>SUN TV: Robust ad revenue growth… (ICICI DIRECT)

Sun TV reported its standalone numbers for Q4FY10, which were above our expectations. The company reported a topline of Rs 391.9 crore, recording a growth of 42.0% YoY, against our expectation of Rs 335.4 crore. The company reported its best ever EBITDA margin at 84.4% in
Q4FY10, primarily due to lower employee expenses, which declined by 36.4% YoY. PAT margin for the quarter stood at 42.1% as against 40.5% in Q4FY09. The company also reported its consolidated numbers for FY10. Net sales at Rs 1452.8 crore grew 39.7%. Consolidated PAT stood at Rs 519.9 crore, at 34.9% of revenue.

■ Robust ad revenue growth
Sun TV continues to outpace industry growth rate in advertisement revenue. The company reported a 51.3% YoY growth in advertisement revenue in Q4FY10. This can be attributed to high growth in new channels and better inventory utilisation.

■ Highest ever standalone EBITDA margin
The company reported a standalone EBITDA margin of 84.4% in Q4FY10, primarily due to lower employee expenses (lower remuneration for company’s directors). Also, KAL radio reported an EBITDA of Rs 8.17 crore for FY10.

Valuation
We expect the standalone business to do reasonably well but the radio business would continue to be a drag on the company’s profitability. At the CMP of Rs 406, the stock is trading at 23.3x FY11E consolidated EPS of Rs 17.4 and 20.3x FY12E EPS of Rs 20.0. Given the strong advertisement revenue growth in the regional space, we value the stock at 22x FY12E and arrive at a target price of Rs 441, implying an upside of 8.5% of the CMP. We reiterate our ADD rating on the stock.

To read the full report: SUN TV