Striving to regain market share in Telugu GEC -- Sun TV :: ICICI Securities, pdf link

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Striving to regain market share in Telugu GEC
Sun TV has been able to maintain its dominance in the southern part of
the country. However, Sun TV registered negative ad growth in the range
of 4-7% for FY14 as the ad rate hike was taken, to compensate for
reduced inventory on account of Trai imposed ad cap, severely impacted
volume, thus impacting overall advertisement revenue. Even though the
company has reverted to ~18 minutes of ad per hour and also
showcased a number of movies in the quarter, the overall advertisement
revenue growth remains at low double digits of about 11%. This signals
towards some reduction taken by the company on ad yields to come back
to the positive growth territory. Moreover, if the 12 minutes ad cap is
implemented; it could impact revenue, going ahead. We expect Sun TV
to post an ad growth of 6.0% and 11.9% in FY15E and FY16E,
respectively to | 1130.1 crore and | 1265.2 crore respectively.
Phase I, II not yet in full form, yet attractive growth in subscription
Domestic subscription revenues for Sun TV have grown at a CAGR (FY12-
14) of 14.0%, to | 645.2 crore, even though phases I and II of digitisation
are not yet complete in two of its key markets, namely Chennai and
Coimbatore. Going ahead, Sun TV would also benefit from the Trai
wholesale rate hike mandate in non-DAS areas. However, though the
company would benefit from digitisation in Phase III and IV markets,
which would cover several of its key markets, we do not foresee much
headway in full implementation of digital cable in near future. Remaining
cautious, we expect Sun TV to post subscription revenue growth of
12.0%, 7.3% in FY15E, FY16E to | 722.2 crore, | 774.8 crore, respectively.
Sun TV promoters under scanner - overhang on stock
The Attorney General had informed the CBI that there was significant
evidence against the former Union minister Dayanidhi Maran and his
brother Kalanithi Maran in the controversy around the Aircel-Maxis deal.
The final verdict on the issue is still awaited and the same remains an
overhang on the stock.
Downgrade to HOLD
Though ad revenues may improve, going ahead, as the company has
reverted to 18 minutes ad per hour, if the Trai recommendation of 12
minutes of ad per hour is implemented, it would be negative for the
company. Also, the ongoing CBI enquiry may remain an overhang on the
stock. We expect 8.9% CAGR in FY14-16 in ad revenue to | 1265.2 crore.
We re-value Sun TV at 14.5x FY16E P/E multiple and arrive at a target
price of | 343 mainly due to promoter related concerns. We maintain
HOLD

link
http://content.icicidirect.com/mailimages/IDirect_SunTV_Q2FY15.pdf