11 August 2017 India | Media | Company Update
Sun TV Network | HOLD Strong 1Q subscription growth; ad growth is key—maintain Hold
1QFY18 standalone revenues (ex-IPL) were 2% ahead of our forecast, but core EBITDA was Sanjay Chawla exactly in-line, as higher subscription income was offset by higher content costs [movie [email protected] | Tel: (91 22) 66303055 amortization or MAC]. EBITDA including IPL was c.6% ahead, as losses from IPL came in Shilpa Pattnaik lower at Rs224mn vs. JMe Rs441mn. PAT [+8% yoy] of Rs2.5bn was 6% ahead thanks to IPL [email protected] | Tel: (91 22) 66303134 Underlying ad revenues (incl. broadcast fee) were down 4.3% yoy but came in line. Ad revenues fell in June ahead of GST, and the weakness continued through July as per mgmt. Nonetheless, mgmt. has confirmed a recovery in August, and we tweak up our ad growth forecast to c.9% yoy for FY18, but maintain a 10% CAGR thereafter. We have also raised our subscription revenue forecasts; however, our EBITDA forecasts are virtually unchanged,
because of higher content costs including MAC. Our revised target price is Rs760 (Sep’18) versus Rs750 (Jun’18) previously, driven entirely by rollover. Recommendation and Price Target Current Reco. HOLD Sun stock has corrected 25% from its Apr-17 peak, and at Rs707 CMP, it is trading at an Previous Reco. HOLD FY18E EV/EBITDA of 15x and P/E of c.24x—implied valuation discount to Zee [Rs550 TP; Current Price Target (12M) 760 Hold] is c.30%, which makes Sun relatively more attractive in our view. Sun is likely to see a Upside/(Downside) 7.5% faster EPS growth (c.19% CAGR) compared to Zee (17%) on our forecasts, thanks to Previous Price Target 750 Change 1.3% upcoming digitization in Tamil Nadu—we forecast Sun’s domestic subscription revenues to double in four years from FY17 level [19% CAGR]. For absolute upside though, we would Key Data – SUNTV IN wait for ad-growth recovery into low-to-mid teens, against our 10% CAGR forecast. Current Market Price Rs707 Downside risk is lower ad revenue, driven by growing GEC competition in TN and return of Market cap (bn) Rs278.6/US$4.3 the 12-minute ad-cap. Our blue-sky Sep’18 DCF value is Rs936, based on 12% ad CAGR and Free Float 20% assuming promoter compensation gets fixed at Rs500 mn p.a. versus 10% of PBT currently. Shares in issue (mn) 394.1 Diluted share (mn) 394.1 Tamil ad growth is key; other genres beginning to deliver: Despite impact of GST and 3-mon avg daily val (mn) Rs1,055.5/US$1.1 pressure in TN market, 1Q ad growth recovered strongly on a sequential basis [+11.5%], 52-week range 950/434 Sensex/Nifty 31,214/9,711 thanks to growth in Telugu (+31% yoy) and Malayalam (+27%) clusters. Kannada and TN Rs/US$ 64.2 were flat—latter mainly due to base-effect (election spends in 1QFY17). Flagship Sun TV has seen about 150bps market-share erosion post-launch of Bigg Boss Tamil (Star Vijay) Price Performance towards end of June. Sun TV’s GRPs have been stable though, as Star has mostly ended % 1M 6M 12M up expanding the non-fiction category. However, continued aggression by Star and Absolute -13.7 -2.4 54.1 Relative* -12.2 -11.4 37.5 upcoming launch of GEC Colors in TN (4QCY17) may create turmoil in Sun’s core market. * To the BSE Sensex Keeping that in view, we have modelled a 10% ad-revenue CAGR for Sun post FY18.
