Sun TV: Initiating Coverage

Initiating Coverage | Media
June 22, 2010

Sun TV Network BUY
CMP Rs402
Sunny days ahead Target Price Rs497
Sun TV Networks (STNL) is a leader in 3 out of the 4 lucrative southern TV markets Investment Period 12 Months
through its bouquet of 20 channels across genres. We have modeled in 23.5%,
Stock Info
24.9% and 25.3% CAGR in top-line, core EBIT (post amortisation) and earnings
respectively, for STNL, over FY2010-12E. We also estimate STNL's cash balance to Sector Media
swell to a whopping Rs10bn (~Rs33 per share) in FY2012E. At Rs402, the stock is Market Cap (Rs cr) 15,852
trading at 19.4x FY2012E Earnings. We initiate coverage on the stock with a Buy Beta 0.6
Target Price
recommendation and Target Price of Rs497 based on 24x P/E FY2012E EPS. EPS.
52 Week High / Low 453/210
STNL Ad Revenues to outpace Regional Ad growth, we peg 19% CAGR: During
CAGR:
Avg. Daily Volume 111,434
FY2010-12E, we expect STNL's standalone Ad revenues to register 19.3% CAGR,
Face Value (Rs) 5
ahead of the 13.9% CAGR estimated in Regional advertising during the period,
driven by:1) absorption of rate hikes (ad rates hiked 5-33% across channels), BSE Sensex 17,750
2) increased traction in niche Kids/Comedy channels, and 3) strong management Nifty 5,317
focus on utilising inventory during off-peak hours and new weekend programming. Reuters Code SUNTV.BO
Multiple levers led by DTH to aid 37% CAGR in Subscription Revenues: During
CAGR Bloomberg Code SUNTV@IN
FY2010-12E, we expect STNL to register a robust 37% CAGR in overall Subscription
revenues aided by: 1) strong 58% CAGR in DTH revenues on the back of 28% Shareholding Pattern (%)
CAGR in DTH subscribers and rise in ARPUs to Rs40, and 2) 20% CAGR in Analogue
Promoters 77.0
revenues aided by restructuring of distribution business and Malayalam channels
(Surya TV, Kiran TV) turning pay, effective from April 1, 2010. MF / Banks / Indian FIIs 4.9
FII / NRIs / OCBs 8.1
Radio losses to reduce, Endhiran the wild card in FY2011E: Beyond broadcasting,
FY2011E:
we believe reduction in operating losses aided by revenue traction and cost Indian Public / Others 10.0
curtailment in Radio subsidiaries, Kal and SAFM (we have modeled in near breakeven
in FY2012E at operating level) and contribution from big budget movie, Endhiran Abs. (%) 3m 1yr 3yr
(slated for release in 2HFY2011E, we have factored in Rs175cr revenue from movie Sensex 1.9 23.9 22.7
distribution/production in FY2011E and 20-25% EBIT Margins from Endhiran) will Sun TV (3.0) 68.9 (1.3)
be the key factors to watch out for.

Key Financials (Consolidated)
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 1,039 1,453 1,978 2,217
% chg 19.5 39.8 36.2 12.0
Profit
Net Profit 368 520 712 816
% chg 12.7 41.2 36.9 14.6
OPM (%) 70.9 75.1 75.7 76.1
EPS (Rs) 9.3 13.2 18.1 20.7
P/E (x) 43.0 30.5 22.3 19.4
Anand Shah
P/BV (x) 9.3 8.4 6.7 5.4
+91 22 4040 3800 Ext: 334
RoE (%) 21.6 28.0 33.0 30.6 Email: anand.shah@angeltrade.com
RoCE (%) 30.2 39.8 46.8 43.7
Kapur
Chitrangda Kapur
EV/Sales (x) 12.0 8.6 6.3 5.6
+91 22 4040 3800 Ext: 323
EV/EBITDA (x) 16.9 11.4 8.3 7.4 Email: chitrangdar.kapur@angeltrade.com
Source: Company, Angel Research

Please refer to important disclosures at the end of this report

Sun TV Network | Initiating Coverage

Initiate Coverage with Buy and Target Price of Rs497
We estimate 25% Earnings CAGR over FY2010-12E

We have modeled in 23.5%, 24.9% and 25.3% CAGR in top-line, core EBIT (post
amortisation) and earnings respectively, for STNL over FY2010-12E. Moreover, we
expect STNL's cash balance to increase to a whopping Rs10bn (~Rs33 per share) in
FY2012E driven by strong rise in free cash flow (almost tripling over FY2010-12E) on
the back of strong earnings growth. As a result, we expect STNL's RoE to sustain at
28-31% levels and RoIC to rise to 47% (36% in FY2010) in FY2012E.

Exhibit 1: Our estimates are ahead of consensus
Y/E March FY2011E FY2012E Comments
Top-line (Rs cr)
op-line
Angel estimates 1,978 2,217 Consensus still not factoring in higher
Consensus 1,780 2,045 DTH ARPUs and contribution from Endhiran
Diff (%) 11.1 8.4
Profit
Net Profit (Rs cr)
Angel estimates 712 816 Higher MD's pay and SG&A/amortisation
Consensus 670 797 due to Endhiran reflects our proximity to
Diff (%) 5.8 5.0 consensus Earnings despite higher Top-line estimates*
Source: Company, Angel Research, Bloomberg; Note: *Refer Exhibit: 20

TP based on 24x P/E FY2012E EPS, 5% discount to 3-yr Average

We initiate coverage on STNL with a Buy recommendation and Target Price of Rs497,
equating to an upside of 24% from current levels. Our Target Price is based on
24x P/E FY2012E EPS of Rs20.7, 5% discount to its 3-year historical average P/E of
25.4x to account for risks associated with 1) high ARPUs in DTH subscription model,
and 2) release/success of Endhiran (big budget production).

We believe that premium valuations for STNL are justified given its: 1) strong earnings
CAGR of 25% over FY2010-12E, 2) leadership position in 3 out of 4 lucrative southern
markets, which account for ~73% of the 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), which enables it to register significantly higher operating margins,
and 5) significant reduction in losses in Radio subsidiaries (we have factored in near
break-even at operating level in FY2012E).

