Sun TV Network Ltd. - Moneycontrol.comchats.moneycontrol.com/plus/upload_pdf_file/Sun TV... · Advertising revenues to witness traction going ahead Over FY08-FY11, Sun TV’s ad revenues

Sun TV Network Ltd.

BUY

- 1 of 18 - Friday 21st December, 2012

This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.

ST

OC

K P

OIN

TE

R

Target Price `625 CMP `410 FY15 PE 15.1x

Index Details We initiate coverage on Sun TV Network Ltd (Sun TV) as a BUY

with a price Objective of `625 representing a potential upside of

~52.4% over a period of 24 months. At a CMP of `410, the stock is trading at 22.2x and 18.1x its estimated earnings for FY13 and FY14 respectively. With ~2 mn households in Chennai (1.3-1.5 mn cable subscribers and 0.5 mn DTH subscribers) and ~11 mn subscribers in five cities of Phase II (Bangalore, Hyderabad, Mysore, Coimbatore and Vishakhapatnam), Sun TV is expected to be one of the biggest beneficiaries of impending digitisation in these geographies. Sun TV’s revenues are expected to grow at a

CAGR of 14.6% to `2,778.0 crore with cable subscription revenues growing at a CAGR of 30.2% while DTH is expected to grow at a CAGR of 21.6% by FY15. In line with revenues, PAT is expected to grow at a 15.6% CAGR from `692.9 crore in FY12 to `1,070.6 crore by FY15. Digitisation to provide fillip to Sun TV’s subscription revenues

Near term triggers from the implementation of digitisation in Phase I (Chennai) and Phase II cities should help boost Sun TV’s subscription revenues. With ~2 mn households in Chennai (~1.3-1.5 mn cable subscribers and ~0.5 mn DTH subscribers) and ~11 mn subscribers in five cities of Phase II (Bangalore, Hyderabad, Mysore, Coimbatore and Vishakhapatnam), Sun TV is well placed to benefit from the incremental subscriber additions. We expect Sun TV to be one of the biggest beneficiaries of digitisation and revenues are expected to grow at a 3 year CAGR of 14.6% to `2,778.0 crore (cable subscription revenues – 30.2% CAGR

to `360 crore; DTH – 21.6% CAGR to `598 crore) by FY15. We believe that the cable subscription income is expected to outperform DTH revenue stream owing to increase in paying subscribers post digitisation (by 31st Dec, 2012) and increased contribution of ~`2.5 crore per month (with upside risk) from Arasu Cable network in Tamil Nadu. Given the potential for deeper penetration of DTH services in the company’s key markets, the DTH revenue is likely to continue its momentum. The sharp jump in subscription revenues from 28.2% of total sales in FY12 to 35.8% in FY15 should bring more visibility and sustainability to the revenues besides providing diversification of revenue streams.

Sensex 19,242

Nifty 5,848

BSE 100 5,908

Industry Media

Scrip Details

Mkt Cap (` cr) 16,138

BVPS (`) 63.7

O/s Shares (Cr) 39.4

Av Vol (Lacs) 2.1

52 Week H/L 431/177

Div Yield (%) 2.3

FVPS (`) 5.0

Shareholding Pattern

Shareholders %

Promoters 77.0

DIIs 2.1

FIIs 14.2

Public 6.7

Total 100.0

Sun TV vs. Sensex

Key Financials (` in Cr)

Y/E Mar Net

Revenue EBITDA PAT EPS

EPS Growth (%)

RONW (%)

ROCE (%)

P/E (x)

EV/EBITDA (x)

2012 1,847.2 1,414.2 692.9 17.6 - 27.6 38.7 23.3 11.2

2013E 2,035.1 1,550.6 727.5 18.5 5.1 26.2 37.2 22.2 10.2

2014E 2,390.7 1,840.7 890.8 22.6 22.2 27.7 39.6 18.1 8.6

2015E 2,778.1 2,149.1 1,070.6 27.2 20.4 28.0 40.2 15.1 7.4



Advertising revenues to witness traction going ahead

Over FY08-FY11, Sun TV’s ad revenues grew at a faster rate of 27.6% CAGR compared to the ~20% of the `3,105 crore South Indian ad market (Tamil, Telugu,

