Group -8 1SUN TV Analysis Ankit Dave Prashant Gosh Sunny Goyal Komal Kasania
Group -8 2Industry AnalysisSun TV was incorporated in December 1985 and listed in July 2006. Headquartered in ChennaiSun Network Limited is one of the largest television and radio entertainment companies inIndia having presence across TV Broadcasting, distribution and distribution, Radio, Print andDTH. It has a portfolio of about of 20 channels spread across four languages and in six genresof GEC, movies, music, news, kids and comedy and with this it continues to maintain itsdominant position in the Southern markets of India. Sun Network also has a large pan Indianetwork in the FM Radio broadcasting segment with 44 FM licenses along with its subsidiaries.Sun Network continues to capitalize on its leadership position, built over the years, by fortifyingits hold over key aspects of pricing and access to quality content. Sun Network has a distinctadvantage in the Southern regional markets because of its strong understanding of the flavor ofthe market and with key competitive strengths including that of a large movie library of regionallanguages. Sun Network is the preferred choice for content providers as it is the leader withthe maximum reach in the areas it operates in.Business ActivitiesTV channels- It has 20 channels in four languages Tamil, Telugu, Malayalam and Kannada.namely Sun TV, KTV, Sun Music, Sun News, Chutti TV, Surya TV, Kiran TV, Gemini TV, TejaTV, AdithyaTV, Teja News, Gemini News, Gemini Music, Gemini Cable Vision, Udaya TV, sheTV, Udaya2, Udaya Movies, Udaya Varthegalu & Udaya News.FM Radio - It has also forayed into the radio broadcasting segment and has 43 FM radiochannels. Sun TV Network became first to open Tamil’s first private FM station -- Suryan FMPrint Media - It has six publications under this segment namely Dinakaran, Tamizh Murasu,Kungumum, Mutharam, Vannathirai and Kumguma Chimizh.
Group -8 3Awards/ Achievements: CNBC Business Excellence Award in 2005 - Kalanithi Maran, CMD, SunTV Network Outstanding Businessman Award in the Entertainment and Information Sector in 2004 - Kalanithi Maran, CMD, SunTV Network Worlds Young Achiever For Creativity in 1999 - Kalanithi Maran, CMD, SunTV Network India’s Best Entrepreneur Award In 1999 – Kalanithi Maran, CMD, SunTV Network Indian Television Academy award for the best Tamil TV Channel for the year 2001- Sun TV Indian Television Academy award for the best Malayalam TV Channel for the year 2001- Surya TV Indian Television Academy award for the best Kannada TV Channel for the year 2001- Udaya TV Indian Television Academy award for the best Telugu TV Channel for the year 2001- Gemini TVRecent Developments:Sun TV Network Ltd. has snapped the five-year telecast rights for the Karnataka PremierLeague (KPL). It will be broadcasting the event on its Kannada news channel Udaya Verthegalu.Future ProspectusThe Indian media and entertainment industry is one of the largest markets in the world havingpotential of becoming $200 billion industry by 2015. In this, television has the biggest share ofall, is estimated to generate revenue $13.11 billion by 2011. Media companies like Sun TV Networkhave huge potential to expand itself
Group -8 4ChallengesChallenges ahead: -Cutting rating to neutral, Slower Earning CAGR, Cut Rating & PO.While the stock has underperformed the markets by 30%, we see limited upside to the shareprice and cut our rating to Neutral to factor in 1) likely slower earnings CAGR of 13% (FY11-14E) led by a cut in ad revenue growth assumptions, and 2) potential impact to cable and adrevenues from the State government’s plan to run cable TV operations in Tamil Nadu. Our POof Rs345 is at 14x FY13E, in line with the historical PEG of 1 and fair, given its strongmargin profile and return ratios. We prefer ZEE in the broadcasting space given its strong 18%EPS CAGR (FY11- 14E) led by ad growth and lower sports losses. Cut ad revenue growthassumption for FY12E We cut our ad revenue growth assumption for FY12E to 12% yoy vs.17% earlier to factor in the 1Q miss and headwinds from weak macro. The 12-13% cut inearnings estimates is much