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Sun TV Network Ltd
Challenges ahead; cut rating to
Neutral
„Slower earnings CAGR; Cut ratings & PO
While the stock has underperformed the markets by 30%, we see limited upside
to the share price and cut our rating to Neutral to factor in 1) likely slower earnings
CAGR of 13% (FY11-14E) led by a cut in ad revenue growth assumptions, and 2)
potential impact to cable and ad revenues from the State government’s plan to run
cable TV operations in Tamil Nadu. Our PO of Rs345 is at 14x FY13E, in line with
the historical PEG of 1 and fair, given its strong margin profile and return ratios.
We prefer ZEE in the broadcasting space given its strong 18% EPS CAGR (FY11-
14E) led by ad growth and lower sports losses.
Cut ad revenue growth assumption for FY12E
We cut our ad revenue growth assumption for FY12E to 12% yoy vs. 17% earlier
to factor in the 1Q miss and headwinds from weak macro. The 12-13% cut in
earnings estimates is much sharper and factors in the impact from higher content
cost of movie satellite rights. We are 1-3% below consensus on earnings.
Uncertainty from recent changes in cable distribution
A key driver for SNL’s revenue growth has been its strong content and an efficient
cable distribution network in Tamil Nadu run through its group company
Sumangali Cable. We believe the State government’s plan to offer and control
cable distribution could cause short-term disruption impacting subscription
revenues and even viewership, leading to a loss in ad revenues.
Why not sell?
Post the recent correction, SNL is trading at 14x FY12E/12x FY13E, at the lower
end of the historical band of 11-25x. We believe valuations are fair given its strong
market positioning in the southern states, strong margin profile and return ratios.
We would watch out for stability in ad revs before upgrading our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun TV Network Ltd
Challenges ahead; cut rating to
Neutral
„Slower earnings CAGR; Cut ratings & PO
While the stock has underperformed the markets by 30%, we see limited upside
to the share price and cut our rating to Neutral to factor in 1) likely slower earnings
CAGR of 13% (FY11-14E) led by a cut in ad revenue growth assumptions, and 2)
potential impact to cable and ad revenues from the State government’s plan to run
cable TV operations in Tamil Nadu. Our PO of Rs345 is at 14x FY13E, in line with
the historical PEG of 1 and fair, given its strong margin profile and return ratios.
We prefer ZEE in the broadcasting space given its strong 18% EPS CAGR (FY11-
14E) led by ad growth and lower sports losses.
Cut ad revenue growth assumption for FY12E
We cut our ad revenue growth assumption for FY12E to 12% yoy vs. 17% earlier
to factor in the 1Q miss and headwinds from weak macro. The 12-13% cut in
earnings estimates is much sharper and factors in the impact from higher content
cost of movie satellite rights. We are 1-3% below consensus on earnings.
Uncertainty from recent changes in cable distribution
A key driver for SNL’s revenue growth has been its strong content and an efficient
cable distribution network in Tamil Nadu run through its group company
Sumangali Cable. We believe the State government’s plan to offer and control
cable distribution could cause short-term disruption impacting subscription
revenues and even viewership, leading to a loss in ad revenues.
Why not sell?
Post the recent correction, SNL is trading at 14x FY12E/12x FY13E, at the lower
end of the historical band of 11-25x. We believe valuations are fair given its strong
market positioning in the southern states, strong margin profile and return ratios.
We would watch out for stability in ad revs before upgrading our view.
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