Company Detail Report

CMP: 573.40 DEC 6th, 2018 SUN TV NETWORKS LTD ISIN: Overweight Result Update (PARENT BASIS): Q2 FY19 INE424H01027 Index Details SYNOPSIS Stock Data Sun TV Network Limited, together with its Sector Broadcasting & Cable TV subsidiaries, engages in producing and BSE Code 532733 broadcasting satellite television and radio software Face Value 5.00 programming in the regional languages of South 52wk. High / Low (Rs.) 1097.05/564.05 India. Volume (2wk. Avg.) 68000 Sun Network Ltd has achieved a turnover of Rs. Market Cap (Rs. In mn.) 225965.47 7495.50 mn for Q2 FY19 as against Rs. 6759.00 mn in Q2 FY18, an increase of 10.90%. Annual Estimated Results(A*: Actual / E*: Estimated) Years (Rs. In mn) FY18A FY19E FY20E During the quarter, EBIDTA stood at Rs. 6160.90 mn as against Rs. 5333.20 mn in the corresponding Net Sales 28624.50 34349.40 39845.30 period of the previous year, up by 15.52%. EBITDA 20991.30 26213.43 30396.10 Net Profit 10930.40 14033.84 16506.03 Profit before tax (PBT) stood at Rs. 5336.30 mn in EPS 27.74 35.61 41.88 Q2 FY19 as against Rs. 4305.70 mn in the corresponding quarter of the previous year, an P/E 20.67 16.10 13.69 increase of 23.94%. Shareholding Pattern (%) During the 2nd quarter, net profit increased by 23.41% to Rs.3513.20 mn from Rs.2846.70 mn in As on Sep 2018 As on Jun 2018 the corresponding period of the previous year. Promoter 75.00 75.00 EPS of the company stood at Rs. 8.91 in Q2 FY19 as against Rs. 7.22 in the corresponding quarter of Public 25.00 25.00 the previous year. Others -- -- Revenue of the company registered a growth of 27.88% at Rs. 18699.40 mn in H1 FY19 as 1 Year Comparative Graph compared to Rs. 14622.20 mn in H1 FY18. During H1 FY19, PAT rose by 41.79% at Rs. 7604.60 mn as against Rs. 5363.10 mn in in H1 FY18. The company has declared an interim dividend of Rs.2.50 per share of Rs.5.00 each (i.e. 50%) for the financial year 31st Mar, 2019. Net Sales & PAT of the company are expected to grow at a CAGR of 14% and 17% over 2017 to 2020E, respectively. SUN TV NETWORKS LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND Company Name (Rs.) Rs. In mn. (Rs.) Ratio Ratio % Sun TV Networks Ltd 573.40 225965.47 33.42 17.15 4.87 200.00 Zee Entertainment Enterprises Ltd 471.95 453292.20 18.01 26.20 7.79 290.00 TV Today Networks Ltd 371.55 22167.10 23.27 15.97 3.07 45.00 Entertainment Network India Ltd 613.25 29233.90 9.00 68.14 3.31 10.00

Results updates- Q2 FY19,

(Rs. In million) Sep-18 Sep-17 % Change

Revenue 7495.50 6759.00 10.90%

Net Profit 3513.20 2846.70 23.41%

EPS 8.91 7.22 23.41%

EBIDTA 6160.90 5333.20 15.52%

Sun Network Ltd has achieved a turnover of Rs. 7495.50 million for the 2nd quarter of the FY 2018-19 as against Rs. 6759.00 million in the corresponding quarter of the previous year, an increase of 10.90%. During the 2nd quarter, net profit increased by 23.41% to Rs. 3513.20 million from Rs. 2846.70 million in the corresponding quarter ending of previous year. Reported earnings per share of the company stood at Rs. 8.91 in Q2 FY19 as against Rs. 7.22 in the corresponding quarter of the previous year. Profit before interest, depreciation and tax stood at Rs. 6160.90 million as against Rs. 5333.20 million in the corresponding period of the previous year.

Break up of Expenditure

Value in Rs. Million Break up of Expenditure % Q2 FY19 Q2 FY18 Change

Operating Expenses 901.10 640.80 41%

Employee Benefit 734.70 773.90 -5% Expenses

Depreciation & 818.90 1026.90 -20% Amortization Expense

Other Expenses 320.00 383.40 -17%

The company has declared an interim dividend of Rs.2.50 per share of Rs.5.00 each (i.e. 50%) for the financial year 31st Mar, 2019.

COMPANY PROFILE Sun TV Network Limited is engaged in providing broadcasting services. It 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 satelite Television Channels across four languages of Tamil, Telugu, Kannada and Malyalam, airs FM radio stations across Inida and owns the SunRisers Hyderabad Cricket Franchise of the Indian Premier League. And also to viewers in Sri Lanka, Singapore, Malaysia, the United Kingdom, Europe, the Middle East, the United States, Australia, South Africa and Canada.