Malayalam and Kannada). However, in FY12, in addition to the slowdown, uncertainty over Arasu Cable led to a total blackout of Sun TV’s channels on the cable platform in the entire state of Tamil Nadu (except Chennai) which affected ad revenues adversely. Post Sun TV’s deal with Arasu in August, 2012, ad revenues are likely to return to a steady state growth rate. Going ahead, the regional TV ad market growth is likely to outpace the national TV ad market as the potential of growth in consumption of various products is greater in regional markets. In addition, Sun TV’s competitive position in terms of premium pricing power (e.g. ad rate of ~`43,000/10sec v/s `7,500-`10,000/10 sec of immediate

competitor in Tamil Nadu) reaffirms our confidence that the company will maintain its leadership position as well as achieve growth momentum. We expect Sun TV’s ad revenue to grow at a CAGR of 11.3% to `1,304.5 crore from

`945.4 crore over the period of FY13-FY15 on the back of improved ad spends and increased visibility in Tamil Nadu (TN being the biggest regional ad market).

Valuation

We initiate coverage on Sun TV Network Ltd (Sun TV) as a BUY with a Price Objective of `625 representing a potential upside of ~52.4% over a period of 24 months. At a CMP of `410, the stock is trading at 22.2x and 18.1x its estimated earnings for FY13 &

FY14 respectively. Going ahead, pick up in advertising revenues and digitisation led boost to subscription revenues bode well for the company.

Historically, the stock has traded at an average of ~23x one year forward earnings and we expect Sun TV to garner similar multiples going ahead. Moreover, we believe that the sharp underperformance by Sun TV v/s ZEEL (since May, 2011) prices in the political and legal risks associated with the company. We expect the valuation gap to narrow and expect Sun TV to trade at its historical levels owing to its robust business model.



Company Background

Sun TV Network is one of the largest television broadcasters in India with a strong network of 32 television channels and 45 FM radio stations across India. For more than a decade now, Sun TV due to its extremely popular offering has been dominating the broadcasting space in the four key South Indian states of Tamil Nadu, Andhra Pradesh, Karnataka and Kerala (leader in 3 out of 4 markets). Recently, in 2008, Sun TV forayed into the movie business through its division, Sun Pictures. In October, 2012, Sun TV bought the Hyderabad IPL team for `425.5 crore which is to be paid over five years till FY17.

Sun TV’s Product Offerings

Sun TV

Product Offerings

Telugu

Channels(~Rs 800)*

Malayalam Channels

(~Rs 575)*

Tamil

Channels(~Rs 1170)*

Kannada

Channels(~Rs 560)*

Sun TV HD

Sun TV

KTV KTV HD

Sun MusicSun Music HD

Sun News Adithya

Chutti TVSun Action

Sun Life Sun TV RI

Gemini TV Gemini TV HD

Gemini Movies

Gemini Music

Gemini News

Gemini Comedy

KushiTV

Gemini Action

Gemini Life

UdayaTV

UdayaMovies

UdayaMusic Udaya

News

UdayaComedy

Chintu

SuriyanTV

SuryaTV

KiranTV

KochuTV

Surya Action

Sun Pictures

owns ~ 9500

movies titles

Television Business32 channels

Radio Business Movies &

Distribution

South Asia

FM(Rest of India)

Kal Radio(Southern Market)

97.8%

Suryan

Fm

RadioRED

FM 93.5

49%

beneficial Interest

Strategic Alliance

with RED FM

3 Radio Stations

in Mumbai, Delhi & Kolkata

59.2%

45 radio Stations (All over India)

* Ad Market size

Source: Sun TV, Ventura Research



Key Investment Highlights

Digitisation to provide fillip to Sun TV’s subscription revenues The non-existence of a proper addressable system had resulted in significant under reporting (~85% of `18,000 crore market size) of the subscribers base by LCO’s

(Local Cable Operator) in turn leading to lower revenue realizations for MSO’s and broadcasters. This revenue leakage had not only impacted broadcasters and MSOs but also the GoI (Government of India) in form of lost taxation. The new system of DAS (Digital Addressable System), which has become a reality now (Phase I successfully implemented, except in Chennai), will drastically change the fortunes of the industry ensuring that all negatives regarding reporting of subscribers is done away with. Under DAS, the entire universe of subscribers will now be uniquely recognized leading to a multifold jump in the subscribers. This coupled with the growth of the TV households from ~153 mn to ~188 mn by 2016 and paid C&S TV household penetration levels expected to increase to 89% from the current ~76% should improve the visibility on revenue growth and profitability of the sector as a whole.

