BUY Sun TV Network; TP: INR 400.00:: religare research,

Operational improvement likely; maintain BUY
We recently interacted with the SUNTV management. Key takeaways are: (a) Advertising growth recovering but in single digits, (b) no ad pricing pressure seen in the regional GEC space, (c) higher subscription revenues expected due to the Arasu Cable agreement (~Rs25mn/month) and steady growth from DTH/international subscription (15%+), and (d) EBITDA margins to remain healthy at ~76%. Backed by improving business fundamentals, attractive valuations (15.8xFY14E) and falling political risk for the business, we reiterate BUY with a revised TP of Rs400.

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 Ratings steady; decent ad revenue growth: SUNTV enjoys steady television ratings – it continues to be the top player in Tamil and Kannada by a mile, has stayed on top in the Telugu space despite renewed competition, and is a solid No. 2 in Malayalam. Unlike Hindi GEC where competitive intensity is high, we believe SUNTV, with its strong market leadership, enjoys better bargaining power with advertisers. Management guidance of mid-single digit ad revenue growth in coming quarters looks achievable.
 Subscription revenues to grow post-Arasu deal/digitisation: We expect domestic analogue subscription to increase post the Arasu Cable deal while DTH/ international revenues should grow at 15%+ YoY in FY13. Digitisation in Chennai (~1.4mn subscribers) is likely to be dominated by DTH players given Arasu’s lack of preparedness. Higher subscription revenues will reduce earnings volatility due to the weak macro environment (which affects advertising).
 Limited focus on movie distribution business: The Company has indicated that it has only a limited focus on the movie business (closely linked with state politics) – this is evident from Q1 numbers which had no movie revenues.
 Valuations supportive, BUY: Looking at the improving business fundamentals, lower earnings volatility and falling political risk, the stock looks attractive at current valuations (15.8x FY14). We raise our September’13 TP to Rs400 based on 18x FY14E. EPS.


Valuations inexpensive; BUY
Considering the improving business fundamentals, lower earnings volatility and falling political risk, the stock appears attractive at current valuations of 16.9x one-year forward earnings – ~35% discount to its historical average. Further, the valuation gap between SUNTV and Zee is near the all-time high, at ~35%. Factoring in lower ad revenue growth seen in Q1 and a muted ad environment in a large part of Q2, we revise our estimates and roll forward to a September’13 TP of Rs 400 (from Rs 350), based on 18x FY14E earnings. BUY.