Upbeat on subscription: 1Q DSR was up c.17% and came in 7% higher; ISR was up 11% and was 3% higher. While DSR beat was partly due to catch-up revenues post-renewal of deals with LCOs, management confirmed improving traction in the AP and Telengana markets. Further, revenues from digital distribution (3rd party platforms) are seeing robust growth too, as per the mgmt. Further, start of digitisation in TN post STB-seeding by Arasu (likely by Dec-17), would provide additional tailwind to subscription revenues. We therefore raise our DSR forecasts, and model 18-20% annual growth over the next four years.
Sun TV Network—key consolidated financials and valuations Year -end Mar, Rs mn FY16 FY17 FY18E FY19E FY20E Revenues 25,698 27,723 30,882 35,050 39,863 Revenue growth (%) 7.3 7.9 11.4 13.5 13.7 Adjusted EBITDA 13,647 15,057 17,118 20,422 23,726 EBITDA growth (%) 16.4 10.3 13.7 19.3 16.2 Adj. PAT 8,879 10,307 11,775 14,169 16,589 JM Financial Research is also available on: EPS (Rs) 22.5 26.2 29.9 36.0 42.1 Bloomberg - JMFR
JM Financial Institutional Securities Limited Sun TV Network 11 August 2017
Exhibit 1. Sun TV Network—consolidated DCF summary Rs mn, year-end March 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Key assumptions (%) Revenue growth 15.6 7.7 7.3 7.9 11.4 13.5 13.7 13.0 10.0 8.1 7.7 7.6 Revenue growth ex-IPL 10.2 8.4 7.9 5.8 12.3 13.8 13.9 13.1 10.0 8.0 7.6 7.6 Adjusted EBITDA growth 5.2 2.3 16.4 10.3 13.7 19.3 16.2 14.7 10.5 7.8 7.4 7.4 Adj. EBITDA growth ex-IPL 8.6 4.1 15.7 7.3 13.2 15.9 16.1 14.6 10.4 7.8 7.3 7.3 Adjusted EBITDA margin 51.5 48.9 53.1 54.3 55.4 58.3 59.5 60.4 60.7 60.5 60.4 60.2 FCF growth 250 (10) 36 (8) 29 15 16 16 13 9 8 7 FCF margin 32 27 34 29 34 34 35 35 36 37 37 37 FCFF as % of EBITDA 62 55 64 53 60 58 58 59 60 61 61 61 RoAIC 30 31 35 39 42 50 56 60 63 65 67 68 DCF EBIT X (1-tax rate) 6,902 7,162 8,367 9,485 10,683 12,881 15,023 17,282 19,128 20,656 22,211 23,871 Depreciation & Amortization 1,163 1,101 1,030 816 1,033 977 1,005 1,033 1,058 1,076 1,093 1,114 Change in net working capital (710) (1,519) (254) 746 (462) (1,302) (1,505) (1,624) (1,447) (1,319) (1,375) (1,481) Operating FCFF 7,355 6,744 9,142 11,046 11,254 12,555 14,523 16,691 18,740 20,413 21,929 23,504 Capex (207) (293) (400) (3,000) (900) (700) (725) (750) (775) (800) (825) (850) Free cash flows [FCFF] 7,148 6,451 8,742 8,046 10,354 11,855 13,798 15,941 17,965 19,613 21,104 22,654
DCF for Sun TV Sep-18E Sensitivity of DCF value to WACC and Exit Multiple WACC (%) 13.0 WACC (%) Exit EV/EBITDA multiple in Mar-25E (x) 11.0 760 12.0 12.5 13.0 13.5 14.0 PV of cash flows (2019E-2025E) 78,423 10.0 748 730 714 698 682 FY26E EBITDA 40,167 10.5 772 754 737 720 704 Terminal Value 441,835 11.0 796 778 760 743 726 PV of Terminal Value 199,641 11.5 821 802 783 765 748 Enterprise Value (EV) 278,064 12.0 845 825 806 787 769 Terminal value as % of EV 72 Less: FY18E net debt/(cash) (22,362) Preference shares [SAFM minority] 934 Equity value (Rs mn) 299,492 Equity value (US$ mn) 4,680 Number of shares (mn) 394 DCF equity value (Rs/share) 760 Sep-18E Target Price (Rs/share) 760.0 Source: Company, JM Financial