sharper and factors in the impact from higher content cost of moviesatellite rights. We are 1-3% below consensus on earnings. Uncertainty from recent changes incable distribution .A key driver for SNL’s revenue growth has been its strong content and anefficient cable distribution network in Tamil Nadu run through its group company SumangaliCable. We believe the State government’s plan to offer and control cable distribution couldcause short-term disruption impacting subscription revenues and even viewership, leading to aloss in ad revenues. Why not sell? Post the recent correction, SNL is trading at 14x FY12E/12xFY13E, at the lower end of the historical band of 11-25x. We believe valuations are fair given itsstrong market positioning in the southern states, strong margin profile and return ratios.FINANCE AND HUMAN RESOURCEFinance:-The total Income for the year ended 31st March 2010 amounted to Rs. 14,375.2 millions asagainst Rs.10, 915.2 millions during the previous year ended 31st March 2009. The Profit aftertax was at Rs.5, 673.8 millions for the year ended 31st March 2010 as againstRs.4, 371.1 millionsin the previous year. The Board of Directors has recommended a Final Dividend of 120%., i.e.,
Group -8 5Rs.6.00 per equity share of face value of Rs.5.00 each. This Final Dividend together with theInterim Dividend of 30%., i.e., Rs.1.50 per equity share of face value of Rs.5.00 each declared on20th January 2010 would result in a total dividend of 150%., i.e., Rs.7.50 per equity share of facevalue of Rs.5.00 each for the financial year ended 31st March 2010. (Prev. Year of 50%,i.e., Rs. 2.50 per equity shares of face value of Rs.5.00 each.). The Reserves and Surplus of theCompany as on 31stMarch 2010 stood at Rs. 18,179.7 millions as against Rs. 15,954.7 millionsas on 31st March2009.Human Resources:At Sun Network, with 1987 employees, human resources are the key asset capital and animportant business driver for the Companys sustained growth and profitability. Hence, whatSun Network believe that training, like all organizational development processes cannot be afunction of time, but rather an ongoing process with the developmental needs and businessplanning processes being formalized constantly. A continuous review of the monitoring processis under way and procedures and systems are being institutionalized across the organization.FINANCIAL REVIEW & RISK MANAGEMENT(INCLUDING INTERNAL CONTROL)FINANCIAL REVIEW 2009-10(Pursuant to clause 49(11)(E)(1) of the Listing Agreement)The Financial highlights during the year under review comprised: (All amounts are in millionsunless otherwise stated)- A 31.70 percent growth in Total Income - Increase in Profit before taxes by 30.07 percent -Increase in Profit after taxes by 29.80 per cent.
Group -8 6EARNINGSTotal IncomeTotal Income grew from Rs. 10,915.2 million to Rs. 14,375.2 million, a 31.70 percent increase,the sustained growth and consistent higher margins are reflective of the Companys continueddominance in broadcasting business in the Southern states.Profit before tax (PBT) and Profit after tax (PAT)PBT increased from Rs. 6,661 million to Rs. 8,664.2 million, with a 30.07 per cent increase andPAT increased from Rs. 4,371.1 million to Rs. 5,673.8 million, a 29.80 per cent increase, despitethe difficult economic scenario.DividendThe outgo on account of interim and final dividend including dividend tax is Rs. 3,448.8 million(previous year Rs. 1,152.7 million).FINANCIAL POSITIONShareholders FundsShareholders Fund as on 31st March 2010 was Rs. 20,150.1 million. (previous year Rs. 17,925.1million).Loan fundsThe Company is debt free and had no loan funds-secured or unsecured, as on 31st March2010(previous year Rs. Nil)AssetsNet block of fixed assets were at Rs. 5,072.4 million. The net addition to fixed assets for theyear was Rs. 1,408.8 million. The capital expenditure was funded through internal accruals anddeployment of IPO proceeds. Net block of intangible assets and capital working progress(including capital advances and intangible assets under development) as on31st March, 2010were at Rs. 1,477.4 and 3,113.9 million respectively.
