Sun TV Network - High Movie Capex Could Prop Up Ad Revenue; Result Update Q2FY15 :: Edelweiss report link

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Sun TV Network’s (Sun TV) Q2FY15 revenue came in line, though PAT was below expectations due to spike in amortisation costs. Key positives were: (i) 11.4% YoY ad growth (highest in past 5 quarters) aided by low base (down 4.3% YoY in Q2FY14) and improved ratings (as per management) in Tamil and Telugu genres; (ii) robust 20% YoY surge in DTH subscription revenue; and (iii) massive 536bps YoY improvement in EBITDA margin to 77.8% due to lower content costs and other expenditure. Key negative was ~70% YoY surge in amortisation costs to INR1,650mn due to telecast of high cost movies in Q2FY15. In our view, the company will need to up the ante on movie acquisitions consistently to improve ratings, which will lead to higher amortisation costs. Although we like Sun TV’s dominance in key markets, intensifying competition is a concern.

Market share improves; radio business shines

Alongwith improved market share in Tamil Nadu and Andhra Pradesh, Sun TV continues to reap benefit of higher ad inventory (18 minutes per hour). Total subscription revenue jumped 13.6% YoY to INR1.8bn. Other expenses fell 38% YoY due to provisioning for bad debts and Champions League related expenses in Q2FY14, which led to a high base. H1FY15 radio revenue surged 23% YoY to INR790mn, EBIT jumped 40% YoY to INR280mn and PAT catapulted 76% YoY to INR190mn.

Q2FY15 conference call: Key takeaways

There was QoQ decline in ad spends by FMCG and auto sectors in Q2FY15. Sun TV’s ad growth in October has been strong. It expects Gemini TV to be back at No. 1 spot in next 1-2 quarters driven by movies as well as fiction content. The company does not expect much traction in cable subscription revenue in the next 2 quarters. Amortisation for FY15 and FY16 is expected to be INR4.5-4.8bn each (INR3.6bn in FY14). It takes 4-5 years to achieve payback on an acquired movie.

LINK

https://www.edelweiss.in/research/Sun-TV-Network--High-Movie-Capex-Could-Prop-Up-Ad-Revenue;-Result-Update-Q2FY15/27508.html