SUN TV Network Result Updated

8/3/2019 SUN TV Network Result Updated

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Please refer to important disclosures at the end of this report 1

(` cr) 2QFY12 2QFY11 % yoy 1QFY12 %qoqRevenue 451 425 6.2 454 (0.6)EBITDA 365 332 10.0 366 (0.1)

OPM (%) 81.0 78.2 275bp 80.6 38bp

PAT 180 167 7.6 188 (4.0)Source: Company, Angel Research

SUN TV (STNL) reported a muted performance for 2QFY2012. We have

marginally tweaked our revenue and earnings estimates due to slowdown

witnessed in ad revenue growth. Although we have a positive outlook on thecompanys business, we remain Neutral on the stock due to uncertaintiessurmounting the company.Key highlights of the quarter: For 2QFY2012, STNL posted muted top-line growthof 6.2% yoy (down 0.6% qoq). The companys earnings recorded modest growth

of 7.6% yoy (down 4.0% qoq). Apart from ad income, subscription income from

analogue and broadcast fee, all revenue streams delivered double-digit growth

on a yoy basis. During the quarter, STNL released two movies. On the operating

front, the companys margin expanded by 275bp yoy due to reduction in other

expenditure and staff costs during the quarter.

Outlook and valuation: We expect STNL to post a CAGR of 14.3%, 8.7% and8.1% over FY201113E in its advertisement revenue, EBIT and earnings,

respectively. We believe the recent not-in-favor incidents still are an overhang on

the companys stock. Accordingly, we believe the stock price would remain

range-bound. Nevertheless, we remain positive on the companys business,

considering its vast dominance in markets in which it is present. At the CMP, thestock is trading at 12.6x FY2013E (below its median of 23x). We maintain ourNeutral stance on the stock.Key financials (Consolidated)Y/E March (` cr) FY2010 FY2011 FY2012E FY2013ENet sales 1,453 2,013 2,090 2,321% chg 39.8 38.6 3.8 11.1

Net profit (Adj.) 520 770 813 900% chg 41.2 48.1 5.6 10.7

EBITDA margin (%) 75.1 78.4 78.4 78.4

EPS (`) 13.2 19.5 20.6 22.8P/E (x) 21.8 14.7 14.0 12.6

P/BV (x) 6.0 4.7 3.8 3.2

RoE (%) 27.9 35.4 30.0 27.3

RoCE (%) 39.7 47.5 41.0 37.9EV/Sales (x) 7.6 5.5 5.3 4.7

EV/EBITDA (x) 10.1 7.0 6.7 6.0

Source: Company, Angel Research

NEUTRALCMP `288

Target Price -

Investment Period -

Stock Info

Sector

Bloomberg Code SUNTV@IN

Shareholding Pattern (%)

Promoters 77.0

MF / Banks / Indian Fls 2.4

FII / NRIs / OCBs 15.1

Indian Public / Others 5.5

Abs. (%) 3m 1yr 3yr

Sensex (0.7) (15.9) 65.2

SUN TV (5.9) (44.6) 88.2

Media

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

11,342

0.5

557/215

322,559

Face Value (`)

BSE Sensex

Nifty

Reuters Code

5

17,563

5,284

SUNTV.BO

Sreekanth P.V.S022 3935 7800 Ext: 6841

[email protected]

SUN TV NetworkPerformance Highlights

2QFY2012 Result Update | Media

November 4, 2011


2/11

SUN TV Network | 2QFY2012 Result Update

November 4, 2011 2

Exhibit 1:Quarterly performance (Standalone)Y/E March (` cr) 2QFY12 2QFY11 % yoy 1QFY12 % qoq 1HFY2012 1HFY2011 % chgNet Sales 451 425 6.2 454 (0.6) 905 865 4.6Cost of Revenue 23 25 (10.0) 24 (7.1) 47 52 (9.8)(% of sales) 5.0 5.9 5.3 10.3 11.4

