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SUN TV 2QFY11: PAT in-line; QoQ revenue decline attributed to films business; Maintain Neutral
- Sun TV (SUNTV IN, Mkt Cap US$4.4b, CMP Rs500, Neutral) 2QFY11 results were broadly in line with estimates. PAT grew 28.2% YoY but declined 2.1% QoQ to Rs1.67b (estimate of Rs1.69b).
- Revenue increased 32.6% YoY to Rs4.25b (vs est Rs4.47b). EBITDA grew 36.4% YoY to Rs3.3b (EBITDA margin of 78.2%).
- While revenue and EBITDA were below estimates led by lower film revenue, lower amortization led to in-line PAT.
- Advertising & broadcast revenues were up 19.5% YoY and 5.1% QoQ to ~Rs2.7b (broadly in line). DTH revenues were up 75% QoQ and 2.9% QoQ to ~Rs700m.
- Sun has released its high budget movie “Endhiran”; impact on financials would be factored during 3QFY11.
- Sun expects FY11 loss in radio subsidiaries at less than Rs100m vs a loss of ~Rs470m in FY10.
Advertising and broadcast revenue grows 19.5% YoY (5.1% QoQ)
- Advertising and broadcast revenue during 2QFY11 grew 19.5% YoY (5.1% QoQ), driven by increased utilization as well as ad rate hike taken in January 2010.
- Sun recorded lower inventory utilization on a QoQ basis. However, prime-time utilization levels for key channels remain strong (85-90%).
- New product launches have been lower in 1HFY11 as compared to 1HFY10 resulting in a high base for ad revenue growth.
- There was no significant change in ad revenue mix from various sectors.
- The management expects revenue growth to rebound in 3QFY11 on account of festival season.
- In the medium term, Sun might expand into other regional markets (beyond South India) like Maharashtra and West Bengal.
- The management has maintained its guidance of ~18% ad revenue growth in FY11 vs an expected growth of 13-15% for the industry. Our estimates build-in growth of ~21% in advertising and broadcast revenues in FY11.
Continued momentum in DTH and domestic cable revenues
- DTH revenues for 2QFY11 grew 75% YoY and 2.9% QoQ to ~Rs700m, primarily driven by higher subscriber base.
- Sun direct accounts for ~60% of DTH revenues. Sun’s DTH subscriber base stood at ~6.55m, implying an ARPU of Rs36/month.
- Domestic cable revenues increased 50% YoY and 3.8% QoQ to ~Rs540m.
- Analog revenues have been gaining traction over the past three quarters owing to revamped distribution strategy. Sun management is confident of extracting value from analog segment.
- In the long term, Sun TV expects increased monetization from geographies other than South India by leveraging Sun 18 (which would serve as a distribution platform for Network 18 group and Sun TV).
- We expect DTH revenue to grow by 63% in FY11 to Rs3b and domestic cable revenue to grow by 40% to Rs2.2b.
Opex up 14.9% QoQ and 20.4% YoY
- Operating expenses grew 20.4% YoY and 14.9% QoQ to Rs925m. Employee expenses grew 27.5% YoY and 1.9% QoQ to Rs407m.
- “Other expenses” increased sharply by 93.5% QoQ and 11.2% YoY to Rs268m due to pre-launch expenses in films business.
Earnings estimate largely unchanged; Neutral
- We believe Sun TV will be able to sustain leadership in its geographical area of operations despite rising competitive activity due to: 1) Strong programming and film library, and 2) Strong presence across regional genres.
- We continue to believe regional players like Sun TV will grow ahead of the total advertising industry growth of 13-15%.
- While the management did not disclose any revenue and costs associated with “Endhiran”, we have factored in its financial impact into our FY11 numbers.
- We expect an EPS CAGR of 24% during FY10-12E.
- The stock trades at 27.2x FY11E EPS and 22.7x FY12E EPS. Maintain Neutral.
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