Group -8 7RATIOSEarnings per share;The Earnings per share of face value of Rs. 5.00 for the year ended 31st March 2010 isRs.14.40(previous year Rs. 11.09).RISK ANALYSIS AND MANAGEMENTRisk is an inherent feature of any business activity, more so when the dependence is on theconsistency on the deliverables of the Company and linked to the sustained support from theviewers and advertisers community at large. Like every organization, Sun TV Network Ltds(Sun Network) business is also impacted by a number of factors. Given below is an overview ofsome of the major risks affecting any business and Suns position vis-A-vis these risks.Competitors Name Last Market Sales Net Profit Total Price Cap. Turnover Assets (Rs. cr.)Zee Entertain 125.40 12,116.04 2,172.82 579.28 2,904.70Sun TV Network 288.55 11,371.31 1,923.71 772.22 2,385.71Dish TV India 76.00 8,089.41 1,436.55 -189.70 1,139.01DB Corp 220.95 4,050.11 1,261.64 267.32 1,063.49UTV Software 950.00 3,872.89 545.68 133.89 1,757.11JagranPrakashan 108.45 3,429.92 1,115.32 205.83 880.30HT Media 139.60 3,280.89 1,231.78 177.59 1,448.85Eros Intern 257.65 2,355.10 477.66 69.56 728.04Hathway Cable 121.05 1,729.29 473.22 -39.84 1,121.71TV18 Broadcast 43.95 1,591.24 244.41 -49.25 982.25Ent Network Ind 250.90 1,196.05 279.96 52.21 383.70TV 18 62.05 1,127.87 307.63 45.24 1,805.42DeccanChronicle 50.75 1,060.53 976.20 162.45 1,593.26Hindustan Media 136.05 998.52 520.35 53.60 399.47
Group -8 9Company AnalysisSuperlative performanceSun TV’s standalone numbers for Q4FY11 were in line with our estimates on the topline and EBITDA front. The company reported net revenues of 460.5 C ro r e (up17.5% YoY) against our expectation of 455.1 Crore on the back of 16.2% adrevenue growth YoY to 258.0 Crore. The EBITDA margin stood at 79.0%,contracting 541 bps YoY due to lower employee cost (lower remuneration tocompany directors) in Q4FY10 while the EBITDA was 363.9 crore against ourexpectation of 360.7 crore. However, the company reported lower thane x p e c t e d depreciation and amortization resulting in PAT of 208.3 crore for thequarter higher than our expectation of 178.0 crore.Highlights for the quarterSun TV’s standalone revenue grew 17.5% YoY on the back of 16.2% YoY adr e v e n u e growth to 258 crore and 3 0 . 2 % YoY growth in revenue from DTHsubscription. Overall subscription revenue stood at | 138.0 crore (cable: 56 crore,DTH: 82 crore).Handsome growth in pay channel revenues but outlook cautious…Pay channel revenues grew 26.7% YoY to 138.0 crore in Q4FY11 from 109.0 crorein Q4FY10. DTH revenues grew much faster at 30.2% YoY to 82.0 crore whilea n a l o g u e subscription revenues grew 21.7% to 56 crore. The DTH subscriberbase increased to 6.95 million in Q4FY11, up from 6.72 million in Q3FY11.However, the future outlook on analogue subscription revenues is slightlybleak as the AIADMK government in Tamil Nadu has proposed freecable for all households and cable distribution to be owned by government.Sun TV derived about 80 c r o r e of i t s subscription revenue of 214 crore inFY11 from Tamil Nadu.Consolidated performanceSun TV’s consolidated performance was robust with 38.6% growth in top lineand 4 8 . 1 % growth in PAT. Kal Radio t u r n e d PAT positive in this fiscal withEBITDA of 25.4 crore and PAT of 8.9 crore.The company has declared final dividend of 3.8 per share in addition to interimdividend of 5 per share declared earlier.Valuation
Group -8 10The company reported better than e x p e c t e d results for Q4FY11 led by strongad revenue growth and lower amortization. Analogue subscription revenues maybe under pressure as the new government has promised free cable andgovernment owned cable distribution in its election manifesto in Tamil Nadu.Nonetheless, pay channel revenues from DTH subscription are expected toremain strong, going forward.The stock is trading at 18.3x FY12E consolidated EPS of 20.8 and 15.4x FY13Econsolidated EPS of 24.7 against last one year average of 22.5x one yearforward EPS. The stock has taken a beating (down 12.5%) since thebeginning of this fiscal partly due to concerns arising from a newgovernment coming to power in Tamil Nadu. We b e l i e v e this providesa good opportunity to enter the s t o c k a t this l evel .
