
of 20% during FY2010-12 to `81cr (`56cr) driven by – 1) uniform brand identity
of the radio channels to Red FM (will act as an effective tool for marketing the
stations with agencies and customers), and 2) Ad rate hike of 12-15%
announced by Red FM effective June 2010. The government regulations on
radio broadcasting, paving way to Phase-III of radio licensing auction, will act as
a further upside to our estimates.
Sun Pictures – ‘Endhiran’ broke all records: Sun Pictures released Endhiran (with
a budget of over `132cr) in 3QFY2011in three languages, viz. Tamil, Telugu
and Hindi. The movie registered returns of ~26% at EBIT level (marginally above
our estimate of 20-25%). For FY2011, we estimate STNL’s revenues from movie
distribution (including release of Endhiran) to post 196% yoy growth to `200cr
(`67.5cr) and then taper down to `135cr in FY2012, as the revenue traction
from Endhiran wanes.
Outlook and Valuation
Post the 3QFY2011 result con-call we have tweaked our estimates to factor in lower
DTH revenue, increase in analogue revenues, high broadcast fees and rise in movie
amortisation costs.
Over FY2010-12, we have modeled in 23.5%, 25.3% and 27.9% CAGR in
top-line, core EBIT (post amortisation) and earnings respectively, for STNL.
Moreover, we expect STNL’s cash balance to swell to a whopping `12bn
(~`32/share) in FY2012 driven by strong rise in free cash flow (almost tripling over
FY2010-12) on the back of strong earnings growth. Hence, we expect STNL’s RoE
to sustain at ~29–30% levels and RoIC to rise to 58% (36% in FY2010) during the
mentioned.
We believe higher valuations for STNL are justified given its -1) strong earnings
(recurring) CAGR of 29.6% over FY2010-12E, 2) dominant leadership in 3 out of 4
lucrative southern markets, which account for ~73% of regional TV ad market, 3)
strong group strength including political clout and presence across media value
chains (distribution via Kal cables and DTH via Sun Direct), 4) unique low-cost
business model (broadcast fees and low SG&A expenses), which enables it to
garner significantly higher operating margins, and 5) significant reduction in losses
in radio subsidiaries (management has indicated breakeven at the operating level
for SAFM this quarter, Kal is already breaking even at the operating level). We
maintain an Accumulate on the stock, with a revised Target Price of `518 (`523),
based on 24x FY2012E EPS of `21.6.
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