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Revenue up 51% Y-o-Y; robust growth across businesses
Sun TV Network (Sun TV) reported Q3FY11 revenue of INR 5,980 mn against our
estimate of INR 5,673 mn. Ad revenue grew 16% Y-o-Y over a lower base, as
last year festive season overlapped Q2. Broadcast fees jumped 20% Y-o-Y.
Subscription revenue growth was driven by 59%, 36%, and 43% Y-o-Y growth in
the DTH, cable, and international subscription revenue streams, respectively.
Sun TV has earned revenues of INR 1,790 mn from the release of ‘Enthiran’ in
Tamil and ‘Robot’ in Telugu and Hindi (INR 130 mn was booked in Q2FY11, INR
1,510 mn in Q3FY11, additionally, INR 150 mn is expected from satellite rights,
which hasn’t been included in Q3FY11 revenues). INR 1,320 mn was spent on
the production of the movie.
EBITDA margins expand 481bps Y-o-Y
Q3FY11 EBITDA stood at INR 5,018 mn, ahead our estimate of INR 4,425 mn.
EBITDA margin for the quarter stood at 84%, up 481bps Y-o-Y and 569bps Q-o-
Q. Content cost was down 10% Y-o-Y (258bps as a percentage of sales).
Net profit above our estimate, up 48% Y-o-Y
Sun TV reported profit of INR 2,255 mn, above our estimate of INR 2,042 mn.
Net profit margin, however, dipped 75bps Y-o-Y, driven by a 97% increase in
depreciation and amortisation expenses. In Q3FY11, Sun TV booked INR 180 mn
towards depreciation and INR 1,560 mn on account of amortisation of movie and
program rights. This quarter, Sun TV has declared an interim dividend of INR 5
per share.
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 our ‘BUY’
recommendation on the stock. On relative return basis, we rate the stock
‘Sector Outperformer’.
Q3FY11 conference call: Key takeaways
• Ad rate hike: Ad revenue growth of 16% Y-o-Y in Q3FY11, in spite of a huge base.
The company is looking to take the next ad rate hike in March-April (last hike in
January 2010 that worked out quite well). There is a heavy cricket calendar in Feb-
March; hence, the company is looking at a strategic time of ad rate hike. The
company said rate hikes are not the only means to augment ad revenues and it will
look at increasing utilisation of ad volumes across channels and better sales of non-
GECs. For full year, ad revenues are expected to grow 18% Y-o-Y in FY11. The non-
GEC business is likely to contribute 25-30% to incremental growth as inventory
utilisation and yields are quite low.
• DTH: DTH revenues were flat Q-o-Q and ARPU fell marginally from Q2FY11 levels of
INR 32-35. Number of DTH subscribers is 6.7 mn in Q3FY11 (6.55 mn in Q2FY11).
North India is growing faster than South India in terms of DTH subscriber addition.
The company expects its DTH subscribers to grow at 2-3% Q-o-Q. However, Q4FY11
will see renegotiation happening, which should lead to higher ARPU and better DTH
revenues in Q4FY11
• Jump in domestic analog cable revenues: Domestic analog cable revenues grew
36% Y-o-Y. Sun TV is reaping benefits of a new team and huge collection drives and
incentive plans for the team. Two Malayalam channels became encrypted in April 01,
2010. Sun 18 too has started well, though it is still in the initial phase.
• Broadcast revenues: Broadcast revenues have done well Q-o-Q as well as Y-o-Y, as
the company opened up a few new day parts for slot sales in Karnataka and Kerala.
• Endhiran: Revenues, of INR 1,790 mn (INR 130 mn was booked in Q2FY11, INR
1,510 mn in Q3FY11 and INR 150 mn will be booked in Q4FY11). In terms of costs of
INR 1320 mn, the company booked INR 100 mn in Q2FY11 and INR 1,070 mn in
Q3FY11. It booked some promotional costs in Q2FY11 for Endhiran/Robot (other
costs jumped up from INR 140 mn to INR 268 mn Q-o-Q).
• No change in plans for movie production business: In spite of big success on
Endhiran (Robot), the company does not plan to go for very high budget movies in
the medium term. It released one mid-budget movie in January, 2011
• Radio: The three radio channels in standalone contributed 4% to ad revenues in
Q3FY11. SAFM could suffer a small loss at the PAT level (will have positive EBITDA),
while KAL has already broken-even at PAT. The company expects INR 750-800 mn in
sales from radio in FY11. The Company is positive on recent recommendations like 15
years licenses, phase 3 licensing etc.
• Depreciation & amortisation costs: The company booked INR 180 mn in terms of
depreciation and INR 1,560 mn in terms of amortisation costs (included cost of
Endhiran). Amortisation costs, have shot up Y-o-Y in FY11, and are a function of new
movies being shown on its channels.
• Employee costs: Employee costs have shot up due to PAT linked payouts to directors.
• Net cash: INR 7,180 mn in Q3FY11 (INR 5,600 mn in Q2FY11, INR 6,500 mn in
Q1FY11, post which INR 2,750 mn paid as dividend). The company is debt free.
