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Sun TV Network (SUNTV)
Media
A tale of two markets. The reaction of Sun TV stock to adverse news-flow continues.
The Tamil C&S TV segment will be impacted by (1) launch of Arasu cable network and
(2) 30% E-tax on DTH services in TN state. However, the stock price seems to have
overreacted to these (and other) concerns given non-Tamil-C&S-TV business valuation
of ~Rs260/share; the current stock price implies closure of Sun’s Tamil C&S TV business,
unlikely in our view. We retain our BUY rating with FY2013E TP of Rs440 (unchanged)
given ~13X FY2013E stress-case earnings. Sun TV’s robust free cash flows will be critical
given current headwinds; nonetheless, high-beta, long-term trade.
A tale of two markets 1: Value of non-Tamil-C&S-TV businesses
In the milieu of adverse news-flow over the Sun’s Tamil C&S TV business, the stock price seems to
have overreacted to these (and other) concerns given non-Tamil-C&S TV business segment
valuation of ~Rs260/share: (1) leadership position in Andhra/Telugu market, (2) leadership position
in Karnataka/Kannada market, (3) runners-up position in Kerala/Malayalam market, (4) likely
runners-up FM radio network (RedFM/SAFM/KalFM) and (5) stabilizing position of Sun Pictures.
Risks also exist in these markets but are in the nature of competitive rather than political risks;
additionally, Sun Pictures operations have stabilized in 2QFY11.
A tale of two markets 2: Key concerns on Tamil C&S TV business
The fundamentals of Sun’s Tamil C&S TV business have certainly been impacted by the recent
actions of the TN government (1) launch of Arasu Cable Network at subsidized ARPU (Rs70/month)
and (2) imposition of 30% E-tax on DTH services in the state. Arasu Cable has signed up LCOs for
its service across the state (from Sun Group’s Sumangli Cable) and the latter action may drive the
price-sensitive consumer to Arasu Cable from DTH, impacting Sun’s cable and DTH subscription
revenues. However, the current stock price implies closure of Sun’s Tamil C&S TV business, unlikely
in our view. We are not in a position to verify the reported allegations against Sun TV in (1) 2G
telecom inquiry and (2) BSNL telephone lines issue; please see our note “Sun down, but not quite”
dated June 03, 2011 for clarifications offered by the company.
Retain BUY with TP of Rs440 (unchanged): FY2011 annual report analysis
Our rating on Sun TV stock changed to BUY (ADD previously) with the shift to absolute-upside
ratings system in KIE. We reiterate our view with FY2013E-based TP of Rs440 (unchanged). Our
stress-case valuation of Sun TV stock is ~Rs360/share (assuming significant impact on Sun’s Tamil
C&S revenues). We fine-tune our FY2012E-13E EPS estimates to Rs21 (Rs21.6 previously) and
Rs25.1 (Rs25.4) adjusting for FY2011 annual report. Key takeaways: (1) robust free cash flow of
Rs6.7 bn given (2) Rs2 bn capex (likely
at end-FY2011 and (4) Rs8.75/share dividend (~3.8% yield). Thus, it is also difficult to argue for
Sun TV as a distressed asset; nonetheless, high-beta, long-term trade.
Inexpensive valuations in the stress case
Sun TV valuations have crashed down to ~40% discount versus Zee (itself trading at ~20%
discount to average historical valuations) in case of normal earnings. Even assuming a stresscase
scenario in the Tamil market (assuming the impact of the actions of the Tamil Nadu
government on Sun TV), Sun TV stock is valued at ~13X FY2013E earnings with a high free
cash flow to earnings conversion factor going ahead (limited capital expenditure required);
Sun TV stock is trading at ~14X FY2011 free cash flows.
Given the non-Tamil-C&S-TV segment valuation at ~Rs260/share (largely unaffected by
concerns of political/legal nature), the current stock price of ~Rs230/share implies closure or
shut-down of the Tamil C&S TV business, unlikely in our view (first-mover advantage in this
segment implies content relationships and large movie library). Retain BUY with unchanged
FY2013E TP of Rs440 (stress case value of ~Rs360/share); nonetheless, it remains a highbeta
long-term trade. We expect near-term visibility to be clouded by news-flow related to
CBI inquiry into 2G telecom issue and Sun’s involvement.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun TV Network (SUNTV)
Media
A tale of two markets. The reaction of Sun TV stock to adverse news-flow continues.
