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UBS Investment Research
Sun TV Limited
Reiterate cautious view
„ Event: management meeting update post stock price underperformance
Sun TV stock price has underperformed the BSE Sensex 22% YTD 2011,
primarily due to newsflow regarding the chairman and his family’s involvement in
the 2G scam and the unfavourable Tamil Nadu (TN) state assembly election result
for the DMK party. Key takeaways from the CFO meeting are: 1) the Sun TV
business continues to remain fundamentally strong; it has been able to pass on ad
rate hikes in April 2011; and 2) Sun TV management justified that it has no
connection with the 2G scam.
„ Impact: maintain earnings estimates; worst-case impact of 24% in FY12
We maintain our earnings estimates as we see limited near-term impact on Sun TV
operations due to the election result. On a worst-case basis, we expect FY12-13E
earnings to be impacted by 24-28% assuming: 1) cable TV gets nationalised and
cable ARPU drops significantly, thus impacting Sun TV’s subscription revenue;
and 2) Sun TV’s ad revenues get hit (assume 50% decline) as it may not be able to
source good content (including movies) and lose its strong viewership share in TN.
„ Action: maintain anti-consensus cautious view, lower price target to Rs330
We continue to remain cautious on Sun TV as we believe news related to the 2G
scam could remain an overhang on Sun TV’s stock price. We lower our price
target from Rs400 to Rs330 as we raise our WACC from 13.3% to 15.0% to
incorporate the higher risk.
„ Valuation: Sell rating with DCF-based price target of Rs330 (was Rs400)
We estimate a worst-case value of Rs300 for Sun TV (17x PE * Rs17.6 FY13E
worst-case EPS) and believe the risk-reward profile is not favourable at current
stock price levels. Sun TV is trading at a 17% discount to Zee vs. a c25% premium
historically.
Q Sun TV Limited
Sun TV Network Ltd (Sun) is the largest TV broadcaster in south India and has
channels catering for the four regional languages: Tamil; Telegu; Kannada; and
Malayalam. Kalanithi Maran is the majority shareholder with a 77% stake. Sun
and its two subsidiaries have radio licences in 44 cities.
Q Statement of Risk
We believe the company faces regulatory risks and competitive risks in its core
business of broadcasting.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Sun TV Limited
Reiterate cautious view
„ Event: management meeting update post stock price underperformance
Sun TV stock price has underperformed the BSE Sensex 22% YTD 2011,
primarily due to newsflow regarding the chairman and his family’s involvement in
the 2G scam and the unfavourable Tamil Nadu (TN) state assembly election result
for the DMK party. Key takeaways from the CFO meeting are: 1) the Sun TV
business continues to remain fundamentally strong; it has been able to pass on ad
rate hikes in April 2011; and 2) Sun TV management justified that it has no
connection with the 2G scam.
„ Impact: maintain earnings estimates; worst-case impact of 24% in FY12
We maintain our earnings estimates as we see limited near-term impact on Sun TV
operations due to the election result. On a worst-case basis, we expect FY12-13E
earnings to be impacted by 24-28% assuming: 1) cable TV gets nationalised and
cable ARPU drops significantly, thus impacting Sun TV’s subscription revenue;
and 2) Sun TV’s ad revenues get hit (assume 50% decline) as it may not be able to
source good content (including movies) and lose its strong viewership share in TN.
„ Action: maintain anti-consensus cautious view, lower price target to Rs330
We continue to remain cautious on Sun TV as we believe news related to the 2G
scam could remain an overhang on Sun TV’s stock price. We lower our price
target from Rs400 to Rs330 as we raise our WACC from 13.3% to 15.0% to
incorporate the higher risk.
„ Valuation: Sell rating with DCF-based price target of Rs330 (was Rs400)
We estimate a worst-case value of Rs300 for Sun TV (17x PE * Rs17.6 FY13E
worst-case EPS) and believe the risk-reward profile is not favourable at current
stock price levels. Sun TV is trading at a 17% discount to Zee vs. a c25% premium
historically.
Q Sun TV Limited
Sun TV Network Ltd (Sun) is the largest TV broadcaster in south India and has
channels catering for the four regional languages: Tamil; Telegu; Kannada; and
Malayalam. Kalanithi Maran is the majority shareholder with a 77% stake. Sun
and its two subsidiaries have radio licences in 44 cities.
Q Statement of Risk
We believe the company faces regulatory risks and competitive risks in its core
business of broadcasting.
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