Exhibit 2: Key Triggers - Absorption of rate hikes, Spike in DTH revenues and Endhiran
Absorption of rate hikes (9-33% hike in ad rates in Tamil channels and 5-16% in other channels effective Jan 2010)
Significant increase in DTH ARPUs to Rs40/month in FY2011E (Rs26/month) due to 5 niche and Malayalam channels turning pay
Endhiran (budget of Rs100cr+) slated to release in 2HFY2011in three languages, viz. Tamil, Telugu and Hindi
Reduction in Radio operating losses (EBITDA) from Rs20cr in FY2010 to near break-even in FY2012E

June 22, 2010 2


Exhibit 3: STNL trading below its 3yr avg P/E of 25x Exhibit 4: STNL’s 3yr avg Prem over Sensex at 44%
55.0 250%

50.0

45.0 200%

40.0

35.0 150%

30.0

25.0 100%

20.0

15.0 50%

10.0

5.0 0%

Jun-06
Aug-06

Dec-06

Jun-07
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Jun-08
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Oct-09
Dec-09
Feb-10

Source: Company, Angel Research; Note: Blue-line denotes 3yr avg P/E Source: Company, Angel Research; Note: Blue-line denotes 3yr avg Premium

Exhibit 5: STNL & ZEEL trading at similar 1yr Fwd P/E Exhibit 6: STNL trades at 3yr avg Prem of 9% to ZEEL
55.0 BSE Sensex Sun TV Zee Ent 95%

50.0
75%
45.0

40.0
55%
35.0

30.0 35%

25.0
15%
20.0

15.0
-5%
10.0

5.0 -25%
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
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Feb-08
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Dec-09
Feb-10
Oct-06

Oct-07

Oct-08

Oct-09

Source: Company, Angel Research Source: Company, Angel Research; Note: Blue-line denotes 3yr avg Premium

Exhibit 7: Relative Valuation - Sun TV has the highest EPS CAGR and strong RoEs v/s peers
MCap CAGR
EPS CAGR PEG (x) P/E (x) RoE (%) EV/EBITDA (x)
EV/EBITDA EV/Sales (x)
(Rs cr) FY10-12E FY10-12E FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E
India
Broadcasting
Sun TV 15,877 25.3 0.8 22.3 19.5 33.0 30.6 8.3 7.4 6.3 5.6
Zee Ent # 14,322 21.8 0.9 23.1 19.5 14.5 15.4 NA NA 5.1 4.4
Print
HT Media 3,597 22.2 0.8 20.2 16.8 15.1 15.7 12.3 10.2 2.3 2.0
Jagran Prakashan 3,766 16.2 1.0 19.1 15.9 31.0 34.3 11.3 9.5 3.4 2.9
Deccan Chronicle 3,035 11.3 0.8 10.6 9.3 18.9 19.1 5.7 4.9 2.7 2.3
Source: Company, Angel research; Note: # Zee Entertainment figures are consensus estimates from Bloomberg

June 22, 2010 3


Investment Arguments
TV Ad to grow 15.6% CAGR, Regional Ad to grow faster

Television sector is expected to outpace the During FY2010, the Media & Entertainment (M&E) industry grew at a mere 1.5% yoy
M&E growth, registering a CAGR of 15.2% to Rs590bn impacted by the economic slowdown and shrinking corporate budgets.
over FY2010-15E However, amidst weak macro economic conditions, the TV industry registered a modest
growth of 6.9% yoy to Rs260bn. Going ahead, the M&E industry is expected to rebound
and register 13.2% CAGR over FY2010-15E, while the Television sector is expected to
outpace the M&E industry growth, registering a CAGR of 15.2% over the mentioned
period.

Television advertising, which accounts for 40% of the total advertisement market, is
expected to post a CAGR of 15.6% over FY2010-15E to Rs182bn, aided by:
1) increasing number of channels (have nearly quadrupled to over 460 since FY2004),
2) rising viewership fragmentation, and 3) robust growth in niche genres like sports
(due to strong properties like IPL) and regional (emerging as a strong cost-effective
medium).

Exhibit 8: Regional advertising to grow at faster pace v/s Hindi GECs and overall TV Advertising
(Rs cr) FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E FY2014E FY2015E #
FY10-15E
Total M&E Size 44,160 51,630 57,840 58,700 65,230 74,180 83,610 95,640 109,200 13.2
Growth (% yoy) 14.8 16.9 12.0 1.5 11.1 13.7 12.7 14.4 14.2
Total Television Market
Television 18,250 21,130 24,050 25,700 28,900 33,700 38,200 44,800 52,100 15.2
Growth (% yoy) 11.8 15.8 13.8 6.9 12.5 16.6 13.4 17.3 16.3
Total Advertising Market 16,570 19,640 22,120 22,030 24,690 28,130 32,270 37,070 42,690 14.1
(% of Total M&E) 37.5 38.0 38.2 37.5 37.9 37.9 38.6 38.8 39.1
(% of GDP) 0.46 0.50 0.53 0.49 0.51 0.53 0.56 0.59 0.62
Television Ad Market 6,100 7,110 8,250 8,800 9,860 11,330 13,260 15,520 18,150 15.6
(% of Total Ad Market) 36.8 36.2 37.3 39.9 39.9 40.3 41.1 41.9 42.5
(% of Total Television Market) 33.4 33.6 34.3 34.2 34.1 33.6 34.7 34.6 34.8
Growth (% yoy) 17.5 16.6 16.0 6.7 12.0 14.9 17.0 17.0 16.9
Hindi GEC* 2,501 2,588 2,863 2,860 3,066 3,456 3,978 4,625 5,372 13.4
(% of Televsion Ad Market) 41.0 36.4 34.7 32.5 31.1 30.5 30.0 29.8 29.6
Growth (% yoy) - 3.5 10.6 (0.1) 7.2 12.7 15.1 16.3 16.2
Regional TV Ad Market 1,281 1,742 2,186 2,464 2,771 3,195 3,766 4,439 5,245 16.3
(% of Televsion Ad Market) 21.0 24.5 26.5 28.0 28.1 28.2 28.4 28.6 28.9
Growth (% yoy) - 36.0 25.5 12.7 12.4 15.3 17.9 17.9 18.2
Source: FICCI-KPMG report 2010, Angel research, # denotes: CAGR, * Hindi GEC Market includes Doordarshan

Favourable demographics and significant In Television, we believe the Regional Ad market is all set to outpace the larger Hindi
changes in dynamics of Television industry GEC market and record 16.3% CAGR during FY2010-15E on the back of favourable
coupled with strong cost effective demographics and significant changes in the dynamics of the Television industry
proposition is expected to help the Regional (increasing fragmentation and consolidation in the Hindi GEC space). Moreover,
Ad market to grow at a faster clip Regional Media has witnessed increased levels of activity owing to significantly untapped
markets of Tier-II and III towns, which are emerging as the new focus areas of marketers
owing to low penetration levels, steady growth in consumer spending and high
long-term growth potential.

June 22, 2010 4


STNL Ad Revenues to outpace Regional Ad growth, we peg 19% CAGR
South accounts for ~73% of the total The southern regional markets of Tamil Nadu, Andhra Pradesh, Karnataka and Kerala
Regional Ad-market, where Sun is a leader account for ~73% of the total regional advertisement revenue. STNL with its dominant
in three out of the four southern markets market share across lucrative southern markets, through its bouquet of 20 channels
across genres like GECs, Music, News and Movies including flagship channels -
Sun TV (Tamil Nadu, market share 68%), Gemini TV (Andhra Pradesh, market share
36%), Udaya TV (Karnataka, market share of 40%) and Surya TV (Kerala, market
share of 33%) - is well placed to ride the regional wave.

