Sun TV Network is the leader in the south India market with a strong network of channels. The south market constitutes 70% of the regional advertising market.
Sun TV’s ability to charge on a per subscriber basis from DTH/digital cable operators implies relatively better monetisation potential from digitisation. Sun TV’s domestic subscription revenue can increase from R500 crore in FY13 to R1,250 crore, assuming full digitisation. Lean cost structure and an extensive movie library offers strong competitive advantage.
However, any negative impact from 2G scam-related investigation could pose investment risk. Significant delay in digitisation in the TN market due to licensing issues for the state government MSO Arasu Cable could also pose a problem. Inflation in cost of movie acquisition and macroeconomic slowdown resulting in impact on ad growth are investment risks.
Our earnings estimates are largely unchanged. We expect 17% EPS CAGR over FY13-15E, driven by ad & broadcast revenue CAGR of 13% and domestic subscription revenue CAGR of 19%.
The stock trades at P/E of 22.1x FY14E/18.1x FY15E and offers an FY14E dividend yield of 2.4%. Maintain ?buy? with target price of R505 based on 18x FY15E EPS plus R80/sh to incorporate 50% of potential digitisation upside.