Sun TV Network share: Maintain ‘buy’ with a target price of Rs 750 – Axis Capital

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New Delhi | Published: February 16, 2019 2:51:31 AM

Sun TV’s thrust on content investment across languages – existing (led by Tamil, Telugu, Kannada) and new (Bangla, launched in Feb’19) is encouraging.

Sun TV, tamil, teluguSun TV

Sun TV’s thrust on content investment across languages – existing (led by Tamil, Telugu, Kannada) and new (Bangla, launched in Feb’19) is encouraging. It plans to gradually scale up original content on SunNXT as it already has ~1 mn paying subs (app-based); tie up with telcos (Bharti, Vodafone on board, Jio work-in-progress) and other platforms will boost reach further (fixed fee deals with telcos).

While it’s hard to predict the success/failure of such content investments (and resultant impact on market share), management’s focus to scale up content and monetise it across platforms (TV or digital, including YouTube) is a healthy sign (refer: Indian Media – Royal Rumble).

We tweak our estimates to factor in stable ad growth (+13% in Q3; guidance of 12-13% henceforth, in sync with industry) and higher content investments. Maintain ‘Buy’ with TP of Rs 750 (18x FY21E EPS). Q3 revenue grew 32% to `9 bn (includes `1.1 bn from movie production), Ebit grew 30% (`0.3 bn on movie production) with Ebit margin declining 100 bps y-o-y to 54.3%; PAT grew 32% y-o-y to `3.5 bn (est. at `3.3 bn). Subscription revenue grew 23% y-o-y, led by continued digitisation benefits and incremental subscription revenue from SunNXT (monthly run rate of `50m).
Expects subscription growth to continue despite initial hiccups in implementation of Trai’s content pricing policy as Sun TV is in the base pack of most of the distributors (DTH/ MSO). Sun Bangla (currently FTA) was launched with 7 original shows (3.5 hours original content) across thriller, mythological, action/ comedy genres with extensive state-wide distribution; to add new shows every fortnight. Targets Ebitda breakeven with ~10%+ market share in year 2; plans `0.9 bn investment in year 1.

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