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.
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.