MOSL: SUN TV NETWORK (Buy)-Subscription growth strong; content investment intensity high
SUN TV NETWORK: Subscription growth strong; content investment intensity high
(SUNTV IN, Mkt Cap USD2.5b, CMP INR448, TP INR600, 34% Upside, Buy)
- Strong subscription overshadowed by weak ad growth: Revenue declined 2% YoY (7% miss) in 1QFY20, as strong subscription revenue growth (+28% YoY to INR4.0b) was overshadowed by flattish ad revenue (+2% YoY) amidst a weak ad market. The impact was accentuated by early accrual of partial IPL revenue in 4QFY19, leading to lower contribution in 1QFY20. EBITDA too was down by 7% YoY (9% miss), as content cost (accounted in operating cost) doubled YoY owing to the new Bangla channel launch and the recent high-cost fiction program launch. Subsequently, PAT was down 7% YoY to INR3.8b (13% miss).
- Concall highlights: (1) Subscription revenue is expected to grow by over 20% in FY20, as 35% of the market is still analog. (2) Ad spends will be muted for the year; expect mid-single-digit growth in ad revenue. (3) SUNTV plans to invest ~INR1,500m toward OTT content over the next 18 months, but it targets to be cash neutral - a large deal is likely to be signed soon with a leading telecom player and an OTT player. (4) The company aims to achieve a 50% market share in south and gradually expand the pie thereafter.
- In a high content investment mode: SUNTV continues delivering steady growth in subscription in the NTO regime; however, a weak market scenario raises concerns about overall revenue growth (estimated at just 7% in FY20). Further, high intensity of content investment toward new programs, Bangla channel launch and OTT will likely keep opex at elevated levels. We, thus, cut our EBITDA/PAT estimates by 7%, building an 11% PAT CAGR over FY19-21.
- Valuation view: We lower our TP to INR600 (prior: INR690) to factor in the cut in our estimates, valuing it at 14x P/E on FY21E EPS of INR44. The stock is attractively priced at 10x on FY21E; however, efforts to turn around business earnings (PAT growth estimated at only 6% in FY20) will have to be more extensive and multifaceted amidst overall market weakness. Maintain Buy.
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.
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