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Sun TV Network Climbs 7 Percent

Sun TV Network shares rallied nearly 7 percent in morning trade on February 11 as brokerages remained positive on the stock and expect 38-54 percent return after stellar earnings performance in Q3.


The stock was quoting at Rs 542.55, up Rs 22, or 4.23 percent on the BSE, at 0947 hours IST.

The mass media company reported strong revenue growth of 32 percent YoY to Rs 900 crore, mainly due to better-than-expected movie revenue and backed by healthy advertising and subscription revenue.

EBITDA (earnings before interest, tax, depreciation and amortization), thus, grew a robust 36 percent YoY to Rs 680 crore, with the margin expanding 175bp YoY to 73.8 percent. PAT grew 32 percent YoY to Rs 350 crore on the back of strong EBITDA growth, partly offset by higher depreciation cost. For nine months period ended December 2018, revenue/EBITDA/PAT grew 29/36/38 percent YoY.

While addressing conference call, Sun TV said it expects double-digit advertising revenue growth and 20 percent subscription revenue growth in FY20.

“We are garnering around Rs 50 crore revenue from around 1 million subscribers on Sun Nxt, digitization in Tamil Nadu will get completed by June 2019 and we are setting up a new team and building scale for ramping up Sun Nxt,” it said.

After stellar earnings performance, brokerage houses remained positive on the stock and expected hefty return going ahead.

We reiterated a buy call on Sun TV with a target price at Rs 770. Revenue growth of 32 percent was 17 percent above estimate as DTH & cable collections led to a rise in subscription growth.

New Bengali GEC will have a two-year breakeven.

We lifted estimates by 1-4 percent and forecast a 10 percent FY19-21 earnings CAGR. The stock is inexpensive at a 30 percent discount to the five-year average.

We have a buy call on Sun TV with a target price at Rs 800 apiece as business remained steady and earnings are rebased up in FY19.

Valuations are compelling. Given a strong balance sheet, the higher dividend can also provide support.

We expect advertising/domestic subscription revenue CAGR of 12/18 percent over FY19-21. However, (i) new launches on Sun TV and Sun Life channels, (ii) higher content- and marketing-led investments in Bangla channel and (iii) significant investments for ramping up original content on Sun Nxt platform would exert pressure on margins. Consequently, over FY19-21, we expect margins to contract 200bp to 69.2 percent and EBITDA CAGR of 12 percent.

We roll forward valuation to FY21E, valuing Sun TV at a target price of Rs 720 (prior: Rs 750), ascribing 15x (around 30 percent discount to three-year average due to mounting pressure on viewership share and increasing investments across both traditional and digital medium) P/E to FY21E EPS.

However, the stock has corrected around 15 percent over the last three months, and thus, appears attractively valued at 12.4x/11.0x FY20/21E EPS. This, along with healthy return ratios, offers comfort. Maintain Buy.―Money Control

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