Exhibit 2. Blue sky scenario implies 32% upside from CMP over the next one year Bear Base Bull Blue-sky Annual ad growth post-FY18 (%) 8.0 10.0 12.0 12.0 Promoters' annual compensation 10% of PBT 10% of PBT 10% of PBT Rs500mn cap Implied terminal growth (%) 7.0 7.5 8.0 8.0 Implied exit EV/EBITDA multiple (x) 10.0 11.0 12.0 12.0 Jun-18 fair value (Rs/share) 677 760 853 936 Current market price (Rs) 707 707 707 707 1-yr upside/(downside) (%) (4) 8 21 32
Source: Company, JM Financial
JM Financial Institutional Securities Limited Page 2 Sun TV Network 11 August 2017
Exhibit 3. Further re-rating requires EBITDA growth trajectory of >20%
Sun: Rolling 12-month forward15.75 EV/EBITDA multiple Average EV/EBITDA 20.26 20
18
16
14 Avg - 11.4 12
10
8
6
Source: Company, JM Financial
Exhibit 4. Further re-rating requires EPS growth trajectory of >20%
Sun: Rolling 12-month15.75 forward P/E multiple Average P/E 34 20.26
30
26
22 Avg - 18.2 18
14
10
Source: Company, JM Financial
Exhibit 5. Sun TV Network—consolidated EBITDA growth
EBITDA growth (%, YoY)
19.3 16.4 16.2 13.7 10.3
FY16 FY17 FY18E FY19E FY20E
Source: Company, JM Financial
JM Financial Institutional Securities Limited Page 3 Sun TV Network 11 August 2017
Exhibit 6. Sun TV—rank of key channels within their respective genres 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 Sun TV [Tamil] 1 1 1 1 1 Gemini TV [Telugu] 4 1 1 1 1 Udaya TV [Kannada] 4 4 4 4 4 Surya TV [Malayalam] 3 2 2 3 3 Note: Green indicates qoq gain in viewership share; red indicates qoq loss in viewership Source: BARC, Company, JM Financial.
Exhibit 7. Sun TV—standalone yoy ad growth is on the brink of recovery
TV ad revenue growth (%, YoY) 10.0 10.0 9.2 5.6 4.7
(3.7)
FY15 FY16 FY17 FY18E FY19E FY20E Source: Company, JM Financial
Exhibit 8. Sun—domestic subscription revenue growth is accelerating
Domestic pay revenue growth (%, YoY)
20 20 18 16 15 10
FY15 FY16 FY17 FY18E FY19E FY20E
Source: Company, JM Financial
Exhibit 9. Sun TV Network—DTH ARPU and Cable ARPU (Rs per month) DTH ARPU (Rs) Blended Cable ARPU (Rs)
41.6 42.3 43.0 43.0 43.0 43.0 43.0
12.8 10.3 6.7 8.1 4.5 4.8 5.5
FY15 FY16 FY17 FY18E FY19E FY20E FY21E
Source: Company, JM Financial
JM Financial Institutional Securities Limited Page 4 Sun TV Network 11 August 2017
Exhibit 10. Sun TV Network—domestic subscription revenue growth
Domestic subscription revenue growth (YoY, %)
20.3
15.8 15.8 16.5
12.6 11.9 9.7 10.0 9.4
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18
Source: Company, JM Financial
Exhibit 11. Sun TV Network—DTH pay revenue growth
Domestic Pay TV DTH growth (YoY, %)
15.4 14.8 13.5 13.7 10.7 10.1 8.6 9.3 7.5
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18
Source: Company, JM Financial
Exhibit 12. Sun TV Network—effective advertisement revenue growth [a]
Ad revenue growth (YoY, %)
14.8 13.1
2.9 1.6
(3.7) (4.3) (5.6) (7.5) (6.8)
Source: Company, JM Financial. Note: [a] Including broadcast fee.
