1. Please refer to important disclosures at the end of this report 1
(` cr) 2QFY11 2QFY10 % yoy 1QFY11 % qoq
Revenue 424.8 320.4 32.6 440.4 (3.6)
EBITDA 332.3 243.6 36.4 359.9 (7.7)
OPM (%) 78.2 76.0 221bp 81.7 (348bp)
PAT 167.4 130.6 28.2 171.0 (2.1)
Source: Company, Angel Research
We have revised our estimates: 1) revenue estimates for FY2012E are kept flat,
while for FY2011E have been marginally revised upwards to account for high
broadcast fees and movie distribution revenues, which is offset by lower DTH
subscriber addition this quarter (~0.05mn addition), 2) operating margins are
pruned down by 30bp for FY2011E to account for high SG&A expenses, while for
FY2012E, we have kept our OPM estimates flat, and 3) ~1% increase in earnings,
as we factor in lower losses in Radio. We recommend Accumulate on the stock.
Strong results led by advertising and subscription revenues: Sun TV (STNL) posted
yet another quarter of robust results on both the revenue and earnings front.
Revenues were aided by robust yoy advertising, broadcasting fees (positive
surprise) and pay revenues. OPM expanded by 221bp yoy driven by incremental
revenue gains from the hikes in the advertising rate and increase in pay slots
driving 28% yoy growth in earnings though partially impacted by the 59% jump in
depreciation/amortisation charges (resulting in the EBIT margin contraction of
134bp yoy).
Outlook and Valuation: We have valued STNL at 24x FY2012 EPS of 21.8, 5%
discount to its historical average P/E of 25.4x to account for– 1) risk associated
with high ARPUs in the DTH subscription model, and 2) expenditure associated
with their maiden production, Endhiran. At the CMP of `498, the stock is trading
at 22.3x FY2012E EPS. We recommend an Accumulate on the stock, with a
revised Target Price of `523 (`518). Positive surprise from the revenues booked
from Endhiran will result in re-rating of the stock and pose an upside risk to our
estimates (we would wait for 3QFY2011 results before updating our numbers).
Key Financials (Consolidated)
Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 1,039 1,453 1,984 2,231
% chg 19.5 39.8 36.6 12.4
Net Profit 368 520 729 860
% chg 12.7 41.2 40.1 18.0
OPM (%) 70.9 75.1 77.2 78.1
EPS (`) 9.3 13.2 18.5 21.8
P/E (x) 53.3 37.7 26.9 22.8
P/BV (x) 11.5 10.4 8.3 6.6
RoE (%) 21.6 27.9 33.5 31.9
RoCE (%) 30.2 39.7 47.2 45.0
EV/Sales (x) 18.5 13.3 9.7 8.6
EV/EBITDA (x) 26.1 17.7 12.6 11.1
Source: Company, Angel Research
ACCUMULATE
CMP `498
Target Price `523
Investment Period 12 Months
Stock Info
Sector Media
Market Cap (` cr) 19,684
Beta 0.6
52 Week High / Low 547/304
Avg. Daily Volume 77,976
Face Value (Rs) 5
BSE Sensex 20,032
Nifty 6,018
Reuters Code SUNTV.BO
Bloomberg Code SUNTV@IN
Shareholding Pattern (%)
Promoters 77.0
MF / Banks / Indian Fls 4.2
FII / NRIs / OCBs 8.8
Indian Public / Others 10.0
Abs. (%) 3m 1yr 3yr
Sensex 11.3 24.8 0.3
Sun TV 9.6 55.6 56.3
Anand Shah
022-4040 3800-334
anand.shah@angeltrade.com
Chitrangda Kapur
022-4040 3800-323
chitrangdar.kapur@angeltrade.com
Sreekanth P.V.S
022 – 4040 3800 Ext: 331
sreekanth.s@angelbroking.com
SUN TV Network
Performance Highlights
2QFY2011 Result Update | Media
October 29, 2010
2. Sun TV Network|2QFY2011 Result Update
October 29, 2010 2
Exhibit 1: Quarterly Performance (Standalone)
Y/E March (` cr) 2QFY11 2QFY10 % yoy 1QFY11 % qoq 1HFY2011 1HFY2010 % chg
Net Sales 424.8 320.4 32.6 440.4 (3.6) 865.2 608.0 42.3
Cost of Revenues 25.0 20.8 20.1 26.8 (6.6) 51.8 41.7 24.3
(% of sales) 5.9 6.5 6.1 6.0 6.8
Staff cost 40.7 31.9 27.5 39.9 1.9 80.6 63.0 28.0
(% of sales) 9.6 10.0 9.1 9.3 10.4
Other expenditure 26.8 24.1 11.2 13.9 93.5 40.7 36.3 12.1
(% of sales) 6.3 7.5 3.1 4.7 6.0
Total Expenditure 92.5 76.8 20.4 80.6 14.8 173.0 140.9 22.8
Operating Profit 332.3 243.6 36.4 359.9 (7.7) 692.2 467.2 48.2
OPM (%) 78.2 76.0 81.7 80.0 76.8
Depreciation & Ammortisation 90.8 57.1 59.0 114.7 (20.9) 205.5 112.1 83.4
EBIT 241.5 186.5 29.5 245.2 (1.5) 486.7 355.1 37.1
EBIT (%) 56.9 58.2 55.7 56.2 58.4
Interest 0.3 0.2 66.7 0.1 114.3 0.4 0.8 (45.7)
Other Income 9.3 11.5 (19.4) 11.3 (18.0) 20.5 25.7 (20.1)
PBT (excl. Ext Items) 250.5 197.8 26.7 256.3 (2.3) 506.8 380.0 33.4
Ext Income/(Expense) - - - - -
