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India Equity Research Reports, IPO and Stock News
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Removed from Asia Pacific Sell List
Sun TV Network (SUTV.BO)
Equity Research
Upgrade to Neutral post underperformance; current valuations fair
What happened
Sun TV’s stock price has declined c.15% (vs BSE Sensex flat) since the first
week of Feb’ 11, when news reports emerged about CBI investigations into the
alleged role of the promoters of Sun TV in India’s recent telecom scandal. This
is in-line with our view that Sun TV’s premium valuations leave no room for
risk or negative news flows. Current valuation (at an 11% premium to major
broadcaster Zee and in-line with its 2-year median P/E) is fair in our view,
balancing near term uncertainties with strong business fundamentals. Hence
we upgrade to Neutral. Since we added Sun to the Sell list on 26 April, 2010,
the stock is -0.1% vs +4.1% for BSE Sensex (12 months +4.4% vs +8.3%).
Current view
We believe that the growth prospects for Sun TV remain strong, given its
dominant market share in the genres it operates, and forecast 27% sales
CAGR over FY10-12E. However, as the share of the lower margin movie
business (12-15% vs 75-80% in the core TV business) increases, we expect
EBIT margins to contract by 450 bps over FY10-13E. In addition, as the
base- effect catches up, Sun TV might no longer be able to consistently
beat street expectations as it did through FY10.
We revise our FY11E-13E EPS estimates for Sun TV by 3-4% as we
incorporate – 1) Higher than expected revenue recognition from
‘Endhiran” movie in 3QFY11 2) recently announced 6-43% hike in
advertising rates across its various channels effective April 1, 2011.
Our new 12m TP of Rs393 (vs Rs392 earlier) is based on 20X FY12E EPS (vs
22X average of FY11E and FY12E EPS earlier) as we take out the premium
to Zee (ZEE.BO, Rs122.20, Neutral; valued at 20X FY12E P/E), we were
giving earlier – given the uncertainty surrounding ongoing investigations.
Key Risks: Upside: 1) Stronger than expected advertising revenue growth
2) Better than expected margin performance. Downside: 1) Any further
negative news flows on the promoters alleged involvement in the telecom
scandal 2) Weaker than expected advertising revenue growth.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Removed from Asia Pacific Sell List
Sun TV Network (SUTV.BO)
Equity Research
Upgrade to Neutral post underperformance; current valuations fair
What happened
Sun TV’s stock price has declined c.15% (vs BSE Sensex flat) since the first
week of Feb’ 11, when news reports emerged about CBI investigations into the
alleged role of the promoters of Sun TV in India’s recent telecom scandal. This
is in-line with our view that Sun TV’s premium valuations leave no room for
risk or negative news flows. Current valuation (at an 11% premium to major
broadcaster Zee and in-line with its 2-year median P/E) is fair in our view,
balancing near term uncertainties with strong business fundamentals. Hence
we upgrade to Neutral. Since we added Sun to the Sell list on 26 April, 2010,
the stock is -0.1% vs +4.1% for BSE Sensex (12 months +4.4% vs +8.3%).
Current view
We believe that the growth prospects for Sun TV remain strong, given its
dominant market share in the genres it operates, and forecast 27% sales
CAGR over FY10-12E. However, as the share of the lower margin movie
business (12-15% vs 75-80% in the core TV business) increases, we expect
EBIT margins to contract by 450 bps over FY10-13E. In addition, as the
base- effect catches up, Sun TV might no longer be able to consistently
beat street expectations as it did through FY10.
We revise our FY11E-13E EPS estimates for Sun TV by 3-4% as we
incorporate – 1) Higher than expected revenue recognition from
‘Endhiran” movie in 3QFY11 2) recently announced 6-43% hike in
advertising rates across its various channels effective April 1, 2011.
Our new 12m TP of Rs393 (vs Rs392 earlier) is based on 20X FY12E EPS (vs
22X average of FY11E and FY12E EPS earlier) as we take out the premium
to Zee (ZEE.BO, Rs122.20, Neutral; valued at 20X FY12E P/E), we were
giving earlier – given the uncertainty surrounding ongoing investigations.
Key Risks: Upside: 1) Stronger than expected advertising revenue growth
2) Better than expected margin performance. Downside: 1) Any further
negative news flows on the promoters alleged involvement in the telecom
scandal 2) Weaker than expected advertising revenue growth.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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