Exhibit 9: STNL's Ad Revenue to grow at faster 19% CAGR vis-à-vis Regional Ad growth at 14% CAGR
(Rs cr) FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E #
FY10-12E
Regional TV Ad Market 1,281 1,742 2,186 2,464 2,771 3,195 13.9
Growth (% yoy) - 36.0 25.5 12.7 12.4 15.3
Tamil Ad Market 380 517 647 732 826 959 14.4
Telegu Ad market 301 406 509 572 643 741 13.9
Kannada Ad Market 147 199 250 281 319 367 14.4
Malyalam Ad Market 97 141 181 205 227 259 12.5
Southern Ad Market 926 1,263 1,588 1,789 2,014 2,326 14.0
Bengali Ad Market 158 223 280 323 363 422 14.3
Marathi Ad Market 143 188 236 271 310 358 14.9
STNL's Ad Revenue (Standalone) 363 467 573 788 945 1,122 19.3
(% of Southern TV Ad Market) 39.3 37.6 38.2 47.3 50.4 51.9
Growth (% yoy) - (4.2) 1.4 23.9 6.6 3.0
STNL's Ad Revenue (Incl Radio) 364 475 606 846 1,015 1,208 19.5
Growth (% yoy) - 30.6 27.4 39.6 20.1 18.9
Source: Company, Angel Research; Note: # denotes CAGR

We have modeled in a 19.3% CAGR in During FY2010-12E, we peg STNL's standalone Ad revenues (excluding Radio) to
STNL's standalone Ad revenues driven by grow at 19.3% CAGR (management has guided for 17-18% yoy growth in advertising
rate hikes, improved inventory utilisation in FY2011E), ahead of 13.9% CAGR in Regional advertising during the period, driven
and traction in new channels by: 1) absorption of rate hikes (9-33% hike in ad rates in Tamil channels and 5-16%
in other channels effective January 2010), 2) increased traction from niche kids/comedy
channels (Adhitya TV, Khushi TV, Navvulu TV, Chintu TV and Ushe TV) launched in
We expect ad-revenue growth to peak out 1QFY2010, 3) strong focus of management on utilising inventory during off-peak
in 1QFY2011with culmination of base effect hours and new weekend programming, and 4) uptick in the economy (higher ad
spends from the FMCG sector in specific, which contributes ~80% of STNL's
advertisement revenues). While the ad-rate hike absorption will be a primary driver
for high advertisement revenues, we expect the ad-revenue growth to peak out in
1QFY2011 (with the culmination of the base effect) and dip into mid-teens by 3Q and
4QFY2011.

STNL has shown strong resilience to We highlight that during the last several quarters, STNL has posted high growth rates
intensifying competition and shift in (in the range of 35-45%) in advertising revenue, partially aided by low base, showing
advertisement flow towards sports; however, strong resilience to: 1) increasing competition in its Telugu, Kannada and Malayalam
a change in the same carries downside risks markets, and 2) shift in advertising flow towards sports properties like IPL - Season 3.
to our estimates

June 22, 2010 5


Exhibit 10: High Per Capita Income and Urban Population make South a lucrative market
Per Capita Growth Total Pop
Pop Pop
Urban Pop % of Urban
Income (%) (1,000s) (1,000s) Pop
(current price - Rs)
TN 38,573 10.6 62,406 27,459 44
Andhra Pradesh 34,063 16.3 76,210 19,053 25
Karnataka 35,555 16.6 52,851 18,498 35
Kerela 41,814 14.2 31,841 11,463 36
All India 33,283 1,028,737 285,989 28
Source: Economic Survey 2007-08, Angel Research

Exhibit 11: Sun's Bastion with ~70% share Exhibit 12: Successfully fending off competition
Tamil GEC Telegu GEC
80.0 45.0
40.3 40.1
70.0 40.0 36.5 36.4 36.7
34.5
68.1 68.5 69.0 69.8 35.0
66.7 67.4
Market Share (%)

60.0 Market Share (%)
30.0
50.0
25.0
40.0
20.0
30.0
15.0
20.0
10.0
10.0
5.0
-
-
4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010 1QFY2011
Sun TV Kalaignar TV Vijay TV Jaya TV Gemini TV Eanadu TV Zee Telugu Maa Telugu
Raj TV Zee Tamizh Others DD8 Telugu Sitara TV Vanitha TV

Source: TAM, Angel Research Source: TAM, Angel Research

Exhibit 13: Battling out to stay a strong No1 Exhibit 14: Playing 2nd fiddle to leader Asianet
Kannada GEC Malyalam GEC
50.0 60.0
43.7 44.1 42.8
45.0
38.4 39.1
40.0 37.6 50.0
Market Share (%)
Market Share (%)

35.0
40.0 35.0 34.6
30.0 32.2 33.3 32.7 32.3
25.0
30.0
20.0

15.0 20.0
10.0

5.0 10.0

-
-
Udaya TV ETV Kannada Zee Kannada
Kasturi Suvarna DD9 Chandana (Kannada) Asianet Surya TV Kairali Amrita TV DD4 Malayalam

Source: TAM, Angel Research Source: TAM, Angel Research

June 22, 2010 6


Multiple levers led by DTH to aid 37% CAGR in Subscription

During FY2010-12E, we expect STNL to register a robust 37% CAGR in its overall
Strong 58% CAGR in DTH and 20% CAGR Subscription revenues (including international) and higher 42% CAGR in domestic
in Analogue revenues to drive 42% CAGR Subscription revenues aided by: 1) strong 58% CAGR in DTH revenues on the back of
in domestic Subscription revenues over 28% CAGR in DTH subscribers and rise in ARPU to Rs40 (due to revised bouquet rates
FY2010-12E at Rs52/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 effective April 1, 2010.

Exhibit 15: STNL's Domestic Subscription Revenues to double over next two years
FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E FY10-12E
#

TV Subscription Market Industry Estimates
C&S TV Households (mn) 70 78 86 95 104 112 8.6
Growth (% yoy) 12.9 11.4 10.3 10.5 9.5 7.7
C&S TV Penetration (%) 62.5 66.1 69.9 73.6 77.0 79.4
Analogue Cable Households (mn) 63.4 68.6 70.0 69.0 67.5 63.5 (4.1)
Growth (% yoy) - 8.2 2.0 (1.4) (2.2) (5.9)
Analogue Share (%) 90.6 88.0 81.4 72.6 64.9 56.7
DTH Households (mn) 2.6 4.0 10.0 16.0 24.0 30.0 36.9
Growth (% yoy) - 53.8 150.0 60.0 50.0 25.0
DTH Penetration (%) 3.7 5.1 11.6 16.8 23.1 26.8
Analogue Cable ARPUs 153 158 161 160 161 168 2.5
DTH ARPUs 160 170 160 155 155 171 5.2
Analogue Cable Revenues (Rs cr) 11,613 12,985 13,553 13,248 13,021 12,802 (1.7)
DTH Revenues (Rs cr) 499 816 1,920 2,976 4,464 6,172 44.0
Total TV Subscription Market (Rs cr) 12,200 14,020 15,810 16,900 19,100 22,300 14.9
Growth (% yoy) - 14.9 12.8 6.9 13.0 16.8
Analog Contribution (%) 95.2 92.6 85.7 78.4 68.2 57.4
DTH Contribution (%) 4.1 5.8 12.1 17.6 23.4 27.7
STNL Subscription Revenue estimates
Analogue Cable HHs (mn) 8.2 10.1 6.6 7.9 10.8 11.6 21.3
Growth (% yoy) - 22.9 (35.0) 20.4 37.0 7.4
DTH HHs (mn) - 1.1 2.8 5.8 7.7 9.5 28.0
Growth (% yoy) - - 154.5 107.1 32.8 23.4
% of total DTH Households - 27.5 28.0 36.3 32.1 31.7
Avg. Analogue Cable ARPUs 17 18 17 17 16 16 (1.1)
DTH ARPUs - 25 25 26 40 40 23.3
Analogue Cable Revenues 167 219 131 158 212 227 19.9
DTH Revenues - 10 84 183 370 456 57.8
Domestic Subscription Revenue(Rs cr) 167 229 215 341 581 683 41.5
Growth (% yoy) - 36.7 (5.9) 58.4 70.4 17.6
Analog Contribution (%) 100.0 95.7 61.0 46.3 36.4 33.3
DTH Contribution (%) - 4.3 39.0 53.7 63.6 66.7
License Income (Int. Subscription) 34 38 54 56 59 62 5.0
Growth (% yoy) - 12.4 41.2 3.6 5.0 5.0
STNL Subscription Revenue (Rs cr) 201 267 269 397 640 745 37.0
Source: FICCI-KPMG Report 2010, Company, Angel Research; Note: #denotes CAGR