• No plans for Hindi GECs: Sun TV has no plans for Hindi GECs, as the space is too
crowded.
• Open to smaller regional markets: Sun TV is open to enter smaller regional
markets like Bengali, Marathi and Gujarati. However, this will be done over longer
term; no plans finalised yet. Sun TV is open pursuing greenfiled expansion,
acquisitions or JV agreement, but nothing finalised yet.
• Niche channels: The Company is looking at niche space and is likely to launch a few
channels in FY12. As of now it has no interest in a food channel.
Company Description
Sun TV was incorporated as Sumangali Publications in 1985. It was later renamed Sun
TV in 2000 and the company filed its IPO in 2005 and raised INR 6 bn. It primarily
operates regional television channels and has a strong presence in Tamil Nadu,
Karnataka, Andhra Pradesh, and Kerala. The flagship channel Sun TV corners more than
70% market share in the Tamil GEC genre. The company earlier operated only Tamil and
Malayam channels; it added Kannada and Telugu to its bouquet with the acquisition of
Gemini TV and Udaya TV. It was the first channel to introduce mega soaps in South India
and also the first to use digital broadcasting. Apart from the television broadcasting
business, the company has a strong presence in radio broadcasting and ventured in to
film production in FY09. It owns a total of 44 radio licences across the country; three are
held in the main company, and of the balance, 18 are held in Kal Radio and 23 in South
Asia FM (SAFML). The film production business is structured as a division of the
company.
Investment Rationale
Sun TV is the leading player in South India with a bouquet of 20 channels across four
states—Tamil Nadu, Karnataka, Andhra Pradesh, and Kerala. Its flagship channels—Sun
TV,Gemini TV, and Udaya TV—lead their respective markets with a good premium over
the second player. Strong foothold in competitive southern market poses tough entry
barrier. The company benefits from a conducive distribution environment, since Sun
Direct (a promoter group company), has considerable presence in South India’s
distribution (DTH) market. In the overseas market, the company’s channels are carried
in countries such as Malaysia, Singapore, Canada, Sri Lanka, UK, and US. The company’s
direct costs are exceptionally low as it has successfully managed to run a sponsored
programming model. Sun TV ventured into the movie production business in FY09. The
company can leverage on its strong market share in broadcasting to monetise movies.
Key Risks
• Competition from other channels
• Decline in popularity of channels can lead to lower ad and pay revenues
• Intensifying competition could adversely impact cost of business
• Promoter’s entry into aviation business could be perceived negatively by some
investors
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Revenue up 51% Y-o-Y; robust growth across businesses
Sun TV Network (Sun TV) reported Q3FY11 revenue of INR 5,980 mn against our
estimate of INR 5,673 mn. Ad revenue grew 16% Y-o-Y over a lower base, as
last year festive season overlapped Q2. Broadcast fees jumped 20% Y-o-Y.
Subscription revenue growth was driven by 59%, 36%, and 43% Y-o-Y growth in
the DTH, cable, and international subscription revenue streams, respectively.
Sun TV has earned revenues of INR 1,790 mn from the release of ‘Enthiran’ in
Tamil and ‘Robot’ in Telugu and Hindi (INR 130 mn was booked in Q2FY11, INR
1,510 mn in Q3FY11, additionally, INR 150 mn is expected from satellite rights,
which hasn’t been included in Q3FY11 revenues). INR 1,320 mn was spent on
the production of the movie.
EBITDA margins expand 481bps Y-o-Y
Q3FY11 EBITDA stood at INR 5,018 mn, ahead our estimate of INR 4,425 mn.
EBITDA margin for the quarter stood at 84%, up 481bps Y-o-Y and 569bps Q-o-
Q. Content cost was down 10% Y-o-Y (258bps as a percentage of sales).
Net profit above our estimate, up 48% Y-o-Y
Sun TV reported profit of INR 2,255 mn, above our estimate of INR 2,042 mn.
Net profit margin, however, dipped 75bps Y-o-Y, driven by a 97% increase in
depreciation and amortisation expenses. In Q3FY11, Sun TV booked INR 180 mn
towards depreciation and INR 1,560 mn on account of amortisation of movie and
program rights. This quarter, Sun TV has declared an interim dividend of INR 5
per share.
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 our ‘BUY’
recommendation on the stock. On relative return basis, we rate the stock
‘Sector Outperformer’.
Q3FY11 conference call: Key takeaways
• Ad rate hike: Ad revenue growth of 16% Y-o-Y in Q3FY11, in spite of a huge base.
The company is looking to take the next ad rate hike in March-April (last hike in
January 2010 that worked out quite well). There is a heavy cricket calendar in Feb-
March; hence, the company is looking at a strategic time of ad rate hike. The
company said rate hikes are not the only means to augment ad revenues and it will
look at increasing utilisation of ad volumes across channels and better sales of non-
GECs. For full year, ad revenues are expected to grow 18% Y-o-Y in FY11. The non-
GEC business is likely to contribute 25-30% to incremental growth as inventory
utilisation and yields are quite low.
