MOSL: SUN TV NETWORKS (Buy)-Improving viewership, digitization in TN to support earnings
Sun tv networks: Improving viewership, digitization in TN to support earnings; Recent stock price correction unwarranted; maintain Buy
(SUNTV IN, Mkt Cap USD4.5b, CMP INR776, TP INR1080, 39% Upside, Buy)
- After being hurt by IPL in May 2018, and then by ARASU withdrawing feeds in June 2018, the viewership share for Sun TV channel has increased by 280bp in the last six weeks. Uptick in viewership share on resumption of ARASU feeds, new launches, and increasing share of commission-model-based shows should drive 13% CAGR in ad revenue over FY18-20.
- Foray into the Bangla genre (market size: INR7b), which is likely before the end of FY19, could cost ~INR1.5b annually, translating into 3-5% loss of PBT. However, it should expand SUNTV’s target market and earnings growth potential.
- The monthly run-rate of digitization in Tamil Nadu should continue to be 300k-400k subscribers in FY19. Digitized subscribers in the state should reach 5m-7m (50-60% of analog subscribers).
- We expect INR3.6b incremental subscription revenue from the Tamil market over the next 2-3 years and 10-12% CAGR in the non-Tamil market over the same period. We believe SUNTV would comfortably meet our estimate of 16% subscription revenue CAGR over FY18-20.
- We expect IPL to contribute revenue of INR2.4b and PBT of INR1.3b-1.4b in FY19; 85% of the total IPL revenue should be booked in 1QFY19.
- We value SUNTV at 27x (~25% discount to ZEE) FY20E EPS, arriving at a TP of INR1,080 (INR1,100 earlier). With PAT CAGR of 20% over FY18-20 and a steady increase in RoCE to 30%, the valuation gap (currently ~30%) with ZEE should reduce. 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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