Staff cost 41 41 1.8 44 (5.9) 85 81 6.0

(% of sales) 9.2 9.6 9.7 18.8 17.8

Other expenditure 22 27 (18.2) 20 10.4 42 41 2.8

(% of sales) 4.9 6.3 4.4 9.2 9.0

Total Expenditure 86 92 (7.2) 88 (2.5) 174 173 0.5Operating Profit 365 332 10.0 366 (0.1) 731 692 5.7OPM (%) 81.0 78.2 80.6 80.8 80.0

Depreciation & Amortization 118 91 29.6 106 10.8 224 206 8.9

EBIT 248 242 2.6 260 (4.6) 508 487 4.3EBIT (%) 54.9 56.9 57.2 56.1 56.2

Interest 0.8 0.3 153.3 0 230.4 1.0 0.4 125.0

Other Income 19 9 101.3 17 7.7 36 21 74.9

PBT (excl. Ext Items) 266 250 6.1 277 (4.0) 543 507 7.1Ext Income/(Expense) - - - - -

PBT (Incl. Ext Items) 266 250 6.1 277 (4.0) 543 507 7.1(% of Sales) 58.9 59.0 61.0 59.9 58.6

Provision for Taxation 86 83 3.0 89 (4.1) 175 168 3.8

(% of PBT) 32.2 33.1 32.2 32.2 33.2

Recurring PAT 180 167 7.6 188 (4.0) 368 338 8.7PATM (%) 39.9 39.4 41.3 40.6 39.1

Reported PAT 180 167 7.6 188 (4.0) 368 338 8.7Equity shares (cr) 39 39 39 39 39

EPS (`) 4.6 4.2 7.6 4.8 (4.0) 9.3 8.6 8.7Source: Company, Angel Research

Muted top-line growth due to low ad revenue growth

During 2QFY2012, STNLs growth momentum slowed down to 6.2% yoy (decline

of 0.6% qoq) on account of high base. The weak performance on the top-line front

was due to 1) 2% yoy growth in advertising revenue; 2) 3.2% yoy decline inbroadcast fees; 3) 12.9% yoy growth (down by 6% qoq) in DTH revenue (7.3mn

subscriber base, ~`36 ARPU); 4) 11% yoy growth in international revenue; and

5) 13% yoy decline in analogue revenue. On a sequential basis, revenue from all

segments declined considerably.

The company distributed two movies during the quarter, which contributed ~`33cr

to the top line.


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November 4, 2011 3

Exhibit 2:Top-line growth trend


Exhibit 3:Revenue break-upY/E March (` cr) 2QFY12 2QFY11 % yoy 1QFY12 % qoq Advt. Income 235 2302.0 231 1.7

Broadcast Fee 39 40 (3.2) 39 -

Program License Inc (Int. Rev) 18 16 11.1 20 (10.0)

Subs Income Analogue 47 54 (13.0) 56 (16.1)

Subs Income DTH 79 70 12.9 84 (6.0)

Others (Incl. Movies) 33 14 135.7 24 37.5

Total Revenue 451 425 6.2 454.0 (0.7)% of total revenueAdvt. Income

Broadcast Fee 52.1 54.2 50.9

Program License Inc (Int Rev) 8.6 9.5 8.6

Subs Income Analogue 4.0 3.8 4.4

Subs Income DTH 10.4 12.7 12.3

Others (Incl. Movies) 17.5 16.5 18.5


320

395 392440 425

598

461 454 451

-

10

20

30

40

50

60

-

100

200

300

400

500

600

700

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

(%)

(`cr)

Top-line (LHS) yoy growth (RHS)


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November 4, 2011 4

Exhibit 4:Segmental revenue growth trend


Recurring earnings growth muted due to high base

During the quarter, STNL posted 7.6% yoy growth in its earnings to `180cr on a

recurring basis, despite higher depreciation costs because of the production of two

movies by the company.

OPM expands by 275bp yoy

STNL posted a 275bp yoy expansion in its OPM during the quarter due to

reduction in staff cost and other expenditure. Cost of revenue decreased by 90bpyoy/35bp qoq to `24cr, while other expense decreased by 145bp yoy/increased

49bp qoq during the quarter.

Exhibit 5:PAT reports modest growth...