June 22, 2010 7


Higher ARPUs and Subscribers to aid 58% CAGR in DTH revenues

4QFY2010 registered a sharp revision in During 4QFY2010, the company reported a subscriber base of 6mn and a sharp
DTH ARPUs to Rs36/month aided by uptick in DTH realizations to Rs35-36/month (Rs26-27/month) on account of 5 new
addition of 5 niche channels and a new niche channels turning pay adding to the company's ARPUs (new channel bouquet
bouquet priced at Rs52/month available at Rs52/month). Hence, we have modeled in 58% CAGR in DTH Subscription
revenues over FY2010-12E, driven by - 1) yoy growth of 33% and 23% for
FY2011-12E in the Subscriber base to 7.7mn and 9.5mn respectively, 2) significant
52% yoy increase in ARPU to Rs40/month (Rs26/month) in FY2011E.

Non-confirmation of 4QFY2010 ARPU trend However, we note that ~60% of the DTH revenues for STNL come from its sister
carries downside risks to our estimates concern Sun Direct, which has accepted the revised bouquet driving this sharp up-tick
in DTH revenues. Nonetheless, STNL continues to offer its original bouquet. However,
the stickiness of other operators to the same and non-confirmation of 4QFY2010
ARPU trend carries downside risks to our estimates.

Malayalam channels and distribution re-jig to boost Analogue revenues

Re-jig of Distribution and renewed focus on Post the significant dip in Analogue subscription revenues in FY2009 due to power
domestic Subscription augurs well for STNL's cuts in Tamil Nadu, launch of new distributors (Arasu, Royal Cable) and Sun Direct
Analogue Subscription revenues (cable operators boycotted the launch of DTH by cutting declaration levels), STNL has
renewed its focus and restructured its Distribution business with two separate teams,
the first focusing on South Indian operations and International business, and the second
focusing on expanding the company's bouquet to the North, West and Eastern markets
in India.

We expect incremental addition of Moreover, on February 2010, STNL announced that its Malayalam channels Surya TV
Rs20-25cr to STNL's Subscription revenues and Kiran TV would become pay channels from April 1, 2010. According to
in FY2011E on account of Malayalam management, the non-CAS cable rates for the said channels, as a bouquet, would be
channels turning pay Rs20.3/month and CAS cable rates would be Rs5.4/channel/month. We highlight
that this move has come post its key competitor, Asianet, turning pay. We estimate that
the Malayalam market has ~4mn C&S households and have modeled in an initial
addition of 1.5mn subscribers in FY2011E with an ARPU of Rs15/month for STNL.
Hence, we expect incremental addition of Rs20-25cr to STNL's Subscription revenues
in FY2011E on account of the Malayalam channels turning pay.

We expect the Analogue subscription revenues to register 20% CAGR over
FY2010-12E, with 34% yoy growth in FY2011E itself on a low base (inclusion of
Malayalam subscription revenues)

Management upbeat on International subscription, we defer

In contrast to management guidance, we In contrast to management guidance of sharp improvement in International subscription
have conservatively modeled in 5% yoy revenue (program license fees), we have conservatively modeled in 5% CAGR over
growth in Sun's International subscription FY2010-12E, owing to: 1) lack of traction in the same since several quarters, 2) changed
revenues in our FY2011-12E estimates regulations for Pay TV in the South-East Asian countries of Malaysia and Singapore,
and 3) currency fluctuation risks. However, the distribution re-jig done by the company
(STNL has floated a wholly-owned subsidiary, Sun TV Network Europe in the UK to
distribute and broadcast its channel in UK and Europe) poses an upside risk to our
estimates.

June 22, 2010 8


Sun Pictures - Betting big on Endhiran

Sun entered the Movie business in September 2008 through subsidiary, Sun Pictures,
and has so far distributed 12-15 films, most of which have been successful and earning
an estimated 15-20% Return on Capital Employed. Going ahead, we have modeled
in an outlay of Rs70-80cr for FY2011-12E for distribution of 10-12 movies annually.

Endhiran slated for release in 2HFY2011E STNL recently entered into movie production with its high budget movie, Endhiran
is expected to register returns of 20-25% at (estimated budget for the movie is Rs100cr+), starring the southern superstar Rajnikant
EBIT level. We estimate a 150% yoy growth and Bollywood's Aishwarya Rai. The movie is expected to be released in 2HFY2011in
in Movie revenue for FY2011E to Rs175cr, three languages, viz. Tamil, Telugu and Hindi. Given the star cast and cutting edge
tapering down to Rs110cr in FY2012E production techniques used in this movie, we expect it to register returns of 20-25% at
the EBIT level. Management has indicated that this is a one-off venture, and the company
would be focusing only on the distribution business in the future.

For FY2011E, we estimate STNL revenues from movie distribution (including release
of Endhiran) to increase 150% yoy to Rs175cr (Rs70cr) and then taper down to Rs110cr
in FY2012E, as effects of revenue traction from Endhiran wanes.

Radio - to reach near break-even at operating level by FY2012E

Sun operates 44 radio stations in total and has two subsidiaries Kal Radio (Kal) and
South Asia FM (SAFM) with stake of 97.8% and 59.2% respectively. STNL has entered
into a strategic tie-up to broadcast its own radio channels under the Red FM brand
(holds 48.9% stake in Red FM), operating at 93.5MHz. Consequently, S FM or Suryan
FM was re-branded into Red FM across 38 cities (except for the ones in Tamil Nadu) in
India.