Sun TV to be one of the biggest beneficiaries of digitisation We expect Sun TV to be one of the biggest beneficiaries of digitisation and revenues are expected to grow at a CAGR of 14.6% to `2,778.0 crore with cable subscription

revenues growing at a CAGR of 30.2% to `360 crore while DTH is expected to grow at a CAGR of 21.6% to `598.3 crore by FY15.

Broadcasters to benefit from growth TV households & increased penetration

619

75

37

46

86

8

8

8

26

21

12

76%

78%

89%

65%

70%

75%

80%

85%

90%

0

20

40

60

80

100

120

140

160

180

200

2011 2012P 2016E

Digital Cable DTH DD Direct IPTV Non C&S Analog cable Paid C&S Penetration

145153

188




Key Highlights of TRAI Tariff Order & Interconnection Regulations for Digital Addressable Cable TV Systems

Basic Tier

Since, the consumer is required to pay for Free to Air (FTA) channels, concept of Basic Service Tier (BST) has been introduced. The BST is priced at `100 max (+ taxes) per month. However, it is not compulsory for

the consumers to subscribe the BST and the consumer can select his own 100 FTA channels in the BST.

Minimum Pay TV package

A pay channel package will cost atleast `150 per month.

Minimum 500 channels

MSO’s must carry a minimum of 500 channels from 1st January, 2013.

Uniform Carriage Fees

MSO’s can declare their own carriage fees for any channel that the MSO has not asked the broadcaster

for. Carriage fees cannot be increased for two years.

No demanded placement

Broadcasters cannot insist on placement of their channel in a particular slot.

Compulsory a-la-carte by broadcasters

Every broadcaster must offer all its channels to MSO’s on a-la-carte basis. The broadcaster cannot compel

any MSO to include its channels in any package or scheme offered by the MSO.

Roadmap to Digitisation

Phase Geographies CoveredNo of C&S

HouseholdsCompletion (%) Deadline

I Delhi, Mumbai, Kolkata and Chennai ~12 mn 68% 31-Oct-12

II All cities with population > 10 lacs 30-40 mn - 31-Mar-13

III All urban areas (municipal areas) ~ 20 mn - 30-Sep-14

IV Rest of India ~ 20 mn - 31-Dec-14

With Mumbai, Delhi and Kolkata getting digitized along with Madras HC refusing to extend digitisation deadline in Chennai (Dec 31

st, 2012), the doubts that had been raised over the implementation of DAS

have been eliminated. Further, with the digitization being enacted into a law, we do not expect any serious delays in the roll out of the remaining stages.

MSO & Broadcaster’s share to grow multifold post digitisation

Stake-holder revenue

sharePre-digitization Post 2016

Consumer ARPU 100% 100%

LCO 65-70% 35-50%

Distributor 5% 0.5%

MSO 15-20% 25-30%

Broadcaster 10-15% 30-35%




Cable subscription numbers to spur income growth diversifying revenue streams

Historically, Sun TV has mostly relied on advertising revenues. However, in recent times, the DTH thrust had enabled the company to witness a robust growth in its subscription revenues. With digitisation being implemented on a war footing, the subscription revenues are expected to get a further thrust and contribute to a sharp jump in subscription revenues.

Revenues to grow steadily at a 15% CAGR

1039

1453

20131847

2035

2391

2778

0

500

1000

1500

2000

2500

3000

FY09 FY10 FY11 FY12 FY13E FY14E FY15E

Rs.C

rore


Sun TV’s Revenue Mix to change going forward

15% 13% 10% 8% 9% 9% 8% 7%

54% 57%57%

50%54% 54%

51% 49%

4% 5%4%

4%

5% 6%5%

5%

27% 21%24%

26%

28% 28%33% 36%

0% 4% 5%12%

4% 4% 4% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E

Broadcast Fees Advertising Revenue Program licensing income

Subscription income Others

~800 bps expansion in share since FY12

reduction by ~500 bps




With ~2 mn households in Chennai (~1.3-1.5 mn cable subscribers and ~0.5 mn DTH subscribers) and ~11 mn subscribers in five cities of Phase II (Bangalore, Hyderabad, Mysore, Coimbatore and Vishakhapatnam), Sun TV is expected to be one of the biggest beneficiaries.

