Sun TV Net Work L Ltd

RESEARCH Sun TV Network Ltd. BUY Investment Highlights: Key Indicators as on 01/11/2013 SOURCE:CMIE Closing Price (Rs) 430.90 → Unique business model of time slot sale gives a competitive EPS (Rs) - TTM 17.34 advantage P/E - TTM 24.85 BV per Share (Rs) 83.29 → Subscription revenues to drive growth in digitalization phase PB 5.17 Yield% 2.15 → Resolved issues with Arasu Cable Mkt Cap (Rs. Crore) 16981.11 will strengthen its position in Tamil Nadu market Borrowing as on Mar-13 NIL Beta 0.85 Mkt Cap/Sales - TTM 8.52 → Other positives Mkt Cap/PBIDTA - TTM 11.61 ¾ Stable margins expected to Mkt Cap/PBDT - TTM 11.65 improve within couple of years Mkt Cap/PAT - TTM 24.85 ¾ Radio business turns pat Mkt Cap/Cash Profit - TTM 15.15 positive PBDITA Rs. in Crores TTM 1462.75 Face Value 5.00 ¾ Repeat revenues in the movie distribution segment Shares Outstanding crores 39.41 Equity Share capital in Rs Crores 197.04 ¾ Tapping the overseas market Share holding (%) Sept 2013 ¾ Available at a discount as Promoters 75.00 compared to its peeer Public 5.22 FIIs 16.00 ¾ Trading below its 8 year average PE & PB of 36.3 & 6.8 Others 3.78 respectively Index Comparison ¾ Dividend pay out of approximately 50% since 4 years ¾ Mutual funds & FII’s increasing holdings gradually www.nayanmvala.com 1 Pg. Investment Rationale: Unique business → Sun TV has a unique business model, wherein it leases out its time model of time slot slots to third party content producers for a fixed fee ranging from Rs. sale gives a 75,000 to Rs. 2,00,000 for 30 mins slot. In return, the content producers competitive have the right to about 4mins of advertising inventory per half an hour, advantage while Sun TV gets 2mins of this half an hour slot. Since the time is leased, the content is not owned by the company and hence the cost of the content and risks associated are also not borne by it which helps the company control its costs. As Sun TV does not buy the content, no cost is recognized in the operating expenses leading to higher margins. → Subscription revenues to drive growth Subscription 1. Subscriber Declaration revenues to drive The problem of under declaration which was hampering the growth of the growth in company will be eradicated which will increase revenues of the company digitalization with the ongoing digitization. phase 2. Rise in ARPU As per data available out of 140 million households, 40% (56 million) is in South India. As on June 2013, Sun TV has a total of 8.96 million subscribers in digitised form where the ARPU is 39 per unit and the balance 47 million in analogue form where the ARPU is only Rs. 4 per unit thus giving them an opportunity to increase their revenue from Phase 3 & Phase 4 digitization in tier 2 & 3 cities. 3. Billing of Phase 1 & Phase 2 The billing of Phase 1 & phase 2 is not completed yet & the management expects it to complete by FY14 which will further boost revenues. 4. Please note in the table below, DTH revenue which was nothing in 2008 was up to 20% of the topline in 2013 and is expected to become 50% of the topline in the next 5 years if the digitisation goes through as planned. (Rs.in cr) Mar‐07 Mar‐08 Mar‐09 Mar‐10 Mar‐11 Mar‐12 Mar‐13 DTH Revenue 0 9.7 84.2 182.9 291.8 336 372.8 Pay channels 167.2 219.7 130.9 156.9 217.2 167 139.2 Subscription Revenue 167.2 229.4 215.1 339.8 509 503 512 DTH Revenue % 0.0% 1.1% 8.1% 12.6% 14.5% 18.2% 19.4% Pay channels % 24.7% 25.3% 12.6% 10.8% 10.8% 9.0% 7.2% Subscription Revenue % 24.7% 26.4% 20.7% 23.4% 25.3% 27.2% 26.6% www.nayanmvala.com 2 Pg. Resolved issues → Sales which were growing at 24% CAGR from FY07-11 dipped in FY12 with Arasu Cable also because of the Arasu Cable (owned by govt of Tamil Nadu) will strengthen its problems. However in August 2012 the company has signed a deal with position in Tamil them to carry Sun TV channels on its network, post which the company Nadu market has again shown growth. You may see from the table below that excluding the movie distribution business in 2013 the company has again shown growth. (Rs. in cr) Mar‐07 Mar‐08 Mar‐09 Mar‐10 Mar‐11 Mar‐12 Mar‐13 Sales 675.7 870.0 1,039.2 1,451.1 