PBT (Incl. Ext Items) 250.5 197.8 26.7 256.3 (2.3) 506.8 380.0 33.4
(% of Sales) 59.0 61.7 58.2 58.6 62.5
Provision for Taxation 83.0 67.2 23.6 85.4 (2.7) 168.4 129.6 29.9
(% of PBT) 33.1 34.0 33.3 33.2 34.1
Recurring PAT 167.4 130.6 28.2 171.0 (2.1) 338.4 250.4 35.2
PATM (%) 39.4 40.8 38.8 39.1 41.2
Reported PAT 167.4 130.6 28.2 171.0 (2.1) 338.4 250.4 35.2
Equity shares (cr) 39.4 39.4 39.4 39.4 39.4
EPS (`) 4.2 3.3 4.3 8.6 6.4
Source: Company, Angel Research
Multiple levers for strong top-line growth
STNL reported robust 33% yoy top-line growth, led by 1)~19% yoy/ 4% qoq growth
in advertising revenues, 2) 24% yoy/15% qoq growth in broadcast fees (positive
surprise), 3) ~74% yoy/ 3% qoq growth in DTH revenues (6.55mn subscriber base,
`35–36 ARPU), and 4) ~48% yoy/ 6% qoq jump in analogue revenues. Ad revenues
grew largely on account of ad-rate hike absorption (blended ad-rate hike of 5-33%
taken across channels effective Jan 2010), better inventory utilisation and increased
traction in the niche channels (kids/comedy) launched in 1QFY2010. Broadcast fees
increased on account of higher pay slots.
While analogue subscription revenues registered robust growth on account of
distribution re-jig done by management with the establishment of new teams, DTH
revenues registered strong growth yoy due to higher subscriber base and increase in
ARPUs (revised bouquet rates due to addition of new channels). However, on a
sequential basis, DTH revenues grew by a modest 3% owing to relatively lower
addition of subscriber base. STNL currently commands almost a third of the total
DTH market (total DTH market commands a subscriber base of ~20mn).
4. Sun TV Network|2QFY2011 Result Update
October 29, 2010 4
Exhibit 4: Segmental revenue growth trend
Source: Company, Angel Research
Recurring earnings growth robust at 28% despite 59% jump in
depreciation/amortisation
In terms of earnings, STNL posted a robust growth of 28.2% yoy to `167cr (`131cr)
on a recurring basis, despite spike in depreciation/amortisation expense (up 59%
yoy) and 19% yoy decline in other income to `9.3cr (`11.5cr), aided by operating
margin expansion and strong growth in top-line.
Cost rationalization, higher operating leverage aid OPM expansion by 221bp:
At the operating level, STNL posted a 221bp yoy expansion, driving a whopping 36%
yoy growth in operating profit to `332cr (`244cr), aided by cost rationalization,
incremental growth in advertisement revenue, (contributing ~54% to total revenues)
which was largely on account of the ad-rate hike and increase in the pay slots
resulting in 24% yoy increase in the broadcast fees, which directly reflected in
margins (due to no cost attached). The company focus on reducing operating costs
saw a decline in the cost of revenues (down 61bp yoy), staff cost (down 39bp yoy)
and other expense (down 121bp yoy). On a sequential basis however, a spike of
316bp in other expenditure was seen primarily on account of the pre-advertisement
movie expenses to the tune of Rs4-5cr being recorded.
Exhibit 5: Quarterly earnings growth rate moderates
Source: Company, Angel Research
Exhibit 6: Expect OPM at ~77-78% for FY11E/12E
Source: Company, Angel Research
140
34
13 13
39
230
54
70
16
40
-
50
100
150
200
250
Advertisement Analog Subs. DTH Subs. International Subs. Broadcast fees
(`cr)
2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
-
10.0
20.0
30.0
40.0
50.0
-
50
100
150
200
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
(%)
(`cr)
PAT (LHS) YoY growth (RHS)
74.1 74.3
81.6 77.7 76.0 79.1
84.4 81.7 78.2
10.8 9.5 9.5 10.8 10.0 9.2
4.3
9.1 9.6
-
20.0
40.0
60.0
80.0
100.0
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
(%)
OPM Staff cost (% of sales)
5. Sun TV Network|2QFY2011 Result Update
October 29, 2010 5
Investment Arguments
STNL ad revenues to outpace regional advt., we peg 21% CAGR: During
FY2010-12E, we peg STNL’s standalone ad revenues to post 21% CAGR, ahead
of 14% CAGR in regional advertising during the period, driven by –
1) absorption of rate hikes (5-33% hike in ad rates across channels effective Jan
2010), 2) increased traction in niche kids/comedy channels launched in
1QFY2010, and 3) strong management focus on utilising inventory during
off-peak hours and new weekend programming.