Domestic cable subscription revenue growth to outperform DTH stream Due to FTA (Free to Air) nature of Chennai subscription market and imbroglio in reaching a deal with Arasu Cable (in Tamil Nadu), cable subscription revenues dipped sharply and was unable to keep up pace with revenues from DTH stream. It grew at a 7.6% CAGR to `163 crore in FY12 from `131 crore in FY09 as compared to ~58.3%

CAGR witnessed by the DTH revenue stream. However, we believe that the growth from cable subscription income is likely to outperform DTH stream owing to two factors:

Successful implementation of digitisation in Chennai leading to increase in paying subscribers (by 31st Dec, 2012) and

Impact of increased contribution of ~`2.5 crore per month (which can increase going ahead) from Arasu Cable network in Tamil Nadu.

We expect this stream to grow at a CAGR of 30.2% to `360 crore during FY12-FY15E

assuming an ARPU of `25 per month (lower side of management’s guidance of `25+)

during the forecasted period.

Sun TV’s cable subscription revenues poised to grow

131

158

214

163142

274

360

0

50

100

150

200

250

300

350

400


Rs.C

rore




DTH subscription revenue stream to continue its momentum

Sun TV has benefited tremendously from the rising subscriber base of DTH services in India, helping DTH revenues to grow at ~58.3% CAGR from `84 crore in FY09 to `333 crore in FY12. Starting from a DTH subscriber base of 1.11 mn in FY08, total subscribers of Sun TV channels now stands at 7.87 mn (as on H1FY13). With the digitisation becoming a reality now and given the potential for further penetration of DTH services in the company’s key markets, the trend is likely to maintain the momentum going forward. As a result, we expect DTH revenues to grow at a CAGR of 21.6% to `598.3 crore during FY12-FY15E assuming an ARPU (average rate per user) of `36 per month during the forecasted period.

Arasu Cable Network unlikely to impact the top-line going ahead

Arasu Cable TV Corp. Ltd was initially launched by the previous DMK government in 2008 and eventually

came into effect in September, 2011 after AIDMK came to power. During this time, Arasu was declared as

the only official cable distributor in Tamil Nadu (except Chennai) by the then Chief Minister J Jayalalithaa.

On September 2, 2011, services of Arasu went live and as Sun TV was yet to sign agreements with Arasu

Cable, the company’s channels were not available on Arasu’s network across Tamil Nadu (except

Chennai) which led to revenue loss of ~`77 crore in FY12 (`10 crore per month). Since its re-launch in

September 2011, Arasu has built a network that covers 31 districts in the state and reaches 4.9 million

households.

However, it is imperative to note that despite being dropped by Arasu Cable, Sun TV continued to maintain

its leading position with marginal impact on it viewership ratings on the back of its continued visibility in

Chennai, its availability on DTH platform across Tamil Nadu and presence of piracy, to a certain extent, in

the state.

Eventually, in August, 2012, the company signed a deal with Arasu Cable to carry Sun TV’s channels on its

network for `2.5 crore per month. We believe that as Sun TV already enjoys a dominant market share in

terms of viewership ratings, this arrangement will further strengthen its competitive positioning in the Tamil

Nadu market which incidentally happens to be the biggest regional ad market.

Also, with the DAS replacing the CAS system, the erstwhile rate of `70/month would no longer be

applicable and the higher rates as prescribed under DAS would prevail.




We expect total domestic subscription revenues (DTH + Cable) to grow at a CAGR of 24.6% to `958.3 crore by FY15 from the current FY12 revenues of `495.6 crore with

share of subscription revenue expected to increase by a whopping 760 bps to 36%. Our forecast is based on conservative estimates as we believe that in order to ensure smooth implementation of DAS, broadcasters will not rock the boat and will go in for negotiated basis pricing with MSOs in place of a complete revenue per subscriber model.