JM Financial Institutional Securities Limited Page 5 Sun TV Network 11 August 2017
Exhibit 13. Sun TV Network—standalone quarterly P&L (Rs mn) Actual vs Fiscal-year end March (Rs mn) 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 1QFY18E JM est. QoQ (%) YoY (%) Revenues 7,608 6,255 5,894 5,825 7,863 7,605 3.4 35.0 3.4 Broadcasting 6,168 6,256 5,894 5,754 6,432 6,305 2.0 11.8 4.3 Advertisement 3,150 3,094 2,780 2,770 3,256 3,264 (0.3) 11.49 (4.3) Domestic subscription 2,321 2,286 2,419 2,419 2,705 2,530 6.9 11.8 16.5 Broadcast fees 250 300 230 150 0 0 Program licensing [Intl. Pay TV] 380 397 385 370 422 410 2.9 14.0 11.0 Other operating revenues 67 180 80 45 50 101 IPL Revenues 1,440 (1) 0 71 1,431 1,300 Operating costs Cost of Revenues (497) (513) (538) (617) (683) (646) 5.8 10.6 37.6 Employee costs (603) (718) (599) (643) (684) (680) 0.6 6.4 13.5 IPL costs (1,758) 8 (1) 0 (1,655) (1,741) Other expenses (386) (359) (360) (628) (357) (400) (10.8) (43.1) (7.4) Total operating costs (3,244) (1,583) (1,497) (1,889) (3,380) (3,467) (2.5) 78.9 4.2 Reported EBITDA 4,364 4,672 4,397 3,936 4,484 4,138 8.4 13.9 2.7 Movie amortisation cost [MAC] (877) (895) (965) (620) (850) (700) 21.4 37.1 (3.0) Adjusted EBITDA 3,488 3,777 3,432 3,316 3,634 3,438 5.7 9.6 4.2 Reported EBITDA margin (%) 57.4 74.7 74.6 67.6 57.0 54.4 261 bps -34 bps Adjusted EBITDA margin (%) 45.8 60.4 58.2 56.9 46.2 45.2 100 bps 37 bps Depreciation & Amortization (131) (135) (142) (147) (185) (155) 19.3 26.2 41.1 EBIT 3,357 3,642 3,290 3,170 3,449 3,283 5.0 8.8 2.7 Interest & other income 216 478 389 374 371 350 5.9 (0.8) 72.0 Finance cost (1) (1) (6) (2) (1) (4) (87.5) (76.2) (61.5) PBT 3,571 4,119 3,673 3,541 3,819 3,629 5.2 7.8 6.9 Taxes (incl. deferred) (1,240) (1,415) (1,272) (1,182) (1,302) (1,252) 4.0 10.2 5.0 Reported PAT 2,331 2,704 2,401 2,359 2,516 2,377 5.9 6.7 8.0
EPS (Rs) 5.91 6.86 6.09 5.99 6.39 6.03 5.9 6.7 8.0 DPS (Rs) 0.00 0.00 5.00 5.00 2.50 0.00 Effective tax rate (%) 34.7 34.4 34.6 33.4 34.1 34.5 Shares outstanding (mn) 394 394 394 394 394 394 Cash profits 2,462 2,839 2,543 2,506 2,701 2,532 6.7 7.8 9.7
Cost-to-Revenue ratio (%) Cost of Revenues 6.5 8.2 9.1 10.6 8.7 8.5 2 (18.0) 33.1 Employee costs 7.9 11.5 10.2 11.0 8.7 8.9 (3) (21.1) 9.8 IPL costs 23.1 (0.1) 0.0 0.0 21.0 22.9 Other expenses 5.1 5.7 6.1 10.8 4.5 5.3 (14) (57.9) (10.4)
