Sun TV shares: Edelweiss maintains ‘Buy’ rating with Rs 1,024 target price

Key positives: ~29.7% y-o-y spurt in cable subscription aided by catch-up revenue; 9.4% y-o-y jump in DTH subscription; and IPL losses were stable at Rs 224, Rs 241 million in FY17, even though Sun TV lost the IPL series in FY18.

Written by Edelweiss

August 15, 2017 03:07 IST

Sun TV shares, Sun TV, Edelweiss, Buy rating, DTH subscription, IPL losses, phase-III digitisation, south markets, Star Vijay, Digitisation, Sun TV’s market share

With phase-III digitisation on track, we estimate 15%/12.0% y-o-y growth in subscriptions in FY18/FY19.

Sun TV Network’s (Sun TV) Q1FY18 revenue and PAT beat was led by lower IPL losses. Key positives: ~29.7% y-o-y spurt in cable subscription aided by catch-up revenue; 9.4% y-o-y jump in DTH subscription; and IPL losses were stable at Rs 224, Rs 241 million in FY17, even though Sun TV lost the IPL series in FY18. Key negative was the 4.1% y-o-y dip in ads base of 3.7% y-o-y decline, due to GST. The company guided for 15% y-o-y growth in subscriptions in FY18, led by south markets, ex-Tamil Nadu. With phase-III digitisation on track, we estimate 15%/12.0% y-o-y growth in subscriptions in FY18/FY19.

Factoring in lower ad growth in Q1FY18, we cut FY18E ad growth to 9.0% y-o-y, 11.0% earlier. Though market share erosion in Sun TV is a concern due to intense competition from Star Vijay, we believe it is temporary as viewership is intact. However, competition from Colors is a key monitorable. Maintain ‘buy’. Ad revenue fell 4.1% y-o-y hit by GST. However, we expect it to bounce back riding strong content in H2FY18 following improvement in Telugu and Malayalam ratings.

Overall subscription grew 16.1% y-o-y aided by catch-up revenue and upswing in digital revenues. Content cost jumped 37.6% y-o-y as the company shifted to commissioned model from earlier ad slot model. The company has shifted entirely into commissioned model in all its markets, except Tamil Nadu, 2 out of 18 programmes are on commissioned model.

Sun TV expects August and September to report better ad growth as GST impact fades. The company reported 31%/27% y-o-y revenue growth in Telugu/Malayalam markets. Movie expense will be ~ Rs 3,300 million, our estimate: Rs 3,600 million, in FY18. From 11th year, 45% of the central pool money will be split among the IPL franchise. We envisage Sun TV to be beneficiary of phase III & IV digitisation. Digitisation in Tamil Nadu is a key stock catalyst.

Though the stock corrected 17.7% in past 2 months due to dip in Sun TV’s market share owing to intense competition from Star Vijay, it has expanded market with non-fiction content; we believe this is temporary as Sun TV’s viewership is intact. At CMP, the stock trades at 23.1x FY18E and 20.7x FY19E EPS. We maintain ‘buy/SO’ with TP of Rs 1,024, 30x FY19E.

This article was first uploaded on August fifteen, twenty seventeen, at seven minutes past three in the night.