1. business and industrial

8 November 2014
2QFY15 Results Update | Sector: Media
Sun TV Network
BSE SENSEX
27,869
Bloomberg
S&P CNX
8,337
SUNTV IN
CMP: INR325
TP: INR410
Buy
SUNTV’s 2QFY15 adjusted PAT declined 3% YoY to INR1.55b, below our estimate
of INR1.78b. PAT was dragged down by significant increase in film amortization
128.1/2.1
costs All numbers are on proforma basis and exclude IPL revenue/EBITDA loss as
488/299
well as one-time income booked in 2QFY14.
-10/-23/-115
1, 6, 12 Rel. Per (%)
n Ad and broadcast revenue grew 8% YoY vs our estimate of 13% growth. The
company is no longer following the ad cap and has increased its ad inventory to 18
Financials & Valuation (INR Million)
minutes for GEC prime time.
Y/E MAR
2015E 2016E 2017E
n Proforma revenue grew 10% YoY to INR 5.1b vs estimate of INR5.3b led by strong
Net Sales
23.0 26.0 29.3
growth in advertising (11% YoY) and DTH (20% YoY) segments.
EBITDA
16.2 18.5 21.1
n Operating costs declined 6% YoY to INR1.13b on lower cost of revenue and SGA.
Net Profit
7.5
9.2
11.0
Proforma EBITDA grew 16% YoY to INR3.96b (vs estimate of INR3.82b).
EPS (INR)
18.9 23.3 27.8
n EBIT margin declined 690bp YoY to 41.5% due to higher film amortization costs.
EPS Gr. (%)
6.1 23.0 19.4
Film amortization expenses increased ~70% YoY to INR1.64b on increased film
BV/Sh (INR) 89.0 98.5 110.1
content expenses in the Telugu market which has been witnessing pressure on the
RoE (%)
21.3 23.7 25.3
ratings.
RoCE (%)
32.0 34.8 37.2
n Sun TV announced interim dividend of INR2.25 per share taking total dividend to
D.Payout (%) 47.5 51.5 50.3
INR4.5 during 1HFY15.
Valuations
Downgrading PAT by 3-9%; maintain Buy
P/E (x)
17.2 13.9 11.7
n While industry advertising growth is likely to recover in 2HFY15, continued market
P/BV (x)
3.7
3.3
3.0
share loss has been a concern. Increased content investments and focus on
6.2
5.3
EV/EBITDA (x) 7.3
winning back market share is a key positive.
Div. Yield (%) 2.8
3.7
4.3
n We expect 21% EPS CAGR over FY15-17E driven by 9% ad & broadcast revenue
CAGR and 20% domestic subscription revenue CAGR.
n We are downgrading PAT estimates by 3-9% to reflect higher film amortization
expenses and lower ad growth.
n
The stock trades at a P/E of 17.2x FY15 and 13.9x FY16. Maintain Buy with a target
price of INR410 based on 16x average FY16/17 EPS.
Equity Shares (m)
M.Cap. (INR b) / (USD
b)
52-Week Range (INR)
n
394.1
Quarterly Performance (Standalone)
Y/E March
Revenue
YoY (%)
EBITDA
YoY (%)
As of % Sa l es
Depreci a ti on a nd Amorti za ti on
Interes t
Other Income
PBT
Ta x
Effecti ve Ta x Ra te (%)
Reported PAT
Adj PAT
YoY (%)
1Q*
6,019
41.4
3,537
9.5
58.8
1,174
7
134
2,489
845
33.9
1,644
1,644
0.1
(INR Million)
FY14
2Q*
4,664
7.6
3,377
2.6
72.4
1,176
9
378
2,570
879
34.2
1,692
1,560
2.9
3Q*
5,083
4.6
3,720
-1.1
73.2
1,061
23
149
2,785
927
33.3
1,858
1,858
-2.2
4Q*
5,202
10.1
4,000
14.8
76.9
1,123
6
132
3,003
1,027
34.2
1,976
1,976
11.3
1Q*
6,336
5.3
3,677
4.0
58.0
1,390
8
197
2,476
820
33.1
1,656
1,656
0.7
FY15
2Q*
5,090
9.1
3,958
17.2
77.8
1,850
5
222
2,325
781
33.6
1,545
1,545
-1.0
3QE
5,697
12.1
4,130
11.0
72.5
1,292
20
246
3,065
1,036
33.8
2,029
2,029
9.2
4QE
5,835
12.2
4,436
10.9
76.0
1,302
13
275
3,397
1,162
34.2
2,235
2,235
13.1
*Incl IPL revenue/EBITDA loss of: 1QFY14: INR985m/INR54m, 2QFY14: INR308m/INR31m, 3QFY14: INR11m/25m, 4QFY14: INR4m/2m, 1QFY15: INR1134m/435m
Shobhit Khare ([email protected]); +91 22 3982 5428
Investors are advised to refer through disclosures made at the end of the Research Report.