Balance Sheet as of March 31, 2017-2020E FY17A FY18A FY19E FY20E APPLICATION OF FUNDS Non-Current Assets a) Property, Plant and Equipment 7630.10 7099.70 7277.19 7459.12 b) Capital Work in progress 14.90 441.50 520.97 599.12 c) Investment Properties 127.10 120.00 123.00 126.08 d) Other Intangible Assets 3263.30 3173.30 3300.23 3448.74 e) Investments In Subsidiary/ Joint Venture 7135.50 7135.50 7135.50 7135.50 f) Financial Assets i) Investments 1949.20 1934.10 1972.78 2012.24 ii) Other Financial Assets 420.40 94.10 105.39 112.24 g) Non Current Tax Assets (net) 669.40 636.90 678.30 719.00 h) Other Non Current Assets 795.40 1843.50 2212.20 2577.21 1.Total Non - Current Assets 22005.30 22478.60 23325.57 24189.24 Current Assets a) Inventories 8.90 2.50 2.80 3.08 b) Financial Assets i) Investments 5454.80 15051.00 23479.56 34045.36 ii) Trade Receivable 7237.80 10084.30 11899.47 13446.41 iii) Cash and Bank Balances 7384.40 3071.30 3301.65 3516.25 iv) Other Financial Assets 955.80 1026.30 1083.77 1132.54 c) Other Current Assets 451.30 190.00 202.35 218.54 2.Total Current Assets 21493.00 29425.40 39969.60 52362.18 Total Assets (1+2) 43498.30 51904.00 63295.17 76551.43 SOURCES OF FUNDS Shareholder's Funds a) Share Capital 1970.40 1970.40 1970.40 1970.40 b) Other Equity 38247.10 44430.30 55848.89 68973.38 1. Total Net worth 40217.50 46400.70 57819.29 70943.78 Non Current Liabilities a) Financial Liabilities i) Other Financial Liabilities 75.00 67.10 61.73 58.65 b) Government Grants 62.60 53.10 46.46 43.67 c) Deferred Tax Liabilities 555.50 769.70 912.09 1030.67 2. Total Non Current Liabilities 693.10 889.90 1020.29 1132.99 Current Liabilities a) Financial Liabilities i) Trade payables 497.00 577.40 649.58 704.79 ii) Other Current Financial Liabilities 1548.80 1949.80 2102.63 2255.55 b) Government Grants 11.80 9.50 8.74 8.00 c) Short Term Provisions 189.80 156.50 139.29 131.49 d) Other Current Liabilities 340.30 1920.20 1555.36 1374.84 3. Total Current Liabilities 2587.70 4613.40 4455.59 4474.67 Total Liabilities (1+2+3) 43498.30 51904.00 63295.17 76551.43

Value(Rs.in.mn) FY17A FY18A FY19E FY20E Description 12m 12m 12m 12m Net Sales 25582.50 28624.50 34349.40 39845.30 Other Income 1455.50 1396.50 2003.98 2404.77 Total Income 27038.00 30021.00 36353.38 42250.08 Expenditure -8212.80 -9029.70 -10139.94 -11853.98 Operating Profit 18825.20 20991.30 26213.43 30396.10 Interest -10.30 -10.50 -11.55 -12.47 Gross profit 18814.90 20980.80 26201.88 30383.63 Depreciation -3911.40 -4396.80 -4792.51 -5271.76 Tax 14903.50 16584.00 21409.37 25111.86 Profit After Tax -5109.40 -5653.60 -7375.53 -8605.84 Net Profit 9794.10 10930.40 14033.84 16506.03 Equity capital 1970.40 1970.40 1970.40 1970.40 Reserves 38247.10 44430.30 55848.89 68973.38 Face value 5.00 5.00 5.00 5.00 EPS 24.85 27.74 35.61 41.88

Quarterly Profit & Loss Statement for the period of 31st Mar, 2018 to 31st Dec, 2018E

Value(Rs.in.mn) 31-Mar-18 30-Jun-18 30-Sep-18 31-Dec-18E Description 3m 3m 3m 3m Net sales 7169.50 11203.90 7495.50 7870.28 Other income 368.40 390.00 621.20 528.02 Total Income 7537.90 11593.90 8116.70 8398.30 Expenditure -1945.50 -3856.80 -1955.80 -2277.66 Operating profit 5592.40 7737.10 6160.90 6120.64 Interest -8.80 -2.60 -5.70 -5.42 Gross profit 5583.60 7734.50 6155.20 6115.22 Depreciation -1190.40 -1467.70 -818.90 -900.79 Profit Before Tax 4393.20 6266.80 5336.30 5214.43 Tax -1495.60 -2175.40 -1823.10 -1805.24 Net Profit 2897.60 4091.40 3513.20 3409.20 Equity capital 1970.40 1970.40 1970.40 1970.40 Face value 5.00 5.00 5.00 5.00 EPS 7.35 10.38 8.91 8.65

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 24.85 27.74 35.61 41.88 EBITDA Margin (%) 73.59% 73.33% 76.31% 76.29% PBT Margin (%) 58.26% 57.94% 62.33% 63.02% PAT Margin (%) 38.28% 38.19% 40.86% 41.43% P/E Ratio (x) 23.07 20.67 16.10 13.69 ROE (%) 24.35% 23.56% 24.27% 23.27% ROCE (%) 46.81% 45.24% 45.34% 42.85% Debt Equity Ratio 0.00 0.00 0.00 0.00 EV/EBITDA (x) 11.32 9.90 7.60 6.20 Book Value (Rs.) 102.05 117.74 146.72 180.02 P/BV 5.62 4.87 3.91 3.19

Charts

. At the current market price of Rs. 573.40 the stock P/E ratio is at 16.10 x FY19E and 13.69 x FY20E respectively.

. Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs. 35.61 and Rs. 41.88 respectively.

. Net Sales & PAT of the company are expected to grow at a CAGR of 14% and 17% over 2017 to 2020E, respectively.

. On the basis of EV/EBITDA, the stock trades at 7.60 x for FY19E and 6.20 x for FY20E.

. Price to Book Value of the stock is expected to be at 3.91 x and 3.19 x for FY19E and FY20E respectively.

. Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW Media and Entertainment (M&E) industry in India continues to grow at rates faster than broader economy, thanks to greater disposable incomes across households. The financial year 2017-18 was a notable year for the Indian economy. Retail inflation was the lowest in almost four decades and several path breaking reforms such as the Goods and Services Tax (GST) recapitalization of banks and the Insolvency and Bankruptcy Code were implemented. The financial year under review also witnessed several other regulatory reforms with a rapid digitization of TV distribution, barring the state of Tamil Nadu. The M&E today generates millions of jobs directly and indirectly, contributes to economic growth by providing a platform for the growth of several other related industries.

The various segments of the M&E sector are also in the throes of rapid change, with innovations led by digitally enabled interfaces, both on the consumer side and through the content supply chain. The transition to digitally addressable systems was contentious but has finally been settled. Pay TV in India has been witnessing strong momentum and is expected to grow even more, since it is only at a 60% penetration of all households. Ad spends by companies did get impacted in the aftermath of the demonetization in November 2016 and in the run up to the transition to the GST regime in July 2017. Media buyers estimate that the ad spends are expected to increase in the coming years. Entertainment genre continues to be the largest ad spend driver followed by news and sports. A booming economy witnesses higher spending of various industries on advertisement as sales grow.

The next few years are poised to be more exciting. Digitalization will ensure broadcasters to claim their legitimate share in the near future. Alternate distribution platforms to fuel growth DTH, CAS, HITS, IPTV. Overseas subscription continues to offer a huge untapped growth opportunity. The time is now to re-imagine what the new consumer experience should be, re-imagine the boundaries of creativity and content, re-imagine business models. The radio segment is also growing equally with other mediums such as television and print due to combination of localized reach and affordable pricing which is likely to be further enhanced with the launch of 162 new FM radio stations in the frequencies allotted in the second batch of Phase III auctions including across the key markets of Mumbai and Delhi. Licenses were acquired in 17 cities that had no operating FM license. The real estate, education, healthcare, banking, financial services, insurance and retailing sectors continue to focus on radio advertising.

The ongoing digitalization of content, shift to online and mobile distribution of content and the rapid pace of invocation create opportunities to serve new customers in new markets. The presence of large and wealthy Indian diaspora abroad is another powerful enabler for market expansion abroad. The M&E industry influenced by digitalization, the convergence of TV, mobile telephony and the Internet is poised for a growth trend. The fact that significant households of India are still without television connectivity highlights the scope of growth in the segment. The majority of the revenue generated in the television industry is through advertisements, followed by subscription. Strong growth projected in DTH, Digital Cable segment would result in substantial increase in subscription revenue over the years to come. Increasing interest in regional content among Indian population across the borders, results in increased overseas viewership thereby attracting foreign investment. Radio broadcasting in India, which is still in its infancy, is evolving to be a revenue spinner in the coming years

Outlook:

Sun Network with its presence across genres like general entertainment, movies, music, news, kids, action, life and with a dominant market share in the four southern states of India (Tamil Nadu, Kerala, Karnataka and Andhra Pradesh) ensures continued and sustained viewership and prominent role in the Media and Entertainment Industry. A steady flow of highly popular programs and a dominant share of audience viewership have given the network tremendous pricing power vis-a- vis competitors. The drive initiated by Government towards digitalisation and addressability for cable television would help Sun TV Network, being the largest regional television network to be one of the major beneficiaries of the recent growth in the DTH space, it is expected that this new stream of revenue for the Company arising from the increased DTH subscriber base in South India would maintain a positive momentum in the coming years.

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Exposure/Interest to Sectors company/sector Under Name of the Analyst Qualifications Covered Coverage in the Current Report Dr.C.V.S.L. Kameswari M.Sc, PGDCA, Pharma & No Interest/ Exposure M.B.A, Diversified Ph.D (Finance) U. Janaki Rao M.B.A Capital No Interest/ Exposure Goods B. Anil Kumar M.B.A Auto, IT & No Interest/ Exposure FMCG V. Harini Priya M.B.A Diversified No Interest/ Exposure B. Srikanth M.B.A Diversified No Interest/ Exposure

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