YoY growth (%) Revenues 10.1 10.1 2.7 2.1 3.4 (0.0) Revenues ex-IPL 3.7 10.2 2.7 0.7 4.3 2.2 Ad revenues (2.7) 2.7 (6.8) (3.6) (4.3) (4.0) Domestic Subscription revenues 20.3 15.8 15.8 11.9 16.5 9.0 Broadcast fees (13.8) 5.6 (14.8) (42.3) 0.0 0.0 Program licensing [Intl. Pay TV] 2.7 12.0 10.4 2.4 11.0 7.9 Reported EBITDA 6.7 8.1 (0.2) (7.7) 2.7 (5.2) Adjusted EBITDA ex-IPL 7.4 13.2 5.7 (5.7) 1.4 1.9 Adjusted EBITDA 17.2 13.3 5.7 (3.4) 4.2 (1.4) Cost of Revenues (2.1) 14.2 35.2 33.3 37.6 30.0 Employee costs 10.6 20.5 1.9 2.0 13.5 12.8 Other expenses 64.0 15.1 2.4 80.6 (7.4) 3.7 Source: Company, JM Financial
JM Financial Institutional Securities Limited Page 6 Sun TV Network 11 August 2017
Exhibit 14. sun TV Network—consolidated annual profit & loss statement Year-end Mar, Rs mn FY17-20E FY16 FY17 FY18E FY19E FY20E CAGR (%) Revenues 25,698 27,723 30,882 35,050 39,863 13 Advertisement 13,805 14,817 16,280 17,964 19,786 10 Domestic Subscription 8,154 9,445 11,160 13,387 16,078 19 Broadcast Fees 1,100 Program Licensing [Intl. Sub] 1,434 1,531 1,681 1,799 1,907 8 Other operating 281 420 310 337 367 IPL revenue 923 1,510 1,450 1,563 1,726 Total operating costs (7,956) (9,309) (10,362) (11,116) (12,533) Reported EBITDA 17,742 18,414 20,520 23,933 27,330 14 Film & Program Rights (4,095) (3,357) (3,401) (3,511) (3,605) Adjusted EBITDA 13,647 15,057 17,118 20,422 23,726 16 Reported EBITDA margin (%) 69.0 66.4 66.4 68.3 68.6 Adjusted EBITDA margin (%) 53.1 54.3 55.4 58.3 59.5 Depreciation (753) (568) (760) (698) (720) Amortization (277) (248) (273) (279) (285) EBIT 12,618 14,242 16,086 19,445 22,721 17 Other Income 182 250 250 250 250 Interest & Dividend income 924 1,390 1,805 2,103 2,534 Finance cost (22) (15) (10) (10) (10) PBT 13,702 15,867 18,130 21,788 25,495 17 Current Tax (4,745) (5,482) (6,273) (7,539) (8,821) Deferred Tax (10) 0 0 0 0 Minority loss/(income) (174) (183) (192) (202) (212) Reported PAT 9,059 10,307 11,775 14,169 16,589 17 Adjusted net profit 8,879 10,307 11,775 14,169 16,589 17
Adjusted EPS (Rs) Primary EPS 22.5 26.2 29.9 36.0 42.1 DPS (for a Rs1 share) 15.5 10.0 15.0 18.0 21.0 Primary shares (mn) 394 394 394 394 394
Growth rates (%) Revenue 7.3 7.9 11.4 13.5 13.7 Revenue ex-IPL 7.9 5.8 12.3 13.8 13.9 Reported EBITDA 5.8 3.8 11.4 16.6 14.2 Adjusted EBITDA 16.4 10.3 13.7 19.3 16.2 EBIT 18.8 12.9 12.9 20.9 16.8 Net profits 13.5 16.1 14.3 20.3 17.1
Opex-to-revenue ratio (%) Cost of Revenues 8.4 9.2 10.1 10.0 9.9 Employee costs 10.6 10.6 11.0 11.3 11.3 IPL costs 6.0 6.3 5.4 3.5 3.3 Other [SG&A] 6.0 7.5 7.1 7.0 6.9 Film & Program Rights 15.9 12.1 11.0 10.0 9.0
Margins (%) Reported EBITDA 69.0 66.4 66.4 68.3 68.6 Adjusted EBITDA 53.1 54.3 55.4 58.3 59.5 EBIT 49.1 51.4 52.1 55.5 57.0 Net profits 34.6 37.2 38.1 40.4 41.6
Effective tax rate (%) 34.7 34.6 34.6 34.6 34.6 Source: Company, JM Financial. Note: Estimates as per IGAAP.