FY14
FY15E
20,968
15.4
14,634
6.3
69.8
4,533
45
792
10,847
3,678
33.9
7,170
7,038
3.0
22,958
9.5
16,201
10.7
70.6
5,834
45
941
11,263
3,798
33.7
7,465
7,465
6.1
Sun TV Network
2QFY15 earnings call takeaways
n
n
n
n
n
Ad growth driven by Andhra Pradesh and Tamil Nadu Markets
FMCG, Auto and Mobile handsets are the top advertising categories
Domestic cable revenue to remain stable over next two quarters
The company is focused on improving ratings and would be willing to sacrifice
margins in the short-term if required
Expect INR4.5-4.8b movie amortization costs in FY15 and FY16
Quarterly operating expenses and EBITDA margin
Operating Expenses (INR m)
75 74 74
EBITDA margin (%)
82 78 76 79 84 82 78 84 79 81 81 80 77
76 76 77 74
1363
1202
2659
1132
4QFY14
1QFY15
2QFY15
840
3QFY12
3QFY14
858
2QFY12
1287
881
1QFY12
2482
966
4QFY11
2QFY14
962
3QFY11
4QFY13
925
2QFY11
1QFY14
806
1QFY11
1095
1241
610
4QFY10
1043
826
3QFY10
3QFY13
768
2QFY10
2QFY13
640
1QFY10
988
502
4QFY09
1028
696
3QFY09
1QFY13
616
58
4QFY12
553
1QFY09
2QFY09
78
72 73 77
59
Source: Company, MOSL
Ad and broadcasting revenue growth (%)
43 39 44
30
5
15
5
4
1
9
12
1
-2
1QFY14
4QFY13
3QFY13
2QFY13
-5 -7
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
1QFY11
4QFY10
3QFY10
2QFY10
1QFY10
4QFY09
3QFY09
2QFY09
-6 -5
1QFY09
8
3
2QFY15
5
16 14
1QFY15
19
4QFY14
20
3QFY14
23
2QFY14
30
Source: Company, MOSL
Quarterly revenue break-up (INR m)
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14# 2QFY14# 3QFY14# 4QFY14# 1QFY15# 2QFY15# YoY (%) QoQ (%)
Ad & Broadcasting rev
2,800 2,810 3,270 3,050
3,140
2,683
3,030
3,080
3,070
2,910
8.5
-5.2
International rev
260
260
260
260
290
323
330
310
330
340
5.2
3.0
DTH
890
900
945 1,000
1,060
1,084
1,130
1,210
1,280
1,300
19.9
1.6
Domestic Cable
300
340
370
380
420
492
540
510
480
490
-0.5
2.1
Films, IPL and others
8
23
14
37
1,109
82
53
92
1,176
50
-38.9
-95.7
Total
4,258 4,333 4,859 4,727
6,019
4,664
5,083
5,202
6,336
5,090
9.1
-19.7
# includes IPL revenue of INR 985m/INR 54m/INR11m/INR4m/INR1134m for 1QFY14/2QFY14/3QFY14/4QFY14/1QFY15
Source: Company, MOSL
8 November 2014
2
Sun TV Network
Sun TV: Quarterly Performance (INR m)*
INR m
2QFY14 1QFY15 2QFY15
Revenue
4,610
5,202
5,086
Operating expenditure
1,202
1,090
1,125
EBITDA
3,408
4,112
3,961
EBITDA margin (%)
73.9
79.0
77.9
Depreciation and amortization
1,176
1,390
1,850
EBIT
2,232
2,722
2,111
Interest
9
8
5
Other income
178
197
222
PBT
2,401
2,911
2,329
Tax
811
964
781
Effective tax rate (%)
33.8
33.1
33.5
PAT
1,590
1,947
1,548
* Excludes IPL revenue and EBITDA
YoY% QoQ% 2QFY15E v/s est (%)
10.3
-2.2
5,276
-3.6
-6.4
3.2
1,461
-23.0
16.2
