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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
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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
- 2 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.
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.
- 3 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.
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
- 4 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.
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
Source: Sun TV, Ventura Research
- 5 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.
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%
Source: Sun TV, Ventura Research
- 6 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.
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
Source: Sun TV, Ventura Research
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
Source: Sun TV, Ventura Research
- 7 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.
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
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Rs.C
rore
Source: Sun TV, Ventura Research
- 8 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.
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.
Source: Sun TV, Ventura Research
- 9 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.
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
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
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
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Rs.C
rore
Subscription Revenue % YoY
Source: Sun TV, Ventura Research
- 10 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.
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: Sun TV, Ventura Research
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
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Rs.C
rore
Source: Sun TV, Ventura Research
- 11 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.
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.
Source: Sun TV, Ventura Research
- 12 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.
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
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Rs.C
rore
Source: Sun TV, Ventura Research
Revenue from movie distribution
28
67
221
60 6672
79
0
50
100
150
200
250
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Rs.C
rore
Extraordinary success of blockbuster movie - Enthiran
Source: Sun TV, Ventura Research
- 13 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.
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
Source: Sun TV, Ventura Research
- 14 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.
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
Source: Sun TV, Ventura Research
- 15 of 18 - Friday 21st December, 2012
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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)
Source: Sun TV, Ventura Research
- 16 of 18 - Friday 21st December, 2012
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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
Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12
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
Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12
P/E
(x)
Sun TV Zee Ent.
-50%
-30%
-10%
10%
30%
50%
70%
90%
Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12
Impact of delay in Arasu deal & political
uncertainty relating to promoters
Source: Ventura Research Source: Ventura Research
- 17 of 18 - Friday 21st December, 2012
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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
Source: Ventura Research
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
Source: Ventura Research
- 18 of 18 - Friday 21st December, 2012
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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
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