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Sun TV Network (SUNTV)
Media
Average quarter in a challenging environment. Sun TV reported 2QFY12 EBIT of
Rs2.48 bn (+3% yoy), marginally below expectations, led by multiple pressure points
notably (1) weak advertising environment, (2) Arasu Cable (cable subscription declined
qoq) and (3) Supreme Court judgment (DTH subscription declined qoq). The news flow
remains adverse given CBI inquiry into (1) 2G scam and (2) BSNL telecom lines issue,
reflected in valuation of 11.5X FY2013E EPS (>20% discount to Zee). Retain BUY with
FY2013E FV of Rs400 (Rs440 previously); stress case FV of Rs350 (Rs360 previously) is
likely a better metric given the uncertainty (rising debtor levels are a red flag in 1HFY12)
supported by Rs6.25/share interim dividend (~4.6% 1HFY12 annualized yield).
2QFY12 results analysis: multiple pressure points on the revenue line
Sun TV reported 2QFY12 EBIT (our preferred earnings metric for Sun TV given majority of
content costs are booked in the amortization line) of Rs2.48 bn, marginally below Rs2.55 bn
expectation primarily led by weak revenue growth. (1) Weak advertising environment, (2)
impact of Arasu Cable on cable subscription revenues and (3) impact of Supreme Court ruling
on DTH subscription revenues pressured 2QFY12 revenues.
2QFY12 advertising revenues of Rs2.35 bn (+2% yoy) and advertising revenues (including slot
sales) of Rs2.74 bn (+1% yoy) were weak notably in light of 5-15% increase in advertising rates
across the network at start-FY2012E. Sun TV noted robust flagship GE channel advertising
negated by weak niche channel advertising in 1HFY12; we believe weak ratings in non-GE
channels (notably movie channels) also pressured advertising revenues.
Stress case FV of Rs350 more relevant given potential pressure points
Retain BUY with FY2013E fair value of Rs400 (Rs440 previously) adjusted for (1) reduced ad
growth in FY2012E to 9% (12% previously), (2) reduced TN cable subscription revenues by 50%,
(3) higher debtors days (90 versus 75) in our DCF-model and WACC (14% versus 13.5%). We
believe our stress-case valuation methodology (Rs350 versus Rs360 previously) is a more relevant
valuation approach since it captures (1) non-Tamil-C&S TV business segments not impacted by
political risks and (2) potential adverse impact on Tamil business (a) TRP ratings, (b) Arasu Cable,
(c) entertainment tax on DTH as well as (d) competitive cost pressures. The pressure of transition
from dominant to oligopoly market/player is clearly visible.
However, the recovery in advertising spends is likely around the corner, given the commentary by
listed FMCG companies (~40% contribution in C&S TV ad spends); 3QFY12E will likely still suffer
on account of high base but competitive and growth pressures will likely result in renewed growth
in ad spends by 4QFY11E. Sun TV has managed to maintain market share in flagship channels in
competitive non-Tamil markets though fragmentation is inevitable in the long run. The ability of
the company to manage the competitive pressures is critical.
Cable subscription revenues at Rs470 mn declined 13% yoy and 16% qoq but largely on
expected lines led by the shift of local cable operators (LCO) to Arasu Cable in Tamil Nadu
state in September. The negative variance of Rs90 mn on qoq basis can increase in
coming quarters as the impact becomes more widespread.
DTH subscription revenues at Rs790 mn (+13% yoy) declined 6% qoq due to Supreme
Court ruling capping channel/bouquet rates on DTH at 42% of cable rates (versus 50%
previously), which resulted in ~9% decline in effective realizations in 2QFY12. However,
we have also seen very limited traction in paid subscriber base.
2QFY12 Sun Pictures revenues of Rs330 mn (+125% yoy) included (1) Mankatha (big
budget) and (2) Vedi (small budget). However, Sun Pictures did not contribute to
financials, reporting an operating loss of Rs30 mn.
2QFY12 operating expenditure was largely in line with expectations with reduced direct
costs and overhead expenses negated by 30% yoy increase in D&A expenses (Sun
Pictures cost as well as cost of telecast rights).
However, 18% yoy decline in overhead expenses (includes provisions for bad debts) is a
concern notably in light of sharp increase in debtor levels (Rs5 bn at end-1HFY12 versus
Rs3.9 bn at end-FY2011); however, ~100 debtor days (based on normalized 1HFY12
revenues) remain below peer levels (Zee at ~110 days).