Exhibit 16: Consolidated Radio losses to moderate to Rs37cr in FY2012E
Y/E March FY2008 FY2009 FY2010 FY2011E FY2012E
Net Sales 9 33 58 70 86
Growth (% yoy) - 273.8 74.4 21.9 21.9
Other Income 6 2 2 3 3
Total Income 14 35 59 73 89
Operating Expenditure 33 68 77 80 87
(% of sales) 377.6 205.9 134.0 113.6 100.9
Profit
Operating Profit (25) (35) (20) (10) (1)
OPM % (277.6) (105.9) (34.0) (13.6) (0.9)
Depn. & Amortn. 11 36 36 37 39
(% of sales) 122.5 107.1 61.4 52.5 45.0
PBIT (35) (71) (55) (47) (39)
PBIT % (400.1) (213.1) (95.4) (66.1) (45.8)
Interest 24.9 28.2 12.8 1.0 1.0
PAT (55) (97) (66) (45) (37)

June 22, 2010 9


We peg 22% CAGR in top-line aided by On a consolidated basis, we expect the company's Radio subsidiaries (Kal and SAFM)
re-branding of radio stations to Red FM and to report top-line CAGR of 22% over FY2010-12E to Rs86cr (Rs58cr) driven by:
Ad-rate hike of 12-15% effective June 2010 1) Red FM, the uniform brand identity of the company's radio channels, 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.

At operating level, we expect Radio business In terms of Earnings, we expect the Radio business to register significant reduction in
to reach near break-even in FY2012E but operating losses (EBITDA level) from Rs20cr in FY2010 to near break-even in FY2012E
drag consolidated EPS down by ~4% aided by sharp cost curtailment measures. Moreover, at the PAT level, we expect the
Radio business to reduce its losses to Rs37cr in FY2012E (aided by significant reduction
in interest costs as Loans & Advances to Radio subsidiaries have been reversed), down
from Rs66cr in FY2010, dragging down the consolidated EPS by ~4%.

Exhibit 17: Kal Radio - Strong Operating Profitability Exhibit 18: SAFM - To remain a drag operationally
60.0 40.0 34.3
51.6
50.0 30.0 27.5
43.0 22.0
40.0 35.9 20.0
11.1
30.0 10.0
(Rs cr)

22.0 2.3
(Rs cr)

19.9
20.0 -
14.0
8.2 (10.0)
10.0 6.6

- (20.0) (16.7)
(20.6)
(23.6)
(10.0) (6.2) (30.0)
(7.9) (28.9) (27.9)

(20.0) (40.0)

FY08 FY09 FY10 FY11E FY12E FY08 FY09 FY10 FY11E FY12E

Revenue EBITDA Revenue EBITDA

Source: Company, Angel Research Source: Company, Angel Research

Kal Radio - Profitable at Operating level, to break-even at PAT in FY12E

Kal Radio to drive growth at operational During FY2010, Kal Radio (18 radio stations under operation primarily in South India)
level, while SAFM is unlikely to achieve clocked 63% yoy growth in top-line to Rs36cr (Rs22cr) aided by addition of new stations
EBITDA breakeven by FY2012E and better inventory utilisation, and achieved operating profit of Rs8.2cr (loss of Rs6.2cr)
as operational cost remained flat. Going forward, we have modeled in 20% CAGR in
top-line (aided largely by rate hikes as incremental gain from new stations getting
added is factored in the base) and expect it to report a turnover of Rs43cr and Rs52cr
in FY2011E and FY2012E, respectively. Operating profit is expected to log in 55%
CAGR over FY2010-12E as we have factored in only a marginal 7-8% yoy increase in
operating expenditure.

SAFM - Operational losses to sustain in near term

In FY2010, SAFM (23 radio stations under operation primarily in Tier-III cities) doubled
its top-line to Rs22cr (Rs11cr) aided by addition of new stations and better inventory
utilisation. However, SAFM registered operating loss of Rs28cr (loss of Rs29cr) due to
25% rise in operational costs. Going forward, we expect SAFM to post revenue CAGR
of 25% over FY2010-12E. However, we do not expect the subsidiary to achieve EBITDA
breakeven by FY2012E, in contrast to management guidance of EBITDA breakeven
by FY2011E, and have modeled in a loss of Rs21cr for FY2012E.

June 22, 2010 10


Financial Outlook
Steady Advt., sharp spike in DTH to aid 24% CAGR in top-line

During FY2010-12E, we expect STNL to report a strong consolidated 23.5% CAGR in
revenues driven largely by: 1) 19.5% CAGR in Advertising revenues, 2) 37% CAGR in
Subscription revenues largely led by 58% CAGR in DTH revenues, and 3) sharp spike
in Movie revenues driven by the release of the big budget Endhiran (slated for release
in 2HFY2011E), though mainly captured in FY2011E and tapering off in FY2012E.

Exhibit 19: Consolidated Top-line Model - 36% yoy in FY2011E and 24% CAGR over FY2010-12E
(Rs cr) FY08 FY09 FY10 FY11E FY12E FY10-12E
#
Key Growth Drivers
Advertising Revenue 475 606 846 1,015 1,208 19.5
Growth (% yoy) 30.6 27.4 39.6 20.1 18.9
Broadcasting 467 573 788 945 1,122 19.3 Rate hike absorption, Incremental gains from niche channels
Growth (% yoy) 28.5 22.7 37.6 20.0 18.7 and better inventory utilisation
Radio 9 33 58 70 86 21.9 Higher inventory off-take and recent rate hikes in Red FM
Growth (% yoy) 790.0 272.6 74.4 21.9 21.9 (12-15%)
Fee
Broadcast Fee 126 130 135 142 148 4.6 Modeling in conservative growth based on hike in slot rates,
Growth (% yoy) 15.7 3.8 3.4 5.0 4.2 await 1QFY11 results before upgrading
Subscription 268 269 397 640 745 37.0
Growth (% yoy) 32.8 0.6 47.4 61.4 16.4
Analogue 219 131 158 212 227 20.1 Distribution re-jig (4QFY10 exhibits traction) and Malayalam
Growth (% yoy) 31.1 (40.2) 20.2 34.5 7.4 channels turning pay (to add Rs20-25cr)
DTH 10 84 183 370 456 57.8 Subscriber addition and revised ARPU (Rs40/month)
Growth (% yoy) - 748.5 117.9 101.9 23.4
Program Licence 38 54 56 59 62 5.0 Renewed focus, distribution tie-ups in UK - modeled a 5%
Growth (% yoy) 12.4 41.2 3.6 5.0 5.0 CAGR significantly lower than Mgmt guidance
Movies - 28 70 175 110 25.4 Endhiran release to spike revenues in FY11E, partialy
Growth (% yoy) - - 148.0 150.0 (37.1) spill-over in FY12E
Other Sales 1 6 6 6 6 3.3 Largely Income from content trading and Aircraft charter
Growth (% yoy) - - 0.9 3.2 3.4 services - to remain flat
Net Sales 870 1,039 1,453 1,978 2,217 23.5
Growth (% yoy) - 19.5 39.8 36.2 12.0
Source: Company, Angel Research; Note: #denotes CAGR

June 22, 2010 11


Margins to sustain, we peg consolidated Earnings CAGR at 25%

During FY2010-12E, we expect EBITDA Margins to hover between 75-76% levels
aided by significant reduction in Radio losses (to achieve near break-even in FY2012E
at operational level) and higher operating leverage (as majority of incremental
top-line growth will be driven by ad rate hike and higher subscription revenues).
However, higher SG&A expenses (Endhiran release in FY2011E) and spike in MD's
pay (low base) to the usual 10% of PBT is likely to restrict Margin expansion.