DTH subscribers growing steadily DTH revenues to get a boost

5.15.6

6.0 6.3 6.6 6.7 7.0 7.1 7.3 7.4 7.7 7.7 7.9

0%

2%

4%

6%

8%

10%

12%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

No. of subscribers (in mn) % QoQ

84

183

290

333

403

474

598

0

100

200

300

400

500

600

700


Rs.C

rore

Source: Sun TV, Ventura Research Source: Sun TV, Ventura Research

Sun TV’s domestic subscription revenues to grow at a 25% CAGR

215

340

502 496545

748

958

-6%

58%

48%

-1% 10%

37%28%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

100

300

500

700

900

1100


Rs.C

rore

Subscription Revenue % YoY




Advertising revenues to witness traction going ahead

Over FY08-FY11, Sun TV’s ad revenue grew at a faster rate of 27.6% CAGR compared to the ~20% of the `3,105 crore South Indian ad market (Tamil, Telugu,

Malayalam and Kannada). However, in FY12, in addition to the slowdown, uncertainty over Arasu Cable led to a total blackout of Sun TV’s channels on the cable platform in the entire state of Tamil Nadu (except Chennai) which affected ad revenues adversely. Post Sun TV’s deal with Arasu in August, 2012, ad revenues are likely to return to a steady state growth rate.

Going ahead, the regional TV ad market growth is likely to outpace the national TV ad market as the potential of growth in consumption of various products is greater in regional markets. In addition, Sun TV’s competitive position in terms of premium pricing power (e.g. ad rate of ~`43,000/10sec v/s `7,500-`10,000/10 sec of immediate

competitor in Tamil Nadu) reaffirms our confidence that the company will maintain its leadership position as well as achieve growth momentum.

We expect Sun TV’s ad revenue to grow at a CAGR of 11.3% to `1,304.5 crore from `945.4 crore over the period of FY13-FY15 on the back of improved ad spends and

increased visibility in Tamil Nadu (TN being the biggest regional ad market).

Sun TV continue to dominate ad market

Market Approx. ad rates per 10 sec on GEC channels

Tamil Rs 43000

Telugu Rs 25000 - Rs 30000

Kannada Rs 20000 - Rs 25000

Malayalam Rs 10000 - Rs 15000


Source: Divi’s Labs, Ventura Research

Advertising stream to gain momentum

573

789

970 9451040

1165

1305

0

200

400

600

800

1000

1200

1400


Rs.C

rore




International subscription revenue and Income from movie distribution to provide support to top-line

Subscription revenues from international markets have been growing at a 16% CAGR over FY09-12, contributing ~4.8% to the top-line. This growth momentum is expected to be maintained albeit at a slower pace of 13.7% CAGR through FY15. Recently, the management has entered into ~20 agreements (v/s 8, 2-2.5 years ago) which should support the growth. The international subscription revenues are expected to grow to `124 crore in FY15 from `84.3 crore reported in FY12.

Sun TV has presence in the geographies of Malaysia, Singapore, Canada, Sri Lanka, the UK, South Africa, Australia, Europe and the US with ~0.6 mn subscribers. The international subscribers pay on an average $8 per month.

Unique business model help Sun TV sustain highest margins in the industry

Sun TV operates on a "Sponsored Revenue model" for its GEC channels, wherein it leases out its prime time slots (usually 7.00 pm to 9.00 pm) on 30 minutes basis to third party content producers for a fixed fee (termed as broadcast fee in P&L). In return, the content producers have the right to 4 minutes of advertising inventory per half an hour and Sun TV gets to keep 2 minutes (based on 6 min per half an hour model) of the slot. Since the content aired on Sun TV channels are not owned by the company, the cost of content and the risks of recouping the costs lie with the producer. The IP rights of the content lies with the producer and is not acquired by Sun TV as the content do not have shelf life and its repeat value is not that remunerative. Moreover, the company produces a large amount of content aired in the non-prime time slots in-house. Company's in-house production team sources ~75% of its daily content requirement in-house, out of which 40-45% is movie based, 8-10% is news and the rest is accounted by game, talk and variety shows which further lowers its production costs. Additionally, certain clauses incorporated by Sun TV to de-risk its model are: - Content providers have to maintain certain level of ratings for the content aired, failing which, Sun TV has right

to change their slot timings or can also stop telecasting the content. - Exclusivity i.e. the producer will work exclusively for Sun TV during the period of agreement. - After the agreement is expired, the producer cannot telecast that serial on any other network for the next 2

years.