JM Financial Institutional Securities Limited Page 7 Sun TV Network 11 August 2017
Exhibit 15. Sun TV Network—consolidated balance sheet Year-end Mar, Rs mn FY16 FY17 FY18E FY19E FY20E Equity Share capital 1,970 1,970 1,970 1,970 1,970 Reserves/surplus 33,293 38,857 43,518 49,149 55,778 Total equity 35,263 40,828 45,488 51,120 57,749 Preference Share 934 934 934 934 934 Deferred tax liability 176 176 176 176 176 Minority interest 1,756 1,938 2,130 2,332 2,544 Total debt 0 0 0 0 0 Other non current liabilities 62 62 62 62 62 Total capital 38,191 43,938 48,790 54,623 61,464
Assets Cash & cash equivalents 13,487 17,747 22,362 27,120 32,515 Inventories 11 11 11 11 11 Trade Receivables 8,246 8,887 9,730 11,043 12,560 Other Current assets 4,873 3,442 3,226 3,386 3,562 Total Current assets (ex cash) 13,130 12,340 12,967 14,440 16,133 Currrent liabilities and provisions 2,704 2,839 3,004 3,176 3,363 Net Current Assets (ex Cash) 10,427 9,500 9,962 11,265 12,770 Net fixed & Other assets 5,254 7,439 7,306 7,029 6,749 Net movie rights 3,840 3,784 3,583 3,511 3,605 Long term investments 3,362 3,467 3,577 3,698 3,825 Other Non-Current assets 1,820 2,000 2,000 2,000 2,000 Total assets 38,191 43,938 48,790 54,623 61,464
Gearing and profitability ratios (%) Net worth 35,263 40,828 45,488 51,120 57,749
Invested Capital 23,532 25,019 25,257 26,332 27,777
Net debt/(cash) (13,487) (17,747) (22,362) (27,120) (32,515)
Net debt/(cash) (US$ mn) (1,548) (1,499) (2,041) (2,465) (2,956)
Debt/Equity 0 0 0 0 0
Net-debt/Equity (38) (43) (49) (53) (56)
Net-debt/capital (62) (77) (97) (113) (129)
Net-debt/EBITDA (x) (1.0) (1.2) (1.3) (1.3) (1.4)
RoE 25.2 25.2 25.9 27.7 28.7
RoAE 25.8 27.1 27.3 29.3 30.5
RoACE 22.8 23.1 23.0 24.9 25.9
RoAIC 35.4 39.1 42.5 49.9 55.5
Source: Company, JM Financial. Note: Estimates as per IGAAP
JM Financial Institutional Securities Limited Page 8 Sun TV Network 11 August 2017
Exhibit 16. Sun TV Network—consolidated cash flow statement Year-end Mar, Rs mn FY16 FY17 FY18E FY19E FY20E Profits before tax 13,777 15,867 18,130 21,788 25,495 Depr/amort/non-cash items 5,253 4,172 4,434 4,488 4,610 Taxes paid (4,623) (5,482) (6,273) (7,539) (8,821) Net interest income (902) (1,375) (1,795) (2,093) (2,524) Chg in working capital (254) 746 (462) (1,302) (1,505) CF from operations 13,250 13,928 14,034 15,343 17,254