-3.7
3,816
3.8
397bps -116bps
72.3
557bps
57.4
33.1
1,317
40.5
-5.4
-22.4
2,499
-15.5
-48.9
-43.2
12
-61.7
24.7
12.7
219
1.5
-3.0
-20.0
2,706
-13.9
-3.7
-19.0
925
-15.6
-25bps
42bps
34.2
-66bps
-2.6
-20.5
1,781
-13.1
Source: Company, MOSL
Estimate change summary
Revenue (INRb)
Old
Actual/New
Change (%)
EBITDA (INRb)
Old
Actual/New
Change (%)
EBITDA margin (%)
Old
Actual/New
Change (bp)
PAT (INRb)
Old
Actual/New
Change (%)
EPS (INR)
Old
Actual/New
Change (%)
8 November 2014
FY15E
FY16E
FY17E
23.3
23.0
-1.3
26.8
26.0
-3.1
30.3
29.3
-3.3
16.1
16.2
0.6
19.1
18.5
-3.1
21.8
21.1
-3.3
69.2
70.6
139bp
71.2
71.2
2bp
72.0
72.0
0bp
7.7
7.5
-3.1
10.0
9.2
-8.2
12.0
11.0
-8.7
19.6
18.9
-3.1
25.4
23.3
-8.2
30.5
27.8
-8.7
Source: MOSL
3
Sun TV Network
Sun TV: A Snapshot
INRb
Ad and broadcast revenue
YoY (%)
DTH revenue
YoY (%)
Cable revenue
YoY (%)
International revenue
YoY (%)
Films, IPL and other revenue
YoY (%)
Total Revenue
YoY (%)
Operating expenses
YoY (%)
EBITDA
YoY (%)
EBITDA margin (%)
Revenue mix (%)
Ad and broadcast revenue
Subscription revenue
- DTH
- Analog
- International
Films, IPL and other revenue
DTH subscriber base (m)
YoY (%)
DTH ARPU (INR)
8 November 2014
FY07
4.7
0.0
1.7
0.3
0.1
6.8
2.0
4.8
71.2
69
0
25
5
1
FY08
5.9
26
0.1
NA
2.2
31
0.4
12
0.1
66
8.7
28
2.4
23
6.3
30
72.5
FY09
7.0
19
0.8
659
1.3
-40
0.5
41
0.6
559
10.4
19
2.4
-1
8.0
27
77.2
FY10
9.2
31
1.8
118
1.6
20
0.6
4
0.8
23
14.0
35
2.8
20
11.1
39
79.6
FY11
11.2
22
2.9
57
2.1
36
0.7
23
2.3
189
19.2
38
3.7
29
15.6
40
81.0
FY12
11.1
-1
3.3
16
1.6
-24
0.8
22
0.7
-70
17.6
-9
3.6
-3
14.0
-10
79.7
FY13
11.9
8
3.7
12
1.4
-15
1.0
24
0.1
-88
18.2
3
4.4
24
13.8
-2
75.8
FY14
11.9
0
4.5
20
2.0
41
1.3
21
1.3
1,537
21.0
15
6.3
44
14.6
6
69.8
68
31
1
25
4
1
0.7
68
26
8
13
5
6
4.6
519
26.4
66
28
13
11
4
6
6.0
32
28.9
58
30
15
11
4
12
6.9
16
37.1
63
33
19
9
5
4
7.6
9
38.2
66
34
21
8
6
0
8.8
16
37.9
57
37
21
9
6
6
10.2
15
39.3
FY15E
12.8
7
5.3
18
2.0
2
1.4
12
1.5
12
23.0
9
6.8
7
16.2
11
70.6
FY16E
14.2
11
6.2
18
2.3
18
1.6
13
1.6
9
26.0
13
7.5
11
18.5
14
71.2
FY17E
15.2
7
7.4
19
3.1
33
1.8
13
1.8
9
29.3
13
8.2
10
21.1
14
72.0
56
55
52
38
39
42
23
24
25
9
9
11
6
6
6
7
6
6
12.0
13.9
15.7
18
15
13
39.7
40.1
41.6
Source: Company, MOSL
4
Sun TV Network
Sun TV Network: an investment profile
Company description
Key investment risks
Sun TV is a leading regional television broadcaster with
well established brands including its flagship channel
Sun TV in Tamil. Along with Tamil, Sun TV has prominent
channels in Telugu, Kannada and Malayalam. Sun TV’s
channels can be viewed in 27 countries. Sun TV is also
the owner of the IPL franchise “Sunrisers”.