Further, Sun TV entered the movie production and distribution business in September 2008 through its division, Sun Pictures, and has so far distributed 21 films. Currently, Sun TV buys ~70-80% of movies in regional languages and has over 9,500 movie titles. Sun TV has the policy to buy movie titles as a single owner (as against multiple owners) with a strategy to keep the content exclusive. Moreover, we believe, this business adds significant value to the company’s “low cost” model as the movie content is used in various forms such as comedy clips, music clips, action clips, etc on its multiple genre channel platform. Going ahead, we have modeled in an outlay of `80-90 crore per quarter for the movie acquisitions and we expect this stream to grow

steadily at a 10% CAGR to `79.4 crore by FY15E from `59.7 crore in FY12.

International subscription revenues to grow steadily

54 56

69

84

107112

124

0

20

40

60

80

100

120

140


Rs.C

rore


Revenue from movie distribution

28

67

221

60 6672

79

0

50

100

150

200

250


Rs.C

rore

Extraordinary success of blockbuster movie - Enthiran




IPL franchisee buyout though not part of core business, but done at cheap valuations

In October, 2012, Sun TV Network won the bid for Hyderabad franchise for the Indian Premier League T20 Cricket championships. The company submitted a bid of `85.1

crore p.a. and the corresponding license has a validity of 5 years (total payout of `425.5 crore). While the price is more than twice the `42.8 crore p.a. that Deccan

chronicle paid for Deccan Chargers (since 2008), the two new franchises Pune Warriors and Kochi Tuskers fetched `1,702 crore and `1,533 crore for 8 years which

translates into a payout of `213 crore and `192 crore p.a. respectively (in 2010). Thus, the current price bid by Sun TV is at a significant discount to that paid for by the new franchises. Apart from the franchise fees, the company would also be bearing players salary and other overhead costs. Considering ~`55 crore as the overhead costs and Deccan

Chargers’s player salary, the total cost of running the franchise is likely to be ~`140.1 crore. The company has outlined that the IPL venture would be loss making in the first two years (till FY15) and then turn profitable from year 3 onwards (expected losses are seen at ~`30 crore in FY14). Given company’s dominance in south market, we

believe this venture would benefit in the long term owing to its ability to leverage the property on TV and radio. Currently, we have not included the financials of IPL franchise in our estimates.

Management estimates for IPL venture

Expected impact at EBITDA level

FY13E Nil

FY14E (Rs 30 crore)

FY15E (Rs 4-6 crore)

FY16E Rs 16 crore

FY17E Rs 24 crore

FY18E Rs 45 crore

FY19E Rs 60 crore




Financial performance

Sun TV reported 4% YoY decline in it top line during Q2FY13 owing to subdued advertisement environment (4% YoY), de-growth in analogue subscription revenues (-28%; Arasu Cable impact) and no revenue from movie business. The management believes that sectors such as FMCG, Auto, mobile handsets and consumer durables have started showing positive signals in terms of ad spends as against BFSI which continues to remain a laggard. It has guided for double digit ad growth in the coming quarters and expects to end this fiscal with double digit growth. In November, 2012, the management witnessed spurt in STB installations (owing to the digitisation deadline) which increased from an average ~300-400/day to 900-1,200/day. International subscription revenues grew by 44% YoY on the back of currency gain and increase in reach and deeper penetration. The operating margins declined by 510 bps due to rise in costs related to increased in-house and increase in satellite transmission costs. Moreover, company’s erstwhile loss making radio business witnessed turnaround and posted a top-line of `50 crore with operating profit of `11 crore and PAT of `1 crore.

