Worst is behind for Sun TV Network:: Centrum

Worst is behind
Sun TV Network posted 4%YoY decline in revenues on the back of de-growth in
analog subscription revenues and the movies business. However, ad revenue
growth was at 4% and management expects this to turn double digit going
forward. Digitisation in Chennai will help the company grow its DTH and analog
subscription revenues at a faster pace. We have lowered our estimates marginally
but maintain BUY rating on the stock.
Q2FY13 marginally below expectations: Revenues de-grew by 4% YoY to
Rs4333mn on the back of 28% de-growth in analog subscription revenues and no
revenues form movies business. Operating profit was down 10% YoY to Rs3290mn
as margins contracted by 506bps. Profitability was down by 15.8%YoY to
Rs1517mn, 12% below expectations.
Worst is behind for advertising: Advertisement revenues grew by mere 4%YoY
during the quarter on following the economic slowdown. Management believes
that sectors such as FMCG, mobile handsets, consumer durables continue to do
well while BFSI remains a laggard. It remains optimistic of double digit ad growth
for coming quarters and is confident that the worst was behind as more than 55-
60% of the revenues of the company come from the FMCG sector, which has
increased spending. We have modeled 8.5% growth for FY13 and 15% for FY14E.
Subscription revenues to grow: On a sequential basis analog subscription
revenues grew by 13% but declined by 28% YoY. Post digitization in Chennai and
from Phase-II in key cities we expect a healthy growth rate. Also, the company
plans to become a pay channel in the city of Chennai which could further spurt
revenues. On the back of Phase-I in digitisation, management expects DTH
revenues to grow at a healthy rate as MSO has not been able to meet the demand
for STBs. Hence the DTH offtake has increased by 3x from 350 connections/day to
more than 1000/day. This will help the company increase DTH revenues as the
ARPU form this is Rs38 currently. International subscription revenues grew by
44%YoY on the back of currency gain and increase in reach and deeper
penetration.

�� -->


Margins continue to be under pressure: Operating margins declined by 506bps
as the company invested more in in-house programming and on the back of
increase in satellite transmission cost. EBIT margins too declined by 526bps and
were at a four year low as the company spent more than Rs910mn on content for
movies. We continue to maintain our view that this cost would only increase going
forward as the acquisition cost of movies has significantly increased in the past few
years due to increasing competition among broadcasters.
Other Highlights: The radio business posted a topline of Rs500mn with operating
profit of Rs110mn and PAT of Rs10mn. For IPL the company believed that for FY14
and FY15E the losses would be ~Rs300mn and Rs40mn respectively. Post that the
company will start making a profit and after year 5 it expects the annuity profit to
be Rs600mn.
Estimates lowered; Maintain BUY: We have lowered our FY13/FY14 estimates by
7% and 2% respectively on the back of lower advertisement growth, lower margins
and lower other income. The stock is currently trading at 18.8x and 15.9x FY13E
and FY14E respectively. We value the stock at 18x FY14E with our target price of
Rs371 and maintain BUY rating on the stock.