MOSL: SUN TV (Neutral)-Digital MSO license to Arasu could mean facelift for SUNTV’s subscription

​SUN TV: Digital MSO license to Arasu could mean facelift for SUNTV’s subscription; TP revised to INR860

(SUNTV IN, Mkt Cap USD5.3b, CMP INR895, TP INR860, 4% Downside, Neutral)

• Media reports (Report 1, Report 2) suggest that state-owned Arasu Cable has been granted a provisional digital MSO license by the Ministry of Information (MIB) after a five-year-old logjam. This would be a first instance in the pay TV distribution space, where a state-run organization will largely cater to the cable needs of subscribers.
  
• The decision to grant a permanent license to Arasu hinges on the outcome of the Inter-Ministerial Committee’s (IMC) meeting on the TRAI’s recommendation of not allowing government entities to enter the broadcasting and pay TV distribution business.
  
• The MIB has also set a three-month deadline to switch-off analog signals.
  

TN’s digitization status, and theoretical upside for SUNTV from Arasu going digital

• ​Tamil Nadu has ~17m subscribers (C&S households), of which ~2.5m reside in Chennai (largely digitized). Of the 17m subscribers, ~8m reside with Arasu (which pays a minimum guarantee of ~INR25m/month to SUNTV – i.e. ~INR3/sub/month), while the remaining 9m reside with other MSOs and DTH operators. SUN TV is estimated to garner ~INR25 and INR40 per sub per month from MSOs (ex-Arasu) and DTH operators, respectively. The incremental opportunity for SUNTV from Arasu going digital is INR2.1b. However, Arasu being the most dominant player is expected to extract a lion’s share of ARPU even in a digitized Tamil Nadu. We believe the needle could move meaningfully if the new tariff regulation is implemented as that would reduce Arasu’s bargaining power.