2,013.4 1,847.3 1,923.0 Movie Distribution 0 0 28.2 67.5 221.3 59.7 0.3 Sales less Movie Distribution 675.7 870.0 1011.0 1383.6 1792.1 1787.6 1922.7 Please note: Movie distribution business needs to be excluded as its non- recurring in nature. In 2011 the company had done well with the movie Enthiran (Robot). Other Positives Stable Margins → Stable margins since IPO which is expected to improve within couple of expected to years. improve within couple of years 100 80 60 40 20 0 13 12 11 10 09 08 07 06 05 03 02 01 00 99 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar PBDIT net of P&E & OI% PAT net of P&E & OI% (Source:prowess) → June quarterly margins have dropped only because of loss in IPL. Excluding IPL, the margins are still stable. www.nayanmvala.com 3 Pg. 100 80 60 40 20 0 12 11 10 09 08 07 06 05 13 12 11 10 09 08 07 06 05 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jun Jun Jun Jun Jun Jun Jun Jun Jun Dec Dec Dec Dec Dec Dec Dec Dec PBDIT net of P&E&OI% PAT net of P&E & OI% (Source:prowess) Margins Mar‐12 Jun‐12 Sep‐12 Dec‐12 Mar‐13 Jun‐13 EBITDA excl IPL 80.4% 79.0% 78.1% 79.6% 78.3% 79.0% Total 80.4% 79.0% 78.1% 79.6% 78.3% 61.0% Radio business → Sun TV which has a presence in the radio business through two turns pat positive subsidiaries – South Asia FM Ltd. (59.15%) and KAL Radio Ltd. (97.78%) has registered an increase in pat margins from -7.2% in FY12 to 9.6% in FY13. Currently metro stations account for 50% of total Radio revenues & with the implementation of Phase 3, penetration into tier 2 & tier 3 cities will further increase the revenues. Repeat revenues → In the movie distribution business, Sun TV buys 70-80% of the movies in in the movie regional languages & they have a total of 10,000 movie titles in 4 distribution languages of which the repeat telecast will help increase the bottomline. segment → Sun TV has presence in geographies of Malaysia, Singapore, Canada, Tapping the Sri Lanka, the UK, South Africa, Australia, Europe and the US & is overseas market growing at 17% CAGR between FY07-13. The company has recently entered Myanmar & Burma to further tap the overseas market. (Rs. in Cr) Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Overseas Income 34 38.3 54 56 69 84.3 103.1 www.nayanmvala.com 4 Pg. Available at a PBDIT net Cash & discount as of P&E & PAT net of Cash Promoter OI% P&E & OI% Borrowings Equivalents PE PB Mkt Cap holding compared to its Sun TV 70.6% 31.5% ‐ 660 24.8 5.1 16,981 75.0% peer Zee 26.4% 15.7% 2.8 1323 31.1 6.6 25,969 43.1% (Source:prowess) PE PB Trading below its 100.0 14 80.0 12 8 year average PE 10 & PB of 36.3 & 6.8 60.0 8 respectively 40.0 6 4 20.0 2 0.0 0 10 07 12 13 11 09 10 08 06 07 12 08 07 13 11 09 10 08 06 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jun Jun Jun Jun Jun Sep Sep Dec Oct Dec Apr Apr Feb Feb Dec Mar Mar Mar Aug (Source:prowess) Dividend pay out Dividend Payout of approximately 50% since 4 years 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% www.nayanmvala.com 5 Pg. Mutual Funds & 16 FII’s increasing 14 holdings 12 gradually 10 % 8 6 4 2 0 12 11 10 09 08 07 06 13 12 11 10 09 08 07 06 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jun Jun Jun Jun Jun Jun Jun Jun Dec Dec Dec Dec Dec Dec Dec Mutual Funds FIIs (Source:prowess) Company Profile: Sun TV was incorporated as Sumangali Publications in 1985. It was later renamed Sun TV in 2000 and the company filed its IPO in 2006 and raised INR6bn. Sun TV is a leading player in South India with a bouquet of 33 channels across four states—Tamil Nadu, Karnataka, Andhra Pradesh, and Kerala. The flagship channel Sun TV corners more than 60% market share in the Tamil GEC genre. The company earlier operated only Tamil and Malayalam channels; it added Kannada and Telugu to its bouquet with the acquisition of Gemini TV and Udaya TV. It was the first channel to introduce mega soaps in South India and also the first to use digital broadcasting. Apart from the television broadcasting business, the company has a strong presence in radio broadcasting and ventured into film production in FY09.

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