n
n
n
n
Key investment argument
n
n
n
n
n
Digitization remains a strong theme over mediumto-long term even though short-term challenges
continue as ‘addressability’ is yet to be fully
achieved even in the phase I markets.
With its offering of 33 channels, Sun TV reaches
more than 95 million households in India.
Sun TV’s GEC channels are among the top-2 across
Tamil, Kannada, Telugu and Malayalam genres.
Sun TV is a net cash company and offers attractive
dividend yield and pay-out.
High return ratios despite ad slowdown.
Recent developments
n
n
Dish TV
NA
NA
10.2
7.5
2.6
2.2
NA
NA
Sep-14
75.0
Jun-14
75.0
Sep-13
75.0
DII
1.9
1.9
2.3
FII
16.8
16.8
16.0
6.2
6.3
6.7
EV/EBITDA (x)
EV/Sales (x)
P/BV (x)
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
ZEEL
35.2
30.0
23.9
20.8
7.2
6.2
10.8
8.6
Shareholding pattern (%)
Promoter
Others
We expect 21% EPS CAGR over FY15-17E driven by
9% ad & broadcast revenue CAGR and 20%
domestic subscription revenue CAGR.
The stock trades at a P/E of 17.2x FY15 and 13.9x
FY16. Maintain Buy with a target price of INR410
based on 16x average FY16/17 EPS.
EPS: MOSL forecast v/s consensus (INR)
Sun TV
17.2
13.9
7.3
6.2
5.1
4.4
3.7
3.3
P/E (x)
Sun TV has executed formal contracts with
YouTube and iTunes to facilitate the sale of Sun TV
proprietary content on ‘pay for view’ basis to
global customers.
Valuation and view
n
Comparative valuations
TRAI’s guidelines of ad cap of 10+2 minutes remain
an overhang.
Lack of visibility of digitization in Tamil Nadu due
to licensing issues for Arasu Cable.
Rollout of digitization in Phase III/Phase IV; delay
in revenue monetization from digitization.
Any negative impact from 2G scam related
investigation
FY15
FY16
MOSL
Forecast
Consensus
Forecast
Variation
(%)
18.9
23.3
20.6
24.3
-8.3
-4.0
Target
Price (INR)
Upside
(%)
Reco.
