TRAI’s new tariff order (NTO) woes led to a subdued quarter for Sun TV (Q4 earnings in line with our estimates) as both ad (down 1% y-o-y) and subscription revenue (+4% y-o-y vs +21% in M9FY19) were adversely impacted. As this transition may take another 1-2 quarters, FY20 growth is expected to be back-ended with expected macro improvement. Focus on content investments is intact as management targets to regain lost market share across Tamil, Telugu and Kannada, while expansion in Bangla would be gradual. Entry into Marathi language is on hold for now.
We expect such investments to bear fruit, but it is difficult to put a timeline to it. We lower FY20E EPS (-4%) to factor in near-term impact of NTO, but our FY21E EPS remains intact as we expect full subscription revenue benefit to be visible over FY21-22E. Maintain ‘buy’ with a target price of Rs 750 (18x FY21E EPS). FY19 ad revenue grew 7% y-o-y to `14.9 billion on lower ad spends, given blackout of ratings from BARC on NTO implementation and subdued market share. Domestic subscription revenue grew 16% y-o-y, primarily led by yield improvement in cable and volume-led growth in DTH revenue.
Sun NXT is witnessing healthy traction; management is in talks for distribution tie-ups with telcos, while detailed strategy on content investments and geographical expansion will be decided shortly. Guidance: (a) directors’ compensation to remain flat in FY20; (b) domestic subscription revenue to grow at 15% in FY20 as NTO settles in H1FY20; stronger growth expected in FY21 as monthly cable realisation is expected at `25+; (c) radio revenue growth to remain relatively slow, given subdued ad spends; (d) FY20 capex guidance at `5 billion — `3-3.5 billion for satellite rights, `1 billion for movie production, `0.4 billion for Bangla expansion and balance on equipment etc.