Exhibit 6:... led by OPM expansion


194

36 4013

32

235

47

79

1839

-

50

100

150

200

250

300

Advertisement Analog Subs. DTH Subs. InternationalSubs.

Broadcast fees

(`cr)

2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

-

10.0

20.0

30.0

40.0

50.0

60.0

-

50

100

150

200

250

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

(%)

(`cr)

PAT (LHS) yoygrowth (RHS)

77.7 76.0 79.184.4 81.7 78.2

83.979.0 80.6 81.0

10.8 10.0 9.24.3 9.1

9.6 8.0 9.8 9.7 9.2

-

20.0

40.0

60.0

80.0

100.0

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

(%)

OPM Staff cost (% of sales)


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November 4, 2011 5

Investment arguments

STNLs ad revenue to be at par with regional advertising , we peg a 14%CAGR: During FY201113E, we peg STNLs ad revenue to post a 14% CAGR,at par with regional advertising during the period, driven by 1) absorption of

rate hikes (832% hike in ad rates across Tamil channels and 643% in

Telugu channels effective from January 2011 and another set of price hikes

taken effective from April 2011); 2) increasing DTH subscriber base; and

3) dominant position in South India, where the competition is limited.

DTH to drive a 15.9% CAGR in pay revenue: During FY201113E, we expectSTNL to register a robust 15.9% CAGR in overall DTH revenue. The

digitization drive across the nation and consumers shifting to superior-quality

DTH from cable television would also benefit STNL, as it is a known player in

South India (STNL receives ~60% of its revenue from Sun Direct).

We expect STNLs DTH subscriber base to reach ~9mn by FY2013.

Outlook and valuation

We expect STNL to post a CAGR of 14.3%, 8.7% and 8.1% over FY201113E in its

advertisement revenue, EBIT and earnings, respectively. We believe the recent

not-in-favor incidents still are an overhang on the companys stock. Accordingly,

we believe the stock price would remain range-bound. Nevertheless, we remain

positive on the companys business, considering its vast dominance in markets in

which it is present. At the CMP, the stock is trading at 12.6x FY2013E (below itsmedian of 23x). We maintain our Neutral stance on the stock.Exhibit 7:Change in estimates

Old estimates New estimates % chg(` cr) FY2012E FY2013E FY2012E FY2013E FY2012E FY2013ERevenue 2,104 2,341 2,090 2,321 (0.7) (0.9)OPM (%) 78.5 78.5 78.4 78.4 (9bp) (12bp)

EPS (`) 20.9 23.2 20.6 22.8 (1.2) (1.6)Source: Company, Angel Research


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November 4, 2011 6

Exhibit 8:Peer valuationCompany Reco Mcap CMP TP Upside P/E (x) EV/Sales (x) RoE (%) CAGR #

(` cr) (`) (`) (%) FY12E FY13E FY12E FY13E FY12E FY13E Sales PATSUN TV Neutral 11,342 288 - - 14.0 12.6 5.3 4.7 30.3 27.3 7.2 8.1 Zee Ent.* Unrated 12,225 125 - - 20.2 17.1 - - 17.6 18.5 9.6 18.4

Source: Company, Angel Research, *Bloomberg estimates, #CAGR over FY201113E

Exhibit 9:Angel vs. Consensus estimatesTop line (` cr) FY2012E FY2013E EPS (`) FY2012E FY2012E Angel estimates 2,090 2,321 Angel estimates 20.6 22

Consensus 2,099 2,374 Consensus 20.6 23.7

Diff (%) (0.4) (2.2) Diff (%) (0.1) (3.7)


Exhibit 10:Return of SUN TV vs. Sensex and Zee Ent.