Quarterly Financial Performance

Particulars Q2FY13 Q2FY12 FY12 FY11

Net Sales 433.3 451.3 1757.4 1923.7

Growth % -4.0

-8.6 Total Expenditure 104.3 85.8 356.7 365.8

EBIDTA 329 365.5 1400.7 1557.9

EBDITA Margin % 75.9 81.0 79.7 81.0

Depreciation 113.8 117.6 443.0 447.4

EBIT (EX OI) 215.2 247.9 957.7 1110.5

Other Income 9.6 18.6 74.2 46.8

EBIT 224.8 266.5 1031.9 1157.3

Margin % 51.9 59.1 58.7 60.2

Interest 0.5 0.8 5.6 2.0

Exceptional items 0 0 0.0 0.0

PBT 224.3 265.7 1026.3 1155.3

Margin % 51.8 58.9 58.4 60.1

Provision for Tax 72.6 85.6 331.7 383.1

PAT 151.7 180.1 694.6 772.2

Margin % 35.0 39.9 39.5 40.1




Financial Outlook

With its dominant position in Southern market, clinching a deal with Arasu Cable and superior content offering, we believe, Sun TV is well placed to benefit from the upcoming digitisation. We expect Sun TV’s subscription revenues to grow at a CAGR of 24.6% to `958.3 crore in FY15. Further, EBITDA margins are expected to improve

from 76.6% to 77.4% by FY15. Owing to the expected surge in subscription revenues along with expected traction on advertisement revenue front, we expect Sun TV’s operational profits to improve drastically from `1,414.4 crore in FY12 to `2,149.1 crore in FY15.

Valuation We initiate coverage on Sun TV Network Ltd (Sun TV) as a BUY with a Price Objective of `625 representing a potential upside of ~52.4% over a period of 24

months. At a CMP of `410, the stock is trading at 22.2x and 18.1x its estimated earnings for FY13 & FY14 respectively. Going ahead, pick up in advertising revenues and digitisation led boost to subscription revenues bode well for the company. Historically, the stock has traded at an average of ~23x one year forward earnings and we expect Sun TV to garner similar multiples going ahead. Moreover, we believe that the sharp underperformance by Sun TV v/s ZEEL (since May, 2011) prices in the political and legal risks associated with the company. We expect the valuation gap to narrow and expect Sun TV to trade at its historical levels owing to its robust business model.

Revenue & Profitability Trend

75.1%78.4%

76.6% 76.2% 77.0% 77.4%

35.8% 38.2% 37.5%35.7% 37.3% 38.5%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

0

500

1000

1500

2000

2500

3000

FY10 FY11 FY12 FY13E FY14E FY15E

(%)

Rs.C

rore

Revenue EBITDA Margin (RHS) PAT Margin (RHS)




Price Comparison: Sun TV v/s ZEEL Average one year forward PE

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

Sun TV Zee Ent.

0.0

10.0

20.0

30.0

40.0

50.0

60.0


P/E

(x)

Sun TV Avg P/E

Source: Ventura Research Source: Ventura Research

1 Year forward PE: Sun TV v/s ZEEL 1 Year forward PE discount to ZEEL

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0


P/E

(x)

Sun TV Zee Ent.

-50%

-30%

-10%

10%

30%

50%

70%

90%


Impact of delay in Arasu deal & political

uncertainty relating to promoters

Source: Ventura Research Source: Ventura Research



P/E

0

100

200

300

400

500

600

700

800

900

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

CMP 12.5X 17.75X 23X 28.25X 33.5X

Source: Ventura Research

P/B

0

100

200

300

400

500

600

700

800

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12

CMP 3X 4.25X 5.5X 6.75X 8X


EV/EBITDA

0

5000

10000

15000

20000

25000

30000

35000

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

EV 5.5X 8.7X 11.9X 15.1X 18.3X




Financials and Projections Y/E March, Fig in Rs. Cr FY 2012 FY 2013e FY 2014e FY 2015e Y/E March, Fig in Rs. Cr FY 2012 FY 2013e FY 2014e FY 2015e

Profit & Loss Statement Per Share Data (Rs)

