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Sun TV Network (SUTV.BO)
In Line 2QFY11 Results; Expectations Running High
Profits in line with expectations — Recurring PAT growth of 28% yoy to Rs1.7bn
in 2QFY11 was in line with our and consensus expectations. However, revenue
growth of ~33% yoy growth, while healthy, was ~6% below estimates, as the
advertising and DTH growth trajectory moderated to ~19% Y/Y and ~75% Y/Y
respectively during the Q. Despite EBITDA margins expanding 220bps Y/Y to
~78.2%, higher depreciation/amortization (+60% Y/Y) led to EBIT margin decline
of ~130bps Y/Y to 56.9%.
Mgmt guides to a conservative ~18% Y/Y ad growth; but expectations way ahead —
After 4 consecutive quarters of solid 40%+ Y/Y ad revenue growth, base effect
seems to catch up as ad growth moderated in 2QFY11. Admittedly, the timing
mismatch of the festive season this year would have played a role this Q. While
mgmt maintains 18% Y/Y ad revenue guidance (conservative, after 1HFY11
growth of 32% Y/Y), we note that the risk of disappointment maybe high given
elevated Street expectations.
Conf Call Takeaways — a) Pick up in analogue cable revenues (~+50% Y/Y growth
in 2Q) is a positive – the distribution initiatives are likely to aid growth. Mgmt
targets of ~25% Y/Y during the fiscal to Rs2bn; b) Sun now has ~6.5m DTH
subscribers with ARPUs of ~Rs32-35 (flat QoQ); c) Radio losses are expected to
remain below Rs100m at the PAT level; d) Mgmt didn’t share any financials for
Endhiran yet – press reports suggest expectations of ~25% return from the movie.
Reiterate Hold — We forecast a strong 26% EPS CAGR over FY10-12E, but
valuations at ~27x one yr fwd P/E already factor in a lot of positives. Market
expectations on Sun’s ad growth & movie business performance are high – leave
little room for error. We maintain our Hold/Low Risk (2L) rating and revise target
price to Rs525 based on 25x Mar12E P/E, as we roll forward from 24x Sept11E,
maintaining the premium to the market multiple.
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