Exhibit 11:One-year forward P/E band


0%

20%

40%

60%

80%

100%

120%

140%

Oct-1

0

Dec-1

0

Feb-1

1

Apr-1

1

Jun-1

1

Aug-1

1

Oct-1

1

Sensex SUN TV Zee Ent

0

100

200

300

400

500

600

Oct-0

6

Feb-0

7

Jun-07

Oct-0

7

Feb-0

8

Jun-08

Oct-0

8

Feb-0

9

Jun-09

Oct-0

9

Feb-1

0

Jun-10

Oct-1

0

Feb-1

1

Jun-11

Oct-1

1

SharePrice(`)

10x 15x 20x 25x


7/11


November 4, 2011 7

Profit & Loss Statement(Consolidated)Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EGross sales 870 1,039 1,453 2,013 2,090 2,321Less: Excise duty - - - - - -Net Sales 870 1,039 1,453 2,013 2,090 2,321

Total operating income 870 1,039 1,453 2,013 2,090 2,321% chg 28.3 19.5 39.8 38.6 3.8 11.1

Total Expenditure 272 303 362 436 452 501(Increase)/ Dec in stock in trade - - 4 2 - -

Cost of Production 77 111 119 135 139 155

Staff Costs 96 116 134 192 206 227

Power & Fuel 7 14 14 20 21 23

Other Expenses 93 62 91 86 86 96

EBITDA 598 737 1,091 1,578 1,638 1,820% chg 27.5 23.3 - - - -

(% of Net Sales) 68.7 70.9 75.1 78.4 78.4 78.4

Depreciation& Amortisation 124 220 321 480 470 516

EBIT 474 516 770 1,097 1,168 1,304% chg 34.4 9.0 49.1 42.5 6.4 11.6

(% of Net Sales) 54.4 49.7 53.0 54.5 55.9 56.2

Interest & other Charges 16 14 5 2 2 2

Other Income 56 67 35 49 47 47

(% of PBT) 10.8 11.7 4.4 4.3 3.8 3.5

Share in profit of Associates 1.1 0.2 0.8 3.5 1.2 1.2

Recurring PBT 513 569 800 1,144 1,212 1,349% chg 32.6 10.9 40.5 43.0 6.0 11.3

Prior Period & Extra Exp/(Inc.) - - - - - -

PBT (reported) 513 569 800 1,144 1,212 1,349Tax 201 229 299 383 406 454

(% of PBT) 39.2 40.3 37.4 33.5 33.5 33.6

PAT (reported) 312 340 501 761 806 895 Add: Share of earn of associate - - - - - -

Less: Minority interest (MI) (14) (28) (18) (6) (5) (3)

PAT after MI (reported) 327 368 520 770 813 900ADJ. PAT 327 368 520 770 813 900% chg 32.8 12.7 41.2 48.1 5.6 10.7

(% of Net Sales) 37.6 35.4 35.8 38.2 38.9 38.8

Basic EPS (`) 8.3 9.3 13.2 19.5 20.6 22.8Fully Diluted EPS ( ) 8.3 9.3 13.2 19.5 20.6 22.8% chg 32.8 12.7 41.2 48.1 5.6 10.7


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November 4, 2011 8

Balance Sheet (Consolidated)

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013ESOURCES OF FUNDSEquity Share Capital 197 197 197 197 197 197Preference Capital - - 88 88 88 88

Reserves& Surplus 1,252 1,505 1,689 2,219 2,766 3,401

Shareholders Funds 1,449 1,702 1,973 2,504 3,051 3,686Minority Interest 60 38 37 37 37 37

Total Loans 69 72 0 0 0 0

Deferred Tax Liability 1 26 34 34 34 34

Total Liabilities 1,580 1,838 2,044 2,575 3,122 3,757APPLICATION OF FUNDSGross Block 1,019 1,491 1,888 2,257 2,577 2,891

Less: Acc. Depreciation 474 677 990 1,471 1,941 2,457

Net Block 545 815 898 786 635 434CWIP 222 157 315 248 258 289

Goodwill - - - - - -

Investments 180 181 228 328 528 728Non Current Assets 8 23 30 35 40 35Current Assets 880 881 1,035 1,522 2,051 2,665

Cash 430 365 437 739 1,269 1,796

Loans & Advances 192 274 266 332 314 348

Other 258 241 332 451 469 520

Current liabilities 256 219 461 344 390 394

Net Current Assets 624 662 574 1,178 1,661 2,270Mis. Exp. not written off 0.1 0.1 0.0 0.0 0.0 0.0