Group -8 11Stock PriceAnalysisSun TV network’s IPO came in 3rd April 2006. Stock prices have gone down drastically since2010 December mainly due to macro-economic factors like its associations with politics, 2-gscams and the name of its CEO and his siblings being associated with the scam. Mar 07 Mar 08 Mar 09 Mar 10 Mar 11ROA 22.05 24.95 24.38 28.15 32.36ROE - 19.28 22.49 29.76 35.04
Group -8 12On the basis of the growth of ROA and ROE ratios it can be observed that the company hasbeen growing very sharply over the years.Equitydividend 344.82 295.506 98.52 98.52 60.08(Overall)There was a corporate action on 23 July 2007. There was a split in share value where face valueof share was changed from Rs. 10 to Rs. 5 per share and hence the slump during the year 2008-09 has been due to the global economic meltdown. March 07 March 08 March 09 June 10 March 11Net Profit 118.86 91.45 114.02 170.95 208.34EPS 17.25 2.32 2.89 4.34 5.29Volatility of Stock (Jan 2007-oct2011)When the stock market goes up one day, and then goes down for the next five, then upagain, and then down again, that’s what you call stock market volatility. Volatility asdescribed here refers to the actual current volatility of a financial instrument for aspecified period (for example 30 days or 90 days). It is the volatility of a financialinstrument based on historical prices over the specified period with the last observationthe most recent price. This phrase is used particularly when it is wished to distinguishbetween the actual current volatility of an instrument and
Group -8 13 TableYEAR JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2007 1.93 2.87 2.57 1.98 2.54 2.93 29.2 3.7 1.73 3.5 2.84 2.74 2008 6.72 2.38 2.92 1.07 3.91 4.54 5.2 1.38 2.45 5.89 4.25 5.48 2009 3.98 1.96 4.23 3.64 5.23 3.46 2.39 1.81 2.6 3.07 1.84 1.3 2010 2.96 2.73 2.33 0.79 1.56 1.76 1.45 1.85 1.44 1.2 1.56 1.27 2011 1.82 3.78 1.25 1.32 1.67 7.76 3.17 1.39 2.65 4.21 Chart Average Return Of stock (Jan 2007- Oct 2011) The simple mathematical average of a series of returns generated over a period of time. An average return is calculated the same way a simple average is calculated for any set of numbers; the numbers are added together into a single sum, and then the sum is divided by the count of the numbers in the set.