In terms of core EBIT margins (including amortisation costs for films and distribution
rights), we expect STNL to sustain margins at ~59% in FY2011E, before expanding by
130bp yoy in FY2012E due to higher amortisation charges on the back of release of
Endhiran in FY2011E.

On a consolidated basis, we expect STNL's earnings to register 25.3% CAGR over
FY2010-12E driven largely by strong top-line growth and stable Margins.

Exhibit 20:Cost and Earnings Breakup - Expect Margins to remain stable in FY11E before expansion in FY12E
(Rs cr) FY08 FY09 FY10 FY11E FY12E FY10-12E
#
Key Growth Drivers
Cost of Revenues 77 111 119 138 153 13.3 Drop as % of sales as incremental revenue from Ad rate hike
% of Sales 8.8 10.7 8.2 7.0 6.9 and DTH, Model absolute growth of ~13%
Staff Cost 96 116 134 201 231 31.4 Spike in FY11 as we model higher Pay to MD in FY11-12E
% of Sales 11.0 11.1 9.2 10.1 10.4 and Staff costs for new team set-ups
MD's Pay 65 74 74 125 141 38.1 In FY10, MD's Pay remained at FY09 levels, We model FY11
% of Sales 7.5 7.1 5.1 6.3 6.4 Pay at usual 10% of PBT
Other Staff Costs 26 28 42 56 68 27.9 Modeled in 28% CAGR rise in Staff costs due to new team
% of Sales 3.0 2.7 2.9 2.9 3.1 set-ups in distribution and new channels
Radio Staff Costs 5 13 18 19 21 9.4 To rise moderately at 9% CAGR as all stations are now
% of Radio Sales 51.0 40.7 31.0 27.5 25.0 operational and strong cost focus
SG&A Expenses 41 54 75 107 106 19.1 Modeling in 19% CAGR to support new launches, FY11 to
% of Sales 4.7 5.2 5.2 5.4 4.8 see spike due to Endhiran release
Other Expenses 59 22 34 35 40 8.4 To register significant moderation due to lower losses in Radio
% of Sales 6.8 2.1 2.3 1.8 1.8
EBITDA
EBITDA 597 737 1,091 1,497 1,686 24.3
EBITDA Margin (%) 68.7 70.9 75.1 75.7 76.1
Amortisation 86 153 233 326 347 22.1 Spike in FY11E due to release of Endhiran, to moderate in
% of Intangible Assets 15.9 20.8 23.6 26.7 24.3 FY12E
Core EBIT 511 583 858 1,171 1,339 24.9 Core EBIT Margins to expand 130bp due to lower losses in
Core EBIT Margin (%) 58.8 56.1 59.1 59.2 60.4 Radio and higher operating leverage
PA
Reported PAT (After MI) 327 368 520 712 816 25.3
PAT Margin (%) 37.6 35.4 35.8 36.0 36.8
Source: Company, Angel Research; Note: #denotes CAGR

June 22, 2010 12


Debt-free Balance Sheet, Cash to swell to ~Rs10bn in FY2012E

STNL has a strong zero debt balance sheet and cash balance of ~Rs435cr as on
FY2010. Moreover, despite modeling heavy capex (including movie acquisition costs)
in the range of Rs420-440cr for FY2011-12E (in line with management guidance), we
expect STNL's cash balance to swell to a whopping Rs10bn or ~Rs33/share in FY2012E
accounting for almost 34% of capital employed. We attribute the jump in cash balance
to strong rise in free cash flow (almost tripling over FY2010-12E) on strong earnings
growth. As result, we expect STNL's RoE to sustain at 28-31% levels and RoIC to rise to
47% (36% in FY2010).

Exhibit 21: FCF to triple boosting cash balance Exhibit 22: RoE to sustain, RoIC to rise to 47%
1,200 50 47
45
1,036 45
1,000
40
36 36
800 35 33
721
31
581 30 27 28
600
(Rs cr)

(%)

430 435 463 25 24
22
400 365
20
202
200 15
110
10
-
5
(38)
(200) -
FY08 FY09 FY10 FY11E FY12E FY08 FY09 FY10 FY11E FY12E

Free Cash Flow Cash Balance RoE RoIC

Source: Company, Angel Research Source: Company, Angel Research

June 22, 2010 13


Key Concerns
Delay/difficulty in absorption of rate hikes: We have modeled in a steady 19.3%
CAGR in STNL's standalone advertising revenues over FY2010-12E aided by absorption
of rate hikes (9-33% hike in ad rates in Tamil channels and 5-16% in other channels
effective Jan 2010). Any delay/difficulty to pass the same to advertisers on account of
competitive pressures, slowdown in GDP or other unforeseen factors would entail
downside risks to our estimates.

Fall in DTH ARPUs beyond Rs35-40/month: During 4QFY2010, the company
reported a subscriber base of 6mn and a sharp uptick in DTH realisations to
Rs35-36/month (Rs26-27/month) on account of 5 new niche channels turning pay
(new channel bouquet available at Rs52/month). Hence, we have modeled in 58%
CAGR in DTH Subscription revenues over FY2010-12E, driven by - 1) growth of 33%
and 23% for FY2011-12E in the Subscriber base to 7.7mn and 9.5mn respectively,
2) significant 52% yoy increase in ARPU to Rs40/month (Rs26/month) in FY2011E.
Hence, non-confirmation of 4QFY2010 ARPU trend carries significant downside risks
to our estimates.

Delay/failure of big budget Endhiran: STNL is slated to release its first big budget
Endhiran:
movie, Endhiran (estimated budget of Rs100cr+), starring the southern superstar
Rajnikant and Bollywood's Aishwarya Rai. For FY2011E, we estimate revenues from
movie distribution (including release of Endhiran) to increase 150% yoy to Rs175cr
(Rs70cr) with Endhiran expected to register 20-25% returns at the EBIT level. Any
delays in the release of movie or the movie tanking at the box office would dent our
revenue and earnings estimates.

June 22, 2010 14


Company Background
Headquartered in Chennai, STNL was incorporated in December 1985 and listed in
April 2006. STNL, promoted by Kalanithi Maran, belongs to the Sun Network Group,
which is straddled across the media value chain, viz. Broadcasting, Radio, Films, Cable
distribution, DTH and Print Media. STNL is India's leading media conglomerate with
20 TV channels with a significant presence in the south (leader in three of the four
southern states - operates in Tamil Nadu, Andhra Pradesh and Karnataka).

Exhibit 23: STNL operates 20 channels in 4 Southern markets
Channels Tamil Telegu Kannada Malyalam
GEC Sun TV Gemini TV Udaya TV Surya TV
News Sun News Gemini News Udaya Varthegalu
Movies K TV Teja TV Udaya Movies Kiran TV
Music Sun Music Gemini Music Udaya TV 2
Kids Chutti TV Khushi TV Chintu TV
Comedy Adithya TV Navvulu TV Ushe TV

Beyond television broadcasting, the company has a strong presence in radio
broadcasting (has a total of 44 FM licences) via its two subsidiaries - Kal FM (98%
stake) and SAFM (59% stake) and strategic tie-up with Red FM. Moreover, STNL entered
the movie business in September 2008 through its subsidiary, Sun Pictures and has so
far distributed 12-15 films. The company is also slated to release its first in-house
production, Endhiran during 2HFY2011.