Sun TV reported 2QFY12 PAT at Rs1.8 bn, in line with our expectations, led by robust
101% increase in other income (the benefit of robust balance sheet in a rising interest
rate environment). Sun TV also announced 2QFY12 interim dividend of Rs3.75 (1HFY12
interim dividend of Rs6.25 implying 4.6% annualized yield).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun TV Network (SUNTV)
Media
Average quarter in a challenging environment. Sun TV reported 2QFY12 EBIT of
Rs2.48 bn (+3% yoy), marginally below expectations, led by multiple pressure points
notably (1) weak advertising environment, (2) Arasu Cable (cable subscription declined
qoq) and (3) Supreme Court judgment (DTH subscription declined qoq). The news flow
remains adverse given CBI inquiry into (1) 2G scam and (2) BSNL telecom lines issue,
reflected in valuation of 11.5X FY2013E EPS (>20% discount to Zee). Retain BUY with
FY2013E FV of Rs400 (Rs440 previously); stress case FV of Rs350 (Rs360 previously) is
likely a better metric given the uncertainty (rising debtor levels are a red flag in 1HFY12)
supported by Rs6.25/share interim dividend (~4.6% 1HFY12 annualized yield).
2QFY12 results analysis: multiple pressure points on the revenue line
Sun TV reported 2QFY12 EBIT (our preferred earnings metric for Sun TV given majority of
content costs are booked in the amortization line) of Rs2.48 bn, marginally below Rs2.55 bn
expectation primarily led by weak revenue growth. (1) Weak advertising environment, (2)
impact of Arasu Cable on cable subscription revenues and (3) impact of Supreme Court ruling
on DTH subscription revenues pressured 2QFY12 revenues.
2QFY12 advertising revenues of Rs2.35 bn (+2% yoy) and advertising revenues (including slot
sales) of Rs2.74 bn (+1% yoy) were weak notably in light of 5-15% increase in advertising rates
across the network at start-FY2012E. Sun TV noted robust flagship GE channel advertising
negated by weak niche channel advertising in 1HFY12; we believe weak ratings in non-GE
channels (notably movie channels) also pressured advertising revenues.
Stress case FV of Rs350 more relevant given potential pressure points
Retain BUY with FY2013E fair value of Rs400 (Rs440 previously) adjusted for (1) reduced ad
growth in FY2012E to 9% (12% previously), (2) reduced TN cable subscription revenues by 50%,
(3) higher debtors days (90 versus 75) in our DCF-model and WACC (14% versus 13.5%). We
believe our stress-case valuation methodology (Rs350 versus Rs360 previously) is a more relevant
valuation approach since it captures (1) non-Tamil-C&S TV business segments not impacted by
political risks and (2) potential adverse impact on Tamil business (a) TRP ratings, (b) Arasu Cable,
(c) entertainment tax on DTH as well as (d) competitive cost pressures. The pressure of transition
from dominant to oligopoly market/player is clearly visible.
However, the recovery in advertising spends is likely around the corner, given the commentary by
listed FMCG companies (~40% contribution in C&S TV ad spends); 3QFY12E will likely still suffer
on account of high base but competitive and growth pressures will likely result in renewed growth
in ad spends by 4QFY11E. Sun TV has managed to maintain market share in flagship channels in
competitive non-Tamil markets though fragmentation is inevitable in the long run. The ability of
the company to manage the competitive pressures is critical.
Cable subscription revenues at Rs470 mn declined 13% yoy and 16% qoq but largely on
expected lines led by the shift of local cable operators (LCO) to Arasu Cable in Tamil Nadu
state in September. The negative variance of Rs90 mn on qoq basis can increase in
coming quarters as the impact becomes more widespread.
DTH subscription revenues at Rs790 mn (+13% yoy) declined 6% qoq due to Supreme
Court ruling capping channel/bouquet rates on DTH at 42% of cable rates (versus 50%
previously), which resulted in ~9% decline in effective realizations in 2QFY12. However,
we have also seen very limited traction in paid subscriber base.
2QFY12 Sun Pictures revenues of Rs330 mn (+125% yoy) included (1) Mankatha (big
budget) and (2) Vedi (small budget). However, Sun Pictures did not contribute to
financials, reporting an operating loss of Rs30 mn.
2QFY12 operating expenditure was largely in line with expectations with reduced direct
costs and overhead expenses negated by 30% yoy increase in D&A expenses (Sun
Pictures cost as well as cost of telecast rights).
However, 18% yoy decline in overhead expenses (includes provisions for bad debts) is a
concern notably in light of sharp increase in debtor levels (Rs5 bn at end-1HFY12 versus
Rs3.9 bn at end-FY2011); however, ~100 debtor days (based on normalized 1HFY12
revenues) remain below peer levels (Zee at ~110 days).
Sun TV reported 2QFY12 PAT at Rs1.8 bn, in line with our expectations, led by robust
101% increase in other income (the benefit of robust balance sheet in a rising interest
rate environment). Sun TV also announced 2QFY12 interim dividend of Rs3.75 (1HFY12
interim dividend of Rs6.25 implying 4.6% annualized yield).
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