Capex (incl. Radio licenses) (400) (3,000) (900) (700) (725) Film & Program Rights (3,335) (3,300) (3,200) (3,440) (3,698) (Purchase)/Sale of assets/investments (3,070) 0 0 0 0 Interest/dividend received 938 1,390 1,805 2,103 2,534 CF from investments (5,867) (4,910) (2,295) (2,037) (1,889)
Equity raised 1,052 0 0 0 0 Debt raised / (repaid) 0 0 0 0 0 Dividends paid (7,352) (4,743) (7,115) (8,537) (9,960) Interest paid (20) (15) (10) (10) (10) CF from financing (6,320) (4,758) (7,125) (8,547) (9,970)
Change in cash for year 1,064 4,260 4,615 4,758 5,395 Beginning cash & equivalents 12,421 13,487 17,747 22,362 27,120 Closing cash & equivalents 13,485 17,747 22,362 27,120 32,515 FCFF 6,201 7,628 9,934 11,203 12,831 Source: Company, JM Financial
Exhibit 17. Sun TV Network—operating cash flow
Operating cash flow
13.6
11.9 10.6 10.8 9.9
FY16 FY17 FY18E FY19E FY20E
Source: Company, JM Financial
JM Financial Institutional Securities Limited Page 9 Sun TV Network 11 August 2017 F inancial Tables (Consolidated)
Income Statement (Rs mn) Balance Sheet (Rs mn) Y/E March FY16A FY17A FY18E FY19E FY20E Y/E March FY16A FY17A FY18E FY19E FY20E Net Sales 25,698 27,723 30,882 35,050 39,863 Shareholders’ Fund 35,263 40,828 45,488 51,120 57,749 Sales Growth 7.3% 7.9% 11.4% 13.5% 13.7% Share Capital 1,970 1,970 1,970 1,970 1,970 Other Operating Income 0 0 0 0 0 Reserves & Surplus 33,293 38,857 43,518 49,149 55,778 Total Revenue 25,698 27,723 30,882 35,050 39,863 Preference Share Capital 934 934 934 934 934 Cost of Goods Sold/Op. Exp 2,168 2,542 3,134 3,502 3,937 Minority Interest 0 0 0 0 0 Personnel Cost 2,716 2,947 3,393 3,951 4,522 Total Loans 0 0 0 0 0 Other Expenses 7,166 7,176 7,237 7,174 7,679 Def. Tax Liab. / Assets (-) 176 176 176 176 176 EBITDA 13,647 15,057 17,118 20,422 23,726 Total - Equity & Liab. 36,373 41,937 46,598 52,230 58,858 EBITDA Margin 53.1% 54.3% 55.4% 58.3% 59.5% Net Fixed Assets 9,095 11,223 10,889 10,541 10,354 EBITDA Growth 16.4% 10.3% 13.7% 19.3% 16.2% Gross Fixed Assets 45,850 49,047 50,615 54,409 58,561 Depn. & Amort. 1,030 816 1,033 977 1,005 Intangible Assets 2,824 3,374 3,449 3,524 3,599 EBIT 12,618 14,242 16,086 19,445 22,721 Less: Depn. & Amort. 39,586 41,205 43,182 47,400 51,814 Other Income 1,106 1,640 2,055 2,353 2,784 Capital WIP 7 7 7 7 7 Finance Cost 22 15 10 10 10 Investments 5,919 6,024 6,134 6,255 6,382 PBT before Excep. & Forex 13,702 15,867 18,130 21,788 25,495 Current Assets 25,881 29,530 34,772 41,003 48,091 Excep. & Forex Inc./Loss(-) 0 0 0 0 0 Inventories 11 11 11 11 11 PBT 13,702 15,867 18,130 21,788 25,495 Sundry Debtors 8,246 8,887 9,730 11,043 12,560 Taxes 4,755 5,482 6,273 7,539 8,821 Cash & Bank Balances 10,931 15,191 19,805 24,563 29,959 Extraordinary Inc./Loss(-) 180 0 0 0 0 Loans & Advances 1,120 2,000 1,625 1,625 1,625 Assoc. Profit/Min. Int.