MOSL: SUN TV NETWORK (Buy)-Near-term growth headwinds persist
Sun TV Network: Near-term growth headwinds persist
(SUNTV IN, Mkt Cap USD3.1b, CMP INR548, TP INR690, 26% Upside, Buy)
- Movies and IPL revenues cushion TV business: SUNTV reported a weak quarter due to muted ad/subscription revenue growth. Standalone revenue growth came in at strong 24% YoY to INR8.9b (9% beat), primarily due to revenue from movies (INR1.1b) and the IPL (INR0.6b). Consequently, EBITDA grew 16% YoY to INR6.1b (3% beat); margins, however, contracted 440bp YoY to 68.4% impacted by high production cost and IPL related increase in SG&A. But, movie amortization cost pulled down PAT to INR2.8b, -2% YoY (23% miss). For FY19, revenue/EBITDA/PAT grew 28%/31%/28%.
- Concall highlights: (1) FY20 subscription revenue should grow at 14-15%. (2) Expect 1HFY20 ad growth to remain under pressure due to viewership impact from TRAI's New Tariff Order. (3) Currently, ~38% homes in Tamil Nadu are still on analog signals; expect additional 6-9 months to get fully digitized.
- Growth pace slows down: Digitization in Tamil Nadu coupled with ARPU improvement is expected to outweigh the impact of TRAI's Tariff Order on subscription revenue growth; expect 15% CAGR over FY19-21. This could be back-ended in 2HFY20 as disruption in subscription could take 1-2 quarters to stabilize. Also, near-term ad growth should be subdued (expect 8% CAGR over FY19-21). Subsequently, we estimate 9% standalone revenue CAGR over FY19-21 (largely maintain our estimates). Further, new launches coupled with higher content and marketing-led investments in Bangla channel and Sun Nxt platform should keep margin under check; expect 30bp contraction to 69.7% and EBITDA CAGR of 9% over FY19-21.
Sun TV Network Limited. Sun TV Network Limited is engaged in providing broadcasting services. The Company operates through Media and Entertainment segment. Its geographical segments include India and Others. It is engaged in producing and broadcasting satellite television and radio software programming in the regional languages of South India. It operates television channels in approximately four South Indian languages to viewers in India, and also to viewers in Sri Lanka, Singapore, Malaysia, the United Kingdom, Europe, the Middle East, the United States, Australia, South Africa and Canada. It operates Sun TV channel. Its other satellite channels are Surya TV, Gemini TV and Udaya TV. It is also into the business of frequency modulation (FM) radio broadcasting at Chennai, Coimbatore and Tirunelveli. It also has the license to operate an Indian Premier League franchise Sun Risers Hyderabad. It has presence across various genres, such as general entertainment, movies, music, news, kids, action and life.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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