Group -8 14 Table Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2007 0.821 -0.606 0.025 0.299 -0.711 0.67 -5.99 -1.1 0.055 -0.16 0.69 0.345 -2008 -0.564 -0.579 -0.236 0.274 0.615 -1.14 0.812 0.055 -0.83 -1.46 -0.88 1.6712009 -0.468 -0.09 0.178 0.576 1.56 -0.33 0.6 0.051 0.936 -0.2 0.279 0.1552010 0.616 -0.228 0.703 -0.072 -0.187 0.338 0.178 0.226 0.394 -0.18 0.053 0.185 -2011 -0.371 -0.924 0.462 -0.287 -0.407 -0.53 0.361 -0.31 -1.24 0.599 Chart
Group -8 16CO- Relation with GodrejThe world of finance, A statistical measure of how two securities move in relation to eachother. Correlations are used in advanced portfolio management.The formula for the beta of an asset within a portfolio isWhere ra measures the rate of return of the asset, rp measures the rate of return of theportfolio, and cov (ra,rp) is the covariance between the rates of return. The portfolio of interestin the CAPM formulation is the market portfolio that contains all risky assets, and sothe rp terms in the formula are replaced by rm, the rate of return of the market.Beta is also referred to as financial elasticity or correlated relative volatility, and can be referredto as a measure of the sensitivity of the assets returns to market returns, its non-diversifiable risk, its systematic risk, or market risk. On an individual asset level, measuring beta
Group -8 17can give clues to volatility and liquidity in the marketplace. In fund management, measuring betais thought to separate a managers skill from his or her willingness to take risk.Table YEAR 2011 2010 2009 2008 2007 EXPECTED RETURN OF Sun TV, E(A) -0.34168 0.168671 0.26527 -0.32943 -0.63933 EXPECTED RETURN OF Godrej, E(B) 0.022783 0.14515 0.322825 -0.00802 -0.07327 S.D OF Sun TV( σA ) 3.553022 1.860486 3.209407 4.374627 9.675878 S.D. OF Godrej( σB ) 1.69841 2.544869 2.62932 2.61893 2.176934 Correlation, Cor(A,B) -0.0099 -0.03145 -0.04985 0.034443 -0.10086Chart
Group -8 21Stock Analysis of Financial YearFinancial Year 2007-08The market for the 1st quarter of FY 2007 opened on 2nd April. Tsunami hit South-East Asiancountries on this day. So stock markets all over the world performed very badly that day andduring the upcoming weeks of the month as well. The market return on 2nd April was -4.72while that of Sun TV was – 3.98. Again on 11th April 2007 there was Algiers bombing due towhich the stock market had negative return rate (-.04) but the company performed well onthat day having return rate of 3.63. On 18th April, the company announced its entry intoaviation sector, but it led to negative reaction with respect to the investors. There was a lot offluctuation in the stock price and returns rate was negative for the day. With Baghdad bombingshappening during this period, all markets around the world had become volatile and so was thestock of Sun TV. On 27th April both the market and the stock tumbled because Repo rate ofRBI was announced to be increased by 25 basis points.During May 4-6 there was Tornado striking in central USA, which affected the stock marketand subsequently the share as well. During 14th May 2007 market return rate was 1.23 whilethat of Sun TV was – 4.65. The reason was the family feud and political problems in the state ofTamil Nadu and the possibilities of resignation of IT minister Dayanidhi Maran sending negativesigns to the investors. This led to constant negative returns of the stock throughout the week.On 21st May Kalaingar TV was launched to compete with Sun TV by DMK leaders. This showedthe deterioration of relations between the two families and hence the stock price went furtherdown. Hence the return of the stock was -3.71 in 21st may and -8.35 on 22nd May.On 6th June 2007 cyclone Gonu hit oil rich countries Oman, Iran and UAE. Hence market washit, and the return was -1.92 while that of the stock was -3.3. 1st quarter results wereannounced where profits were lesser than the previous quarter. EPS had reduced from 17.52 to4.72. Hence stock prices have dropped sharply and volatility increased during the period. Withrespect to the rate of return of the market, the rate of return of the stock was much lesser.