Total Assets 1,580 1,838 2,045 2,575 3,122 3,757


9/11


November 4, 2011 9

Cash Flow Statement (Consolidated)

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EProfit before tax 513 569 800 1,144 1,212 1,349

Depreciation 124 220 321 480 470 516Change in Working Capital (93) 56 (109) (169) (12) (54)

Interest / Dividend (Net) (32) (26) (29) (38) (41) (41)

Direct taxes paid 213 202 281 383 406 (454)

Others 54 (14) 24 (22) 25 (20)

Cash Flow from Operations 354 604 726 1,011 1,249 1,297(Inc.)/ Dec. in Fixed Assets (392) (494) (554) (302) (329) (346)

(Inc.)/ Dec. in Investments (180) (0) (47) (100) (200) (951)

Cash Flow from Investing (572) (494) (602) (402) (529) (200)Issue of Equity 76 6 107 6 5 3

Inc./(Dec.) in loans (49) (4) (73) (4) (3) -

Dividend Paid (Incl. Tax) (46) (184) (115) (345) (231) (265)

Interest / Dividend (Net) 17 8 29 36 39 39

Cash Flow from Financing (1) (174) (53) (307) (190) (223)Inc./(Dec.) in Cash (220) (64) 71 302 530 528

Opening Cash balances 649 430 365 437 739 1,269Closing Cash balances 430 365 437 739 1,269 1,796


10/11


November 4, 2011 10

Key Ratios

Y/E March FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EValuation Ratio (x)P/E (on FDEPS) 34.7 30.8 21.8 14.7 14.0 12.6P/CEPS 32.4 27.8 19.3 13.5 12.7 11.5

P/BV 7.8 6.7 6.0 4.7 3.8 3.2

Dividend yield (%) 0.9 0.9 2.6 1.7 2.0 2.0

EV/Sales 12.6 10.6 7.6 5.5 5.3 4.7

EV/EBITDA 18.4 14.9 10.1 7.0 6.7 6.0

EV / Total Assets 7.0 6.0 5.4 4.3 3.5 2.9

Per Share Data (Rs)EPS (Basic) 8.3 9.3 13.2 19.5 20.6 22.8

EPS (fully diluted) 8.3 9.3 13.2 19.5 20.6 22.8

Cash EPS 8.9 10.3 14.9 21.3 22.6 25.0

DPS 2.5 2.5 7.5 5.0 5.8 5.8

Book Value 36.8 43.2 47.8 61.3 75.2 91.3

Dupont AnalysisEBIT margin 54.4 49.7 53.0 54.5 55.9 56.2

Tax retention ratio 0.6 0.6 0.6 0.7 0.7 0.7

Asset turnover (x) 1.1 0.8 0.9 1.0 0.9 0.8

RoIC (Post-tax) 35.3 24.6 28.5 35.2 32.1 31.7

Cost of Debt (Post Tax) 0.1 0.1 0.1 10.7 9.5 9.5

Leverage (x) 0.8 0.4 0.2 0.0 0.0 0.0

Operating RoE 63.7 33.3 33.7 35.2 32.2 31.7

Returns (%)RoCE (Pre-tax) 33.1 30.2 39.7 47.5 41.0 37.9

Angel RoIC (Pre-tax) 59.2 45.7 57.6 76.0 82.4 101.9

RoE 23.6 21.6 27.9 35.4 30.0 27.3

Turnover ratios (x) Asset Turnover (Gross Block) 0.9 0.7 0.8 0.9 0.8 0.8

Inventory / Sales (days) 0 0 1 1 1 1

Receivables (days) 108 85 83 81 81 81

Payables (days) 15 16 10 8 8 8

WC (ex-cash) (days) 81 104 34 80 69 75

Solvency ratios (x)Net debt to equity 0.4 0.4 0.0 0.0 0.0 0.0

Net debt to EBITDA 0.1 0.1 0.0 0.0 0.0 0.0

Int. Coverage (EBIT / Interest) 29.8 37.4 155.9 487.7 583.9 651.9


11/11


November 4, 2011 11

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement SUN TV

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

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

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SUN TV Network Result Updated