Multiple levers led by DTH to drive 36% CAGR in pay revenues: During
FY2010-12E, we expect STNL to register a robust 36% CAGR in overall
subscription revenues aided by – 1) strong 48% CAGR in DTH revenues on the
back of 27% CAGR in DTH subscribers and rise in ARPU to `36 (due to revised
bouquet rates at `52/month as reported in 4QFY2010), and 2) 20% CAGR in
analogue revenues aided by restructuring of distribution business and
Malayalam channels (Surya TV, Kiran TV) turning pay from April 1, 2010.
Radio to reach near break-even at operating level by FY2012: On a
consolidated basis (Kal and SAFM), we expect the radio subsidiaries to report
top-line CAGR of 22% during FY2010-12E to `84cr (`56cr) driven by –
1) uniform brand identity of the radio channels to Red FM (will act as an effective
tool for marketing the stations with agencies and customers), and 2) Red FM has
announced an increase in its ad rates by 12-15% effective June 2010
Sun Pictures – ‘Endhiran’ broke all records: Sun Pictures released Endhiran (with
a budget of over `160cr) in 3QFY2011in three languages, viz. Tamil, Telegu
and Hindi. We expect the movie to register returns of 20-25% at the EBIT level.
For FY2011, we estimate STNL’s revenues from movie distribution (including
release of Endhiran) to post 196% yoy growth to `200cr (`67.5cr) and then taper
down to `135cr in FY2012, as the revenue traction from Endhiran wanes.
6. Sun TV Network|2QFY2011 Result Update
October 29, 2010 6
Outlook and Valuation
We have revised our estimates: 1) revenue estimates for FY2012E are kept flat, while
for FY2011E have been marginally revised upwards to account for high broadcast
fees and movie distribution revenues, which is offset by lower DTH subscriber
addition this quarter (~0.05mn addition), 2) operating margins are pruned down by
30bp for FY2011E to account for high SG&A expenses, while for FY2012E, we have
kept our OPM estimates flat, and 3) ~1% increase in earnings, as we factor in lower
losses in Radio.
Exhibit 7: Change in Estimates (Consolidated)
Old Estimate New Estimate % chg
(` cr) FY11 FY12 FY11 FY12 FY11 FY12
Revenue 1,981 2,231 1,984 2,231 0.2 (0.0)
OPM (%) 77.5 78.1 77.2 78.1 (30bp) (4bp)
EPS (`) 18.4 21.6 18.5 21.8 0.5 1.0
Source: Company, Angel Research
Over FY2010–12E, we have modeled in 23.9%, 26.9% and 28.6% CAGR in top-
line, core EBIT (post amortisation) and earnings respectively, for STNL. Moreover,
we expect STNL’s cash balance to swell to a whopping `12bn (~`31/share) in
FY2012 driven by strong rise in free cash flow (almost tripling over FY2010–12E)
on the back of strong earnings growth. Hence, we expect STNL’s RoE to sustain at
~29–30% levels and RoIC to rise to 48% (36% in FY2010).
We believe higher valuations for STNL are justified given its -1) strong earnings
(recurring) CAGR of 30.4% over FY2010–12E, 2) dominant leadership in 3 out of
4 lucrative southern markets, which account for ~73% of regional TV ad market,
3) strong group strength including political clout and presence across media value
chains (distribution via Kal cables and DTH via Sun Direct), 4) unique low-cost
business model (broadcast fee and low SG&A expenses), which enables it to
garner significantly higher operating margins, and 5) significant reduction in losses
in radio subsidiaries (modeling in near break-even at the operating level in
FY2012E). We recommend an Accumulate on the stock, with a revised Target Price
of `523 (`518), based on 24x FY2012E EPS of `21.8.
Positive surprise from the revenues booked from Endhiran will result in re-rating of
the stock and pose an upside risk to our estimates (we would wait for 3QFY2011
results before updating our numbers).
Exhibit 8: Key Assumptions
FY2009 FY2010 FY2011E FY2012E Comments
Ad revenue growth (%) 27.4 39.5 21.5 19.7 Rate hike absorption (5-33% in STNL;12-15% in Red FM)
Pay revenue growth (%) 0.6 47.7 49.2 17.9 Distribution re-jig, revised ARPU and subscriber addition
Movie revenue growth (%) – 139.1 196.3 (32.5) Endhiran to spike revenue in FY11, see spill-over in FY12
Staff Cost as % of Sales 9.8 9.2 9.6 9.9 Spike due higher pay to MD and new team set up
Core EBIT Margin (%) 57.5 59.1 59.5 62.0 Expansion due to lower losses in Radio and high OPM
Source: Company, Angel Research
12. Sun TV Network|2QFY2011 Result Update
October 29, 2010 12
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.
Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,
nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,
compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or
other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in
the past.
Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
connection with the use of this information.
Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have
investment positions in the stocks recommended in this report.
Disclosure of Interest Statement SUN TV Network
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