• DTH: DTH revenues were flat Q-o-Q and ARPU fell marginally from Q2FY11 levels of
INR 32-35. Number of DTH subscribers is 6.7 mn in Q3FY11 (6.55 mn in Q2FY11).
North India is growing faster than South India in terms of DTH subscriber addition.
The company expects its DTH subscribers to grow at 2-3% Q-o-Q. However, Q4FY11
will see renegotiation happening, which should lead to higher ARPU and better DTH
revenues in Q4FY11
• Jump in domestic analog cable revenues: Domestic analog cable revenues grew
36% Y-o-Y. Sun TV is reaping benefits of a new team and huge collection drives and
incentive plans for the team. Two Malayalam channels became encrypted in April 01,
2010. Sun 18 too has started well, though it is still in the initial phase.
• Broadcast revenues: Broadcast revenues have done well Q-o-Q as well as Y-o-Y, as
the company opened up a few new day parts for slot sales in Karnataka and Kerala.
• Endhiran: Revenues, of INR 1,790 mn (INR 130 mn was booked in Q2FY11, INR
1,510 mn in Q3FY11 and INR 150 mn will be booked in Q4FY11). In terms of costs of
INR 1320 mn, the company booked INR 100 mn in Q2FY11 and INR 1,070 mn in
Q3FY11. It booked some promotional costs in Q2FY11 for Endhiran/Robot (other
costs jumped up from INR 140 mn to INR 268 mn Q-o-Q).
• No change in plans for movie production business: In spite of big success on
Endhiran (Robot), the company does not plan to go for very high budget movies in
the medium term. It released one mid-budget movie in January, 2011
• Radio: The three radio channels in standalone contributed 4% to ad revenues in
Q3FY11. SAFM could suffer a small loss at the PAT level (will have positive EBITDA),
while KAL has already broken-even at PAT. The company expects INR 750-800 mn in
sales from radio in FY11. The Company is positive on recent recommendations like 15
years licenses, phase 3 licensing etc.
• Depreciation & amortisation costs: The company booked INR 180 mn in terms of
depreciation and INR 1,560 mn in terms of amortisation costs (included cost of
Endhiran). Amortisation costs, have shot up Y-o-Y in FY11, and are a function of new
movies being shown on its channels.
• Employee costs: Employee costs have shot up due to PAT linked payouts to directors.
• Net cash: INR 7,180 mn in Q3FY11 (INR 5,600 mn in Q2FY11, INR 6,500 mn in
Q1FY11, post which INR 2,750 mn paid as dividend). The company is debt free.
• No plans for Hindi GECs: Sun TV has no plans for Hindi GECs, as the space is too
crowded.
• Open to smaller regional markets: Sun TV is open to enter smaller regional
markets like Bengali, Marathi and Gujarati. However, this will be done over longer
term; no plans finalised yet. Sun TV is open pursuing greenfiled expansion,
acquisitions or JV agreement, but nothing finalised yet.
• Niche channels: The Company is looking at niche space and is likely to launch a few
channels in FY12. As of now it has no interest in a food channel.
Company Description
Sun TV was incorporated as Sumangali Publications in 1985. It was later renamed Sun
TV in 2000 and the company filed its IPO in 2005 and raised INR 6 bn. It primarily
operates regional television channels and has a strong presence in Tamil Nadu,
Karnataka, Andhra Pradesh, and Kerala. The flagship channel Sun TV corners more than
70% market share in the Tamil GEC genre. The company earlier operated only Tamil and
Malayam channels; it added Kannada and Telugu to its bouquet with the acquisition of
Gemini TV and Udaya TV. It was the first channel to introduce mega soaps in South India
and also the first to use digital broadcasting. Apart from the television broadcasting
business, the company has a strong presence in radio broadcasting and ventured in to
film production in FY09. It owns a total of 44 radio licences across the country; three are
held in the main company, and of the balance, 18 are held in Kal Radio and 23 in South
Asia FM (SAFML). The film production business is structured as a division of the
company.
Investment Rationale
Sun TV is the leading player in South India with a bouquet of 20 channels across four
states—Tamil Nadu, Karnataka, Andhra Pradesh, and Kerala. Its flagship channels—Sun
TV,Gemini TV, and Udaya TV—lead their respective markets with a good premium over
the second player. Strong foothold in competitive southern market poses tough entry
barrier. The company benefits from a conducive distribution environment, since Sun
Direct (a promoter group company), has considerable presence in South India’s
distribution (DTH) market. In the overseas market, the company’s channels are carried
in countries such as Malaysia, Singapore, Canada, Sri Lanka, UK, and US. The company’s
direct costs are exceptionally low as it has successfully managed to run a sponsored
programming model. Sun TV ventured into the movie production business in FY09. The
company can leverage on its strong market share in broadcasting to monetise movies.
Key Risks
• Competition from other channels
• Decline in popularity of channels can lead to lower ad and pay revenues
• Intensifying competition could adversely impact cost of business
• Promoter’s entry into aviation business could be perceived negatively by some
investors
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