Buy Sun TV shares, target price Rs 470: Edelweiss

Updated: Nov 22 2013, 15:59pm hrs
Sun TvSun TV Network?s Q2FY14 revenue and PAT were slightly below our estimates
Sun TV Networks Q2FY14 revenue and PAT were slightly below our estimates, but well below Street expectations. Key positives were: (a) Strong traction in domestic subscription revenue while cable subscription revenue jumped 45% y-o-y, DTH subscription revenue grew 21% y-o-y; and (b) A 29% y-o-y growth in international revenue largely due to rupee depreciation.

Key negatives were ~4.5% y-o-y dip in ad revenue (in spite of low base of 3.8% y-o-y ad growth in Q2FY13) due to market share pressure in non-Tamil markets and Trais diktat of reducing ad duration to 16 minutes per hour till July 2013; and200bps y-o-y fall in Ebitda margin (ex-IPL team) to 73.9%.

Sun TVs subscription revenue will continue to rise, driven by the ongoing digitisation process, but recovery in ad growth will be gradual. Maintain buy.

In spite of strong growth in subscription revenue, Sun TVs revenue growth (ex-IPL team) grew a meagre 6.4% y-o-y due to decline in ad revenue.

In our view, achieving earlier FY14 guidance of 12% y-o-y ad growth looks unlikely due to possible further q-o-q reduction in ad inventory in Q3FY14, high base (ad growth of 17.4% y-o-y in H2FY13) and a meagre 5.2% y-o-y ad growth in H1FY14.