Exhibit 24: Sun TV Business Model - Spans Broadcasting, Radio and Movies

Sun TV Network
20 television channels across 4 southern states & 3 FM radio stations

59.2% Division of 97.8%
Subsidiary STNL Subsidiary

South Asia FM Sun Pictures Kal Radio

49% beneficial 23 licenses focused Production/distrib 18 licenses focused
interest on northern, eastern ution of movies in on Southern cities
& western region southern region

Strategic Alliance 3 radio stations in Mumbai,
with RED FM Delhi and Kolkatta


June 22, 2010 15


Unique low-cost business model keeps cost off STNL's books

STNL operates on "Sponsored Revenue model", wherein it leases out its time slots to
third party content producers for a fixed fee (termed as broadcast fee in P&L). In
return, the content producers have the right to about 4mins of advertising inventory
per half an hour, while STNL gets 2mins of this half an hour slot. Since the content
aired on STNL channels are not owned by STNL, the cost of content and the risks of
recouping the cost lie with the producer.

Moreover, the company also produces a large amount of content aired in the
non-prime time slots in-house, which furthers lowers its production costs. The company's
in-house production team sources around 75% of its daily content requirement
in-house, out of which 40-45% is movie based, 8-10% is news and the rest is accounted
by game, talk and variety shows. Further, the company has exclusive contracts with
artistes and anchors as part of its talent retention strategy.

STNL leads movie broadcasting via its largest movie library

STNL has a strong movie library comprising more than 8,500 titles, with rights across
all the four major South Indian languages. Apart from having an extensive movie
library, STNL purchases around 90% of all movie releases in these languages. The
company employs various strategies such as airing free trailers of movies prior to
release, through its wide range of channels. Consequently, the producer contracts
satellite rights to STNL at lower rates, resulting in lower acquisition costs for the company.
Usually, Sun pays Rs1-1.5cr for acquiring satellite rights and recovers the same in the
first two runs of the movie. In the southern market, screening of movies on satellite
channels is allowed only after 1-3 years of the theatrical release. Movies and
movie-related content attracts significant viewership in down south. As a result, STNL
earns around 25% of its advertising revenues from movies aired on dedicated channels
in each market.

Foray into niche channels like Kids and Comedy genre

Apart from the various GEC channels, STNL also broadcasts dedicated movie channels,
kids and infotainment channels and comedy channels (refer Exhibit 23). Foray into
these niche categories and entertaining selective TV viewers was a bold move.
Nonetheless, the move has paid well for the company - Chutti TV, the Tamil children
entertainment channel has ~5% market share and contributes ~3% to Sun's revenues.

For its kid's channels, Sun has exclusive tie ups with the content providers (tied up with
Disney India in December 2009 and DQ Entertainment in June 2010), wherein Sun
buys exclusive rights to cartoons and then dubs them in four languages. Operating
costs involved are confined to dubbing costs. This scale and low-cost model ensures
that these niche channels do not cause any significant margin dilution. STNL's comedy
channels also work on a similar low-cost model wherein clips from the movies in Sun's
library are telecast, keeping production costs minimal.

June 22, 2010 16


Profit & Loss Statement (Consolidated) Rs crore
Y/E March (Rs cr) FY2008 FY2009 FY2010E FY2011E FY2012E

Gross sales 870 1,039 1,453 1,978 2,217
Less: Excise duty - - - - -
Net Sales 870 1,039 1,453 1,978 2,217
Total operating income 870 1,039 1,453 1,978 2,217
% chg 28.3 19.5 39.8 36.2 12.0
Total Expenditure 272 303 362 481 530
(Increase)/ Decrease in stock in trade - - 4 - -
Cost of Production 77 111 119 138 153
Staff Costs 96 116 134 201 231
Power & Fuel 7 14 19 23 25
Other Expenses 93 62 86 120 121
EBITDA
EBITDA 598 737 1,091 1,497 1,686
% chg 27.5 23.3 48.1 37.2 12.6
(% of Net Sales) 68.7 70.9 75.1 75.7 76.1
Depreciation & Amortisation 124 220 321 432 467
EBIT 474 516 770 1,065 1,219
% chg 34.4 9.0 49.1 38.3 14.5
(% of Net Sales) 54.4 49.7 53.0 53.8 55.0
Interest & other Charges 16 14 5 4 4
Other Income 56 67 35 30 33
(% of PBT) 10.8 11.7 4.4 2.7 2.7
Share in profit of Associates - - - - -
Recurring PBT 513 569 800 1,090 1,248
% chg 32.6 10.9 40.5 36.3 14.5
Prior Period & Extr. Exp./(Inc.) - - - - -
PBT (Reported) 513 569 800 1,090 1,248
Tax 201 229 299 392 444
(% of PBT) 39.2 40.3 37.4 35.9 35.5
PAT (Reported) 312 340 501 699 805
Add: Share of earnings of associate 1.1 0.2 0.8 1.0 1.2
Less: Minority interest (MI) (14) (28) (18) (12) (10)
PAT after MI (Reported) 327 368 520 712 816
ADJ. PAT
ADJ. PA 327 368 520 712 816
% chg 32.8 12.7 41.2 36.9 14.6
(% of Net Sales) 37.6 35.4 35.8 36.0 36.8
Basic EPS (Rs) 8.3 9.3 13.2 18.1 20.7
Fully Diluted EPS (Rs) 8.3 9.3 13.2 18.1 20.7
% chg 32.8 12.7 41.2 36.9 14.6

June 22, 2010 17


Balance Sheet (Consolidated) Rs crore

Equity Share Capital 197 197 197 197 197
Preference Capital - - 88 88 88
Reserves& Surplus 1,252 1,505 1,679 2,160 2,711
Funds
Shareholders Funds 1,449 1,702 1,964 2,445 2,996
Minority Interest 60 38 37 37 37
Total Loans 69 72 0 0 0
Deferred Tax Liability 1 26 34 34 34
Total Liabilities 1,580 1,838 2,035 2,516 3,067

APPLICATION OF FUNDS
APPLICATION
Gross Block 1,019 1,491 1,889 2,383 2,788
Less: Acc. Depreciation 474 677 998 1,430 1,897
Net Block 545 815 892 954 891
Capital Work-in-Progress 222 157 315 262 279
Goodwill - - - - -
Investments 180 181 228 278 378
Non Current Assets 8 23 30 45 55
Current Assets 880 896 1,031 1,353 1,895
Cash 430 365 435 581 1,036
Loans & Advances 192 286 267 336 377
Other 258 245 330 435 482
Current liabilities 256 234 461 376 431
Net Current Assets 624 662 570 977 1,463
Mis. Exp. not written off 0 0 0 0 0
Total Assets 1,580 1,838 2,035 2,516 3,067