Net Sales 1847.2 2035.1 2390.7 2778.1 EPS 17.6 18.5 22.6 27.2

% Chg. -8.3 10.2 17.5 16.2 Cash EPS 29.6 32.1 37.6 43.3

Total Expenditure 432.8 484.6 550.0 629.0 DPS 9.5 10.0 10.0 10.0

% Chg. -0.6 12.0 13.5 14.4 Book Value 63.7 70.6 81.6 97.1

EBDITA 1414.4 1550.5 1840.7 2149.1 Capital, Liquidity, Returns Ratio

EBDITA Margin % 76.6 76.2 77.0 77.4 Debt / Equity (x) 0.0 0.0 0.0 0.0

Other Income 79.6 67.0 72.0 77.0 Current Ratio (x) 6.0 5.9 6.0 6.5

PBDIT 1493.9 1617.5 1912.7 2226.1 ROE (%) 27.6 26.2 27.7 28.0

Depreciation 473.6 537.4 590.5 637.4 ROCE (%) 38.7 37.2 39.6 40.2

Interest 5.8 5.8 5.8 5.8 Dividend Yield (%) 2.3 2.4 2.4 2.4

Exceptional items 0.0 0.0 0.0 0.0 Valuation Ratio (x)

PBT 1014.5 1074.3 1316.4 1582.9 P/E 23.3 22.2 18.1 15.1

Tax Provisions 331.7 356.7 435.9 523.2 P/BV 6.4 5.8 5.0 4.2

Minority Interest -10.1 -9.9 -10.4 -10.9 EV/Sales 8.6 7.8 6.6 5.7

Reported PAT 692.9 727.5 890.8 1070.6 EV/EBIDTA 11.2 10.2 8.6 7.4

PAT Margin (%) 37.5 35.7 37.3 38.5 Efficiency Ratio (x)

Program cost / Sales (%) 6.2 6.9 7.2 7.7 Inventory (days) 0.1 0.1 0.1 0.1

Manpower cost / Sales (%) 2.7 2.7 2.6 2.5 Debtors (days) 100.6 97.0 95.0 93.0

Tax Rate (%) 32.7 33.2 33.1 33.1 Creditors (days) 39.8 40.0 43.0 45.0

Balance Sheet Cash Flow statement

Share Capital 197.0 197.0 197.0 197.0 Profit After Tax 682.8 717.7 880.5 1059.7

Reserves & Surplus 2314.9 2584.5 3017.3 3630.0 Depreciation 571.7 537.4 590.5 637.4

Minority Interest 122.7 121.5 120.7 120.2 Working Capital Changes (176.0) 96.4 7.8 (102.3)

Total Loans - - - - Others (46.5) (61.2) (66.2) (71.2)

Deferred Tax Liability 0.0 0.0 0.0 0.0 Operating Cash Flow 876.4 1290.2 1412.5 1523.6

Total Liabilities 2,634.7 2,903.0 3,335.0 3,947.2 Capital Expenditure (710.9) (558.7) (539.9) (557.5)

Gross Block 3159.9 3718.6 4258.5 4816.0 Change in Investment 55.1 0.0 0.0 0.0

Less: Acc. Depreciation 1914.1 2422.6 2987.1 3599.5 Cash Flow from Investing -346.2 -491.7 -467.9 -480.5

Net Block 1245.8 1296.0 1271.4 1216.5 Interest exp -5.3 -5.8 -5.8 -5.8

Capital Work in Progress 3.5 3.5 3.5 3.5 Increase/(Decrease) in Loans 0.0 0.0 0.0 0.0

Investments 224.4 233.1 242.6 253.0 Dividend and DDT -572.5 -458.0 -458.0 -458.0

Net Current Assets 1194.7 1404.2 1851.3 2507.9 Cash Flow from Financing -577.8 -463.8 -463.8 -463.8

Deferred Tax Assets -33.8 -33.8 -33.8 -33.8 Net Change in Cash -47.6 334.8 480.8 579.3

Misc Expenses 0.0 0.0 0.0 0.0 Opening Cash Balance 99.1 307.5 642.3 1123.2

Total Assets 2634.7 2903.0 3335.0 3947.2 Closing Cash Balance 51.8 642.3 1123.2 1702.5

Ventura Securities Limited Corporate Office: C-112/116, Bldg No. 1, Kailash Industrial Complex, Park Site, Vikhroli (W), Mumbai – 400079 This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither Ventura Securities Limited nor any of the contributors accepts any liability arising out of the above information/articles. Reproduction in whole or in part without written permission is prohibited. This report is for private circulation.

Sun TV Network Ltd. - Moneycontrol.comchats.moneycontrol.com/plus/upload_pdf_file/Sun TV... · Advertising revenues to witness traction going ahead Over FY08-FY11, Sun TV’s ad revenues

Documents