The Tamil C&S TV segment will be impacted by (1) launch of Arasu cable network and
(2) 30% E-tax on DTH services in TN state. However, the stock price seems to have
overreacted to these (and other) concerns given non-Tamil-C&S-TV business valuation
of ~Rs260/share; the current stock price implies closure of Sun’s Tamil C&S TV business,
unlikely in our view. We retain our BUY rating with FY2013E TP of Rs440 (unchanged)
given ~13X FY2013E stress-case earnings. Sun TV’s robust free cash flows will be critical
given current headwinds; nonetheless, high-beta, long-term trade.
A tale of two markets 1: Value of non-Tamil-C&S-TV businesses
In the milieu of adverse news-flow over the Sun’s Tamil C&S TV business, the stock price seems to
have overreacted to these (and other) concerns given non-Tamil-C&S TV business segment
valuation of ~Rs260/share: (1) leadership position in Andhra/Telugu market, (2) leadership position
in Karnataka/Kannada market, (3) runners-up position in Kerala/Malayalam market, (4) likely
runners-up FM radio network (RedFM/SAFM/KalFM) and (5) stabilizing position of Sun Pictures.
Risks also exist in these markets but are in the nature of competitive rather than political risks;
additionally, Sun Pictures operations have stabilized in 2QFY11.
A tale of two markets 2: Key concerns on Tamil C&S TV business
The fundamentals of Sun’s Tamil C&S TV business have certainly been impacted by the recent
actions of the TN government (1) launch of Arasu Cable Network at subsidized ARPU (Rs70/month)
and (2) imposition of 30% E-tax on DTH services in the state. Arasu Cable has signed up LCOs for
its service across the state (from Sun Group’s Sumangli Cable) and the latter action may drive the
price-sensitive consumer to Arasu Cable from DTH, impacting Sun’s cable and DTH subscription
revenues. However, the current stock price implies closure of Sun’s Tamil C&S TV business, unlikely
in our view. We are not in a position to verify the reported allegations against Sun TV in (1) 2G
telecom inquiry and (2) BSNL telephone lines issue; please see our note “Sun down, but not quite”
dated June 03, 2011 for clarifications offered by the company.
Retain BUY with TP of Rs440 (unchanged): FY2011 annual report analysis
Our rating on Sun TV stock changed to BUY (ADD previously) with the shift to absolute-upside
ratings system in KIE. We reiterate our view with FY2013E-based TP of Rs440 (unchanged). Our
stress-case valuation of Sun TV stock is ~Rs360/share (assuming significant impact on Sun’s Tamil
C&S revenues). We fine-tune our FY2012E-13E EPS estimates to Rs21 (Rs21.6 previously) and
Rs25.1 (Rs25.4) adjusting for FY2011 annual report. Key takeaways: (1) robust free cash flow of
Rs6.7 bn given (2) Rs2 bn capex (likely
at end-FY2011 and (4) Rs8.75/share dividend (~3.8% yield). Thus, it is also difficult to argue for
Sun TV as a distressed asset; nonetheless, high-beta, long-term trade.
Inexpensive valuations in the stress case
Sun TV valuations have crashed down to ~40% discount versus Zee (itself trading at ~20%
discount to average historical valuations) in case of normal earnings. Even assuming a stresscase
scenario in the Tamil market (assuming the impact of the actions of the Tamil Nadu
government on Sun TV), Sun TV stock is valued at ~13X FY2013E earnings with a high free
cash flow to earnings conversion factor going ahead (limited capital expenditure required);
Sun TV stock is trading at ~14X FY2011 free cash flows.
Given the non-Tamil-C&S-TV segment valuation at ~Rs260/share (largely unaffected by
concerns of political/legal nature), the current stock price of ~Rs230/share implies closure or
shut-down of the Tamil C&S TV business, unlikely in our view (first-mover advantage in this
segment implies content relationships and large movie library). Retain BUY with unchanged
FY2013E TP of Rs440 (stress case value of ~Rs360/share); nonetheless, it remains a highbeta
long-term trade. We expect near-term visibility to be clouded by news-flow related to
CBI inquiry into 2G telecom issue and Sun’s involvement.
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