410
26.2
Buy
Target price and recommendation
Current
Price (INR)
325
Stock performance (1-year)
Sun TV
Sensex - Rebased
930
770
610
450
290
Nov-13
8 November 2014
Feb-14
May-14
Aug-14
Nov-14
5
Sun TV Network
Financials and valuations
Income Statement
Y/E March
Net Sales
Cha nge (%)
EBITDA
% of Net Sa l es
Depreci a ti on a nd a morti za ti on
Interes t
Other Income
PBT before EOI
Ta x
Ra te (%)
Reported PAT
Extra -ordi na ry i ncome
Adjusted PAT
Cha nge (%)
Balance Sheet
(INR Million)
2014 2015E 2016E 2017E
20,968 22,958 25,998 29,336
15.4
9.5
13.2
12.8
14,634 16,201 18,515 21,132
69.8
70.6
71.2
72.0
4,533 5,834 6,151 6,483
45
45
45
45
792
941 1,246 1,592
10,847 11,263 13,565 16,195
3,678 3,798 4,381 5,231
33.9
33.7
32.3
32.3
7,170 7,465 9,183 10,964
132
0
0
0
7,038 7,465 9,183 10,964
3.0
6.1
23.0
19.4
(INR Million)
Y/E March
Sha re Ca pi ta l
Res erves
Net Worth
Deffered Ta x Li a bi l i ty
Capital Employed
2014 2015E 2016E 2017E
1,970 1,970 1,970 1,970
29,748 33,116 36,837 41,429
31,718 35,086 38,808 43,399
284
284
284
284
32,002 35,371 39,092 43,684
Gros s Fi xed As s ets
Les s : Depreci a ti on
Net Fixed Assets
Ca pi ta l WIP
Inves tments
33,240 38,306 43,400 48,527
26,854 32,755 38,974 45,525
6,386 5,550 4,426 3,002
6,036 6,036 6,036 6,036
4,624 4,624 4,624 4,624
Curr. Assets
Inventory
Debtors
Ca s h & Ba nk Ba l a nce
Loa ns & Adva nces
Other Current As s et
17,740 20,729 24,438 29,159
6
6
6
6
5,745 6,208 7,046 7,965
7,764 10,210 12,995 16,700
3,435 3,435 3,435 3,435
791
870
957 1,052
Current Liab. & Prov.
Credi tors
Other Li a bi l i ti es
Provi s i ons
Net Current Assets
Application of Funds
E: MOSL Es ti ma tes
2,783 3,161 3,618 4,143
425
454
502
551
1,214 1,335 1,468 1,615
1,144 1,373 1,648 1,977
14,957 17,568 20,820 25,016
32,002 33,778 35,905 38,677
Ratios
Y/E March
Basic (INR)
Adjusted EPS
Growth (%)
Ca s h EPS
Book Va l ue
DPS
Pa yout (i ncl . Di v. Ta x)
2014
2015E
2016E
2017E
17.9
3.0
29.4
80.5
9.5
52.2
18.9
6.1
33.7
89.0
9.0
47.5
23.3
23.0
38.9
98.5
12.0
51.5
27.8
19.4
44.3
110.1
14.0
50.3
Valuation (x)
P/E
Ca s h P/E
EV/EBITDA
EV/Sa l es
Pri ce/Book Va l ue
Di vi dend Yi el d (%)
18.2
11.1
8.2
5.7
4.0
2.9
17.2
9.6
7.3
5.1
3.7
2.8
13.9
8.4
6.2
4.4
3.3
3.7
11.7
7.3
5.3
3.8
3.0
4.3
Profitability Ratios (%)
RoE
RoCE
22.6
34.0
21.3
32.0
23.7
34.8
25.3
37.2
Turnover Ratios
Debtors (Da ys )
Credi tors (Da ys )
As s et Turnover (x)
100
25
0.7
99
25
0.6
99
25
0.7
99
25
0.7
Leverage Ratio
Debt/Equi ty (x)
0.0
0.0
0.0
0.0
Cash Flow Statement
2014 2015E 2016E 2017E
10,847 11,263 13,565 16,195
4,533 5,834 6,151 6,483
45
45
45
45
3,678 3,798 4,381 5,231
1,226
-164
-467
-491
12,974 13,180 14,912 17,002
(Inc)/Dec i n FA
(Pur)/Sa l e of Inves tments
CF from Investments
-4,727
55
8,302
-4,998
0
8,182
-5,027 -5,059
0
0
9,886 11,943
(Inc)/Dec i n Net Worth
(Inc)/Dec i n Debt
Les s : Interes t Pa i d
Di vi dend Pa i d
CF from Fin. Activity
-56
0
45
4,324
-4,426
0
0
45
4,097
-4,142
0
0
45
5,462
-5,507
Inc/Dec of Cash
Add: Begi nni ng Ba l a nce
Closing Balance
E: MOSL Es ti ma tes
8 November 2014
(INR Million)
Y/E March
PBT before Extra ordi na ry Items
Add : Depreci a ti on
Interes t
Les s : Di rect Ta xes Pa i d
(Inc)/Dec i n WC
CF from Operations
0
0
45
6,372
-6,418
3,877 4,040 4,378 5,525
3,886 7,764 10,210 12,995
7,763 11,804 14,589 18,520
6
Sun TV Network
NOTES
8 November 2014
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