>SUN TV NETWORK: Subscription revenues to bounce back

Subscription revenues to bounce back
Sun TV Network posted 6.2%YoY decline in revenues on the back of degrowth in analog subscription revenues and movies business. However, ad revenue growth was the best in the last 5 quarters. The tie-up with Arasu cable for carriage of all Sun TV channels in Tamil Nadu state coupled with the expectation of it becoming a pay channel in Chennai city post digitisation would benefit the bottom line significantly. We have lowered our estimates by ~5% for both FY13/FY14 but maintain our BUY rating on the stock.

Q1FY13 results in-line: Sales for the company de-grew by 6.2% YoY to Rs4258mn on the back of 46% de-growth in analog subscription revenues and no revenues form movies business. Operating profit was down 11.7% YoY to Rs3230mn as margins contracted by 474bps. Profitability was down by 12.4%YoY to Rs1643mn in-line with our expectations.

Subscription revenues to grow: Earlier, analog subscription revenues degrew by 46% YoY to Rs300mn as the channels were not being carried by Asasu cable and the company lost Rs100mn/month. However from 1st August the company entered into an agreement with Asasu where all their channels would be carried for ~Rs25-30mn/month. This would significantly benefit the company not only in terms of analog revenues but also in advertising as the rating would increase going forward. Also, the company plans to become a pay channel in the city of Chennai post digitisation from 1st Nov 2012 which would further increase subscription revenues. DTH revenues were up by 6% YoY to Rs89mn and are expected to post double digit growth in FY13. International subscription revenues grew by 30%YoY on the back of currency gain and increase in reach and deeper penetration.


Advertisement revenues bounce back: Advertisement revenues grew by 5%YoY which was the best growth posted by the company in the last 5 quarters. As 60% of the revenues of the company comes from FMCG companies which have increased spending, we believe growth would be healthier in coming quarters.
 
Margins decline: Operating margins declined by 474bps as the company invested more in in-house programming. Three non-fiction serials aired by the company during the quarter increased the cost by 65%YoY. Management believes this will normalize from Q2 onwards. EBIT margins too declined by 327bps as the company spent more than Rs710mn on movies’ content. This cost would only increase going forward as the movies’ acquisition cost has significantly increased in the past few years due to increasing competition among broadcasters.

Estimates lowered; Maintain BUY: We have decreased our FY13/FY14 estimates by 5.7% and 5.2% respectively on the back of lower advertisement growth, lower broadcasting revenues and higher analog subscription revenues. The stock is currently trading at 14.5x and 12.8x FY13E and FY14E respectively. We continue to value the stock at 15x FY14E with our target price of Rs317 and maintain BUY rating on the stock.


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