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SUN TV NETWORK
PRICE: RS.288 RECOMMENDATION: BUY
TARGET PRICE: RS.391 FY13E P/E: 10.4X
q Sun TV reported revenues Rs 4513 mn, and PAT Rs 1800 mn for 2QFY12.
Results were above our expectations and in-line with consensus estimates.
Revenue growth came in at 6%, on account of soft growth in
both advertising and subscription revenues. Advertising revenues have
been hit by general economic slowdown, as well as uncertainty regarding
Sun TV viewership and rating, in our view. Subscription revenues
have been impacted by loss of cable revenues in Tamil Nadu, as also
weakness in DTH revenues, on account of reduced caps on maximum DTH
tariffs.
q 2QFY12 has been one of the most challenging quarters for Sun TV Network,
on account of uncertainty that the launch of Arasu cable has
caused on the company's Tamil operations. This is perhaps the reason
behind the strain on Sun TV's working capital in the quarter. Given that
Sun TV has withstood the storm and continues to be the clear leader in
Tamil GEC market, we believe the strain will ease over time, as guided by
the management.
q The company has successfully launched Kochu TV - a Malayalam kids'
channel, which has gone on to become the third most watched channel
in Kerala within the quarter. Sun TV Network intends to launch other
new channels as well in the coming quarters. Negotiations with Arasu
Cable are on, and the management has indicated that analogue cable revenues
may revive in the coming quarters. Meanwhile, Sun TV's
viewership has risen back to normalcy (65% for Wk 43), indicating that
advertising revenues from Tamil Nadu are unlikely to be impacted by
launch of Arasu Cable.
q Sun TV continues to be among our preferred picks in the media space,
for we believe that the company's operations are among the strongest in
the business. Resolution of ongoing issues, relating with CBI enquiry
into the promoter/ relative, has potential to provide an outsized return
on Sun TV investment. We also believe that Sun TV, being the market
leader by far in three languages, is a prime candidate for benefit from
mandatory digitization.
q Valuations are attractive, at 13.0xFY12 PER, and dividend yield of 3.5%.
While Sun TV shall likely continue to see significant volatility on newsflow,
we believe the gap between CMP and our assessed fair value (DCFbased,
Rs 488) compensates the risk-neutral investor adequately. Including
discount of 20% for risk, we have a price target of Rs 391 for Sun TV
Network. Maintain BUY.
q Risks: 1/ Adverse news-flow regarding the company/ promoter on issues
currently under investigation by CBI, 2/ Competitive Risks, 3/ Macroeconomic
risks relating with adex growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SUN TV NETWORK
PRICE: RS.288 RECOMMENDATION: BUY
TARGET PRICE: RS.391 FY13E P/E: 10.4X
q Sun TV reported revenues Rs 4513 mn, and PAT Rs 1800 mn for 2QFY12.
Results were above our expectations and in-line with consensus estimates.
Revenue growth came in at 6%, on account of soft growth in
both advertising and subscription revenues. Advertising revenues have
been hit by general economic slowdown, as well as uncertainty regarding
Sun TV viewership and rating, in our view. Subscription revenues
have been impacted by loss of cable revenues in Tamil Nadu, as also
weakness in DTH revenues, on account of reduced caps on maximum DTH
tariffs.
q 2QFY12 has been one of the most challenging quarters for Sun TV Network,
on account of uncertainty that the launch of Arasu cable has
caused on the company's Tamil operations. This is perhaps the reason
behind the strain on Sun TV's working capital in the quarter. Given that
Sun TV has withstood the storm and continues to be the clear leader in
Tamil GEC market, we believe the strain will ease over time, as guided by
the management.
q The company has successfully launched Kochu TV - a Malayalam kids'
channel, which has gone on to become the third most watched channel
in Kerala within the quarter. Sun TV Network intends to launch other
new channels as well in the coming quarters. Negotiations with Arasu
Cable are on, and the management has indicated that analogue cable revenues
may revive in the coming quarters. Meanwhile, Sun TV's
viewership has risen back to normalcy (65% for Wk 43), indicating that
advertising revenues from Tamil Nadu are unlikely to be impacted by
launch of Arasu Cable.
q Sun TV continues to be among our preferred picks in the media space,
for we believe that the company's operations are among the strongest in
the business. Resolution of ongoing issues, relating with CBI enquiry
into the promoter/ relative, has potential to provide an outsized return
on Sun TV investment. We also believe that Sun TV, being the market
leader by far in three languages, is a prime candidate for benefit from
mandatory digitization.
q Valuations are attractive, at 13.0xFY12 PER, and dividend yield of 3.5%.
While Sun TV shall likely continue to see significant volatility on newsflow,
we believe the gap between CMP and our assessed fair value (DCFbased,
Rs 488) compensates the risk-neutral investor adequately. Including
discount of 20% for risk, we have a price target of Rs 391 for Sun TV
Network. Maintain BUY.
q Risks: 1/ Adverse news-flow regarding the company/ promoter on issues
currently under investigation by CBI, 2/ Competitive Risks, 3/ Macroeconomic
risks relating with adex growth.
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