Group -8 22On 19th July 2007, Dow Jones index hit 14000 points for the first time in history. Also PratibhaPatil was chosen the President of India on this day. Hence there was a positive attitude of theinvestors in the market and hence both the market and share returns were high on this period.On 23rd April, there was a corporate action taken by the company, where face value of a sharewas reduced to 5 from 10. Hence the price of the stock came to 436.6 from 1758.75.On 1st August, following global cues and heavy selling in international markets the BSE fell by615. Hence market returns rate was -3.91 while that of the stock was -6.05. On 9th Septemberthe 1st signs of financial crisis due to subprime mortgages came up with global BNP Paribas CAsuspending financial operations based on subprime mortgages. Hence there was negativesentiment over the markets and volatility increased and market and share returns werenegative for the day. It was during this time only that solvency of USA banks and lendingagencies was being questioned. This period marked the start of the global economic recessionoriginating from USA. Hence on 16th August, both the market returns rate and that of Sun TV’swas around -4.2. Fears of recession hit global markets. Market returns rate was -3.03 while thatof Sun TV was -12. 23. Hence there was a very high volatility associated with the stock.2nd quarter financial report was published in September. Profits had decreased as compared toprevious quarter. Also, EPS had reduced to 2.03 from 4.72. Hence share prices were affectedby the financial results of the company. During October subprime mortgage crisis increasesmore tension in world markets with high fluctuations in adjustable rate mortgage. Hence on8th October, market return rate is -1, 4 while that of the stock is -6.3.The 3rd quarter financial results were declared in December. Profits had improved since the lastquarter. EPS also had improved as compared to previous quarter. Hence on 1st January wheremarket returns rate was .08 the return rate of the company was 0.88. For January standarddeviation is quite high (6.72). So there is a high increase in price of the stock.During the fourth quarter period, very heavy fluctuations in the overall returns of the marketand that of the stock can be seen. The daily returns have shown very high volatility. This can beattributed to the subprime mortgage crisis in the US, which had started showing its effect on
Group -8 23the US and world economy .The takeover of Bear Stearns at $2 per share shows the starting ofthe financial problems in the USA.The financial analysis for the year was published in March. Net profit of 268 crores wasobtained by the company. EPS was 39.02.Financial Year 2008-09During the 1st quarter the average return of the stock has been 0.274, 0.615 and -1.14 for April,May and June respectively. From the table it can be seen that during the month of April thevolatility of the stock has become lesser with respect to the market return rate. During May,the effect of recession started to show in Spain which was hard hit with inflation,unemployment and recession. Global markets were hit during May.Financial result of the first quarter showed improvement than the previous quarter. Net profitsand EPS improved for the quarter whose effect can be seen at the opening stock price on 2ndJune.But during the period of June 2008 negative returns for the whole month can be observed bothfor the company and the market, which was due to the financial crisis in the USA which hadstarted to build up. But despite of the negativity of the market, the company had performedfinancially well. In the 1st quarter result, the company still made net profits of 102.54 crores andan EPS of 2.75 which was better than the previous quarter.For the 1st quarter, the average return of the stock was 13.1, -21.2 and -17.1 for May, June andJuly respectively. The volatility of the stock had also increased with time during the passage ofthe quarter.Second financial quarter was quite an eventful period with respect to global markets. DuringSeptember major American banking companies like Lehmann Brothers, Merrill Lynch and AIG
Group -8 24had filed for bankruptcy which led to plunging of stock markets all around the world. Theaverage returns for Sun TV during this period was -1.104, 0.055 and -.155 for August,September and October respectively. Volatility of the stock has decreased through the courseof the period showing that trading of the stock has been less.For the third financial quarter average return for the month were -1.46, -.88 and 1.67 forOctober, November and December respectively. Standard deviation remained almost the samefor the whole period. Also share price can be seen to be going down with the passage of thequarter. The confidence of the investors on the market was not there .So stock prices andhence the market valuation of the company has declined for the quarter. Financial resultsshowed outcome of the quarter almost similar to that of the previous quarter. This showedthat instead of the market going for a downfall, the company was still managing to earn profits.For the final quarter of financial year 2008-09, average return for the month was -0.47,-.098,and 0.171 for January, February and March respectively. Volatility was 3.98, 1.96 and 4.32respectively. This shows that there was a decrease in sales/purchase of the stocks duringFebruary. Financial result of this quarter shows and improvement in net profits as compared tothe previous quarterBy the annual results we find that net profit of the company has increased as compared to theprevious year. Earnings per share have reduced drastically in one year from 39.02 to 9.31.