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Moderating growth
Sun TV is raising advertising rates up to 43% across leading channels to
revive ad-growth post the recent lag. Also in 3QFY11 Sun’s direct to home
(DTH) subscriptions were flat QoQ. The broadcaster is renegotiating
content agreements with DTH operators, but increases to a 60%
premium in realisation (vs Zee) will be difficult also amidst government
mandated price-freezes and FY11’s success with Endhiran movie will be
difficult to repeat. We estimate earnings to grow at only a 12% Cagr. At
18x FY13 PE, stock valuations are rich; we maintain an Underperform call.
Ad- rate hikes required to drive growth
Sun TV, which operates 20 channels across four regional languages is
increasing advertising rates on six Tamil channels by 8-32% and six
Telugu channels by 6-43%, effective April 11. FMCG companies account
for 60-65% of Sun’s ad-revenues and the rate hikes come in wake of the
broadcaster lagging industry growth, at 16% YoY in 3QFY11 and an
estimated 14% this quarter (impacted by the Cricket World Cup). Sun’s
dominant position in India’s southern region implies saturation. Future
growth will come mainly on rate increases, compared to broadcasting and
print peers who are launching new channels or editions, possibly gaining
market share. We forecast 16% ad growth for Sun in FY12-13, versus the
26% achieved in 9MFY11.
Unlikely increase in DTH realisation
In 3QFY11, Sun DTH revenue was flat QoQ, vs 4% growth for Zee despite
a 60% premium (at Rs35 per subscriber monthly) to Zee DTH realisation.
Sun also had moderate 0.2m QoQ growth in DTH subscribers (vs 0.4m
average in last six quarters). Even as Sun is renegotiating contentinterconnect
agreements with DTH operators, increases to average
revenue per subscriber (Arpu) will be difficult with a price freeze on
cable/DTH tariffs mandated by the government, which includes a cap on
TV channel pricing. Although regulations are enabling a faster ramp-up of
DTH subscribers, the situation adversely impacts Arpu for broadcasters
and DTH operators. We forecast 17% growth in DTH for Sun in FY12 and
FY13, reaching 9.6m subscribers.
Endhiran success difficult to repeat
Sun’s FY11 performance was aided by the big-budget (Rs1.3bn) movie -
Endhiran, generating Rs1.8bn in revenue and 26% EBIT margin. For
FY12-13, we estimate movies to contribute Rs1bn in revenue and 15%
margin. The Endhiran success will be difficult to repeat and Sun, as a
regional broadcaster, is not in the best position to leverage a DTH boom;
we forecast a 12% Cagr in FY12-13 earnings. We believe the stock
valuation is rich at 18x FY13 PE and maintain our Underperform call.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Moderating growth
Sun TV is raising advertising rates up to 43% across leading channels to
revive ad-growth post the recent lag. Also in 3QFY11 Sun’s direct to home
(DTH) subscriptions were flat QoQ. The broadcaster is renegotiating
content agreements with DTH operators, but increases to a 60%
premium in realisation (vs Zee) will be difficult also amidst government
mandated price-freezes and FY11’s success with Endhiran movie will be
difficult to repeat. We estimate earnings to grow at only a 12% Cagr. At
18x FY13 PE, stock valuations are rich; we maintain an Underperform call.
Ad- rate hikes required to drive growth
Sun TV, which operates 20 channels across four regional languages is
increasing advertising rates on six Tamil channels by 8-32% and six
Telugu channels by 6-43%, effective April 11. FMCG companies account
for 60-65% of Sun’s ad-revenues and the rate hikes come in wake of the
broadcaster lagging industry growth, at 16% YoY in 3QFY11 and an
estimated 14% this quarter (impacted by the Cricket World Cup). Sun’s
dominant position in India’s southern region implies saturation. Future
growth will come mainly on rate increases, compared to broadcasting and
print peers who are launching new channels or editions, possibly gaining
market share. We forecast 16% ad growth for Sun in FY12-13, versus the
26% achieved in 9MFY11.
Unlikely increase in DTH realisation
In 3QFY11, Sun DTH revenue was flat QoQ, vs 4% growth for Zee despite
a 60% premium (at Rs35 per subscriber monthly) to Zee DTH realisation.
Sun also had moderate 0.2m QoQ growth in DTH subscribers (vs 0.4m
average in last six quarters). Even as Sun is renegotiating contentinterconnect
agreements with DTH operators, increases to average
revenue per subscriber (Arpu) will be difficult with a price freeze on
cable/DTH tariffs mandated by the government, which includes a cap on
TV channel pricing. Although regulations are enabling a faster ramp-up of
DTH subscribers, the situation adversely impacts Arpu for broadcasters
and DTH operators. We forecast 17% growth in DTH for Sun in FY12 and
FY13, reaching 9.6m subscribers.
Endhiran success difficult to repeat
Sun’s FY11 performance was aided by the big-budget (Rs1.3bn) movie -
Endhiran, generating Rs1.8bn in revenue and 26% EBIT margin. For
FY12-13, we estimate movies to contribute Rs1bn in revenue and 15%
margin. The Endhiran success will be difficult to repeat and Sun, as a
regional broadcaster, is not in the best position to leverage a DTH boom;
we forecast a 12% Cagr in FY12-13 earnings. We believe the stock
valuation is rich at 18x FY13 PE and maintain our Underperform call.
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