June 22, 2010 18


Cash Flow Statement (Consolidated) Rs crore

Profit before tax 513 569 800 1,090 1,248
Depreciation 124 220 321 432 467
Change in Working Capital (93) 41 (54) (109) (41)
Interest / Dividend (Net) (32) (26) (31) (24) (28)
Direct taxes paid 213 202 299 392 444
Others 54 1 21 (93) (61)
Cash Flow from Operations 354 604 757 905 1,142
(Inc.)/ Dec. in Fixed Assets (392) (494) (556) (441) (422)
(Inc.)/ Dec. in Investments (180) (0) (47) (50) (100)
Cash Flow from Investing (572) (494) (603) (491) (522)
Issue of Equity 76 6 67 12 10
Inc./(Dec.) in loans (49) (4) (73) (4) (3)
Dividend Paid (Incl. Tax) (46) (184) (105) (296) (197)
Interest / Dividend (Net) 17 8 26 20 24
Financing
Cash Flow from Financing (1) (174) (85) (267) (166)
Inc./(Dec.) in Cash (220) (64) 70 146 454
Opening Cash balances 649 430 365 435 581
Closing Cash balances 430 365 435 581 1,036

June 22, 2010 19


Key Ratios

Valuation Ratio (x)
P/E (on FDEPS) 48.5 43.0 30.5 22.3 19.4
P/CEPS 45.3 38.9 26.9 19.7 17.1
P/BV 10.9 9.3 8.4 6.7 5.4
Dividend yield (%) 0.6 0.6 1.9 1.2 1.4
EV/Sales 14.3 12.0 8.6 6.3 5.6
EV/EBITDA 20.8 16.9 11.4 8.3 7.4
EV / Total Assets 7.9 6.8 6.1 4.9 4.1
Per Share Data (Rs)
EPS (Basic) 8.3 9.3 13.2 18.1 20.7
EPS (fully diluted) 8.3 9.3 13.2 18.1 20.7
Cash EPS 8.9 10.3 14.9 20.4 23.5
DPS 2.5 2.5 7.5 5.0 5.8
Book Value 36.8 43.2 47.6 59.8 73.8
Dupont Analysis
EBIT margin 54.4 49.7 53.0 53.8 55.0
Tax retention ratio 0.6 0.6 0.6 0.6 0.6
Asset turnover (x) 1.1 0.9 1.1 1.3 1.3
RoIC (Post-tax) 36.0 27.3 36.2 45.1 47.5
Cost of Debt (Post Tax) 0.1 0.1 0.1 18.2 18.5
Leverage (x) 0.8 0.4 0.2 0.0 0.0
Operating RoE 63.7 33.3 33.7 32.0 30.4
Returns (%)
RoCE (Pre-tax) 33.1 30.2 39.8 46.8 43.7
Angel RoIC (Pre-tax) 59.2 45.7 57.8 70.3 73.6
RoE 23.6 21.6 28.0 33.0 30.6
Turnover ratios (x)
Asset Turnover (Gross Block) 0.9 0.7 0.8 0.8 0.8
Inventory / Sales (days) 0 0 0 0 0
Receivables (days) 108 86 83 80 79
Payables (days) 15 17 12 12 11
Working capital cycle (ex-cash) (days) 81 104 34 73 70
Solvency ratios (x)
Net debt to equity 0.4 0.4 0.0 0.0 0.0
Net debt to EBITDA 0.1 0.1 0.0 0.0 0.0
Interest Coverage (EBIT / Interest) 29.8 37.4 155.9 266.2 304.7

June 22, 2010 20

Sun TV Network

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).

Disclosure of Interest Statement Sun TV Networks
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%)

Sun TV Netwrok

Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800

Research Team
Fundamental:
Sarabjit Kour Nangra VP-Research, Pharmaceutical sarabjit@angeltrade.com
Vaibhav Agrawal VP-Research, Banking vaibhav.agrawal@angeltrade.com
Vaishali Jajoo Automobile vaishali.jajoo@angeltrade.com
Shailesh Kanani Infrastructure, Real Estate shailesh.kanani@angeltrade.com
Anand Shah FMCG , Media anand.shah@angeltrade.com
Deepak Pareek Oil & Gas deepak.pareek@angeltrade.com
Puneet Bambha Capital Goods, Engineering puneet.bambha@angeltrade.com
Sushant Dalmia Pharmaceutical sushant.dalmia@angeltrade.com
Rupesh Sankhe Cement, Power rupeshd.sankhe@angeltrade.com
Param Desai Real Estate, Logistics, Shipping paramv.desai@angeltrade.com
Sageraj Bariya Fertiliser, Mid-cap sageraj.bariya@angeltrade.com
Viraj Nadkarni Retail, Hotels, Mid-cap virajm.nadkarni@angeltrade.com
Paresh Jain Metals & Mining pareshn.jain@angeltrade.com
Amit Rane Banking amitn.rane@angeltrade.com
Rahul Jain IT, Telecom rahul.j@angeltrade.com
Jai Sharda Mid-cap jai.sharda@angeltrade.com
Sharan Lillaney Mid-cap sharanb.lillaney@angeltrade.com

Amit Vora Research Associate (Oil & Gas) amit.vora@angeltrade.com
V Srinivasan Research Associate (Cement, Power) v.srinivasan@angeltrade.com
Aniruddha Mate Research Associate (Infra, Real Estate) aniruddha.mate@angeltrade.com
Mihir Salot Research Associate (Logistics, Shipping) mihirr.salot@angeltrade.com
Chitrangda Kapur Research Associate (FMCG, Media) chitrangdar.kapur@angeltrade.com
Vibha Salvi Research Associate (IT, Telecom) vibhas.salvi@angeltrade.com
Pooja Jain Research Associate (Metals & Mining) pooja.j@angeltrade.com

Technicals:
Shardul Kulkarni Sr. Technical Analyst shardul.kulkarni@angeltrade.com
Mileen Vasudeo Technical Analyst vasudeo.kamalakant@angeltrade.com
Derivatives:
Siddarth Bhamre Head - Derivatives siddarth.bhamre@angeltrade.com
Jaya Agarwal Derivative Analyst jaya.agarwal@angeltrade.com

Institutional Sales Team:
Mayuresh Joshi VP - Institutional Sales mayuresh.joshi@angeltrade.com
Abhimanyu Sofat AVP - Institutional Sales abhimanyu.sofat@angeltrade.com
Nitesh Jalan Sr. Manager niteshk.jalan@angeltrade.com
Pranav Modi Sr. Manager pranavs.modi@angeltrade.com
Sandeep Jangir Sr. Manager sandeepp.jangir@angeltrade.com
Ganesh Iyer Sr. Manager ganeshb.Iyer@angeltrade.com
Jay Harsora Sr. Dealer jayr.harsora@angeltrade.com
Meenakshi Chavan Dealer meenakshis.chavan@angeltrade.com
Gaurang Tisani Dealer gaurangp.tisani@angeltrade.com

Production Team:
Bharathi Shetty Research Editor bharathi.shetty@angeltrade.com
Bharat Patil Production bharat.patil@angeltrade.com
Dilip Patel Production dilipm.patel@angeltrade.com

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

Sun TV: Initiating Coverage

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