(-) 280 288 302 323 339 Other Current Assets 5,574 3,442 3,601 3,761 3,937 Reported Net Profit 9,059 10,307 11,775 14,169 16,589 Current Liab. & Prov. 4,521 4,840 5,196 5,569 5,968 Adjusted Net Profit 9,059 10,307 11,775 14,169 16,589 Current Liabilities 879 1,003 1,151 1,304 1,474 Net Margin 35.3% 37.2% 38.1% 40.4% 41.6% Provisions & Others 3,642 3,837 4,046 4,265 4,495 Diluted Share Cap. (mn) 394.1 394.1 394.1 394.1 394.1 Net Current Assets 21,360 24,691 29,576 35,434 42,123 Diluted EPS (Rs.) 23.0 26.2 29.9 36.0 42.1 Total – Assets 36,373 41,937 46,598 52,230 58,858 Diluted EPS Growth 15.8% 13.8% 14.3% 20.3% 17.1% Source: Company, JM Financial Total Dividend + Tax 7,352 4,743 7,115 8,537 9,960 Dividend Per Share (Rs) 15.5 10.0 15.0 18.0 21.0 Source: Company, JM Financial
Cash Flow Statement (Rs mn) Dupont Analysis Y/E March FY16A FY17A FY18E FY19E FY20E Y/E March FY16A FY17A FY18E FY19E FY20E Profit before Tax 13,808 15,971 18,240 21,909 25,622 Net Margin 35.3% 37.2% 38.1% 40.4% 41.6% Depn. & Amort. 5,049 4,172 4,434 4,488 4,610 Asset Turnover (x) 0.7 0.7 0.7 0.7 0.7 Net Interest Exp. / Inc. (-) -902 -1,375 -1,795 -2,093 -2,524 Leverage Factor (x) 1.1 1.1 1.1 1.1 1.1 Inc (-) / Dec in WCap. -254 746 -462 -1,302 -1,505 RoE 26.4% 27.1% 27.3% 29.3% 30.5% Others 97 -105 -110 -121 -127 Taxes Paid -4,623 -5,482 -6,273 -7,539 -8,821 Key Ratios Y/E March FY16A FY17A FY18E FY19E FY20E Operating Cash Flow 13,175 13,928 14,034 15,343 17,254 Capex -7,050 -6,300 -4,100 -4,140 -4,423 BV/Share (Rs.) 89.5 103.6 115.4 129.7 146.5 Free Cash Flow 6,126 7,628 9,934 11,203 12,831 ROIC 40.1% 46.7% 51.3% 61.0% 68.2% Inc (-) / Dec in Investments 245 0 0 0 0 ROE 26.4% 27.1% 27.3% 29.3% 30.5% Others 938 1,390 1,805 2,103 2,534 Net Debt/Equity (x) -0.4 -0.4 -0.5 -0.5 -0.5 Investing Cash Flow -5,867 -4,910 -2,295 -2,037 -1,889 P/E (x) 30.8 27.0 23.7 19.7 16.8 Inc / Dec (-) in Capital 1,052 0 0 0 0 P/B (x) 7.9 6.8 6.1 5.5 4.8 Dividend + Tax thereon -7,352 -4,743 -7,115 -8,537 -9,960 EV/EBITDA (x) 19.5 17.4 15.0 12.4 10.4 Inc / Dec (-) in Loans 0 0 0 0 0 EV/Sales (x) 10.4 9.4 8.3 7.2 6.2 Others -20 -15 -10 -10 -10 Debtor days 117 117 115 115 115 Financing Cash Flow -6,320 -4,758 -7,125 -8,547 -9,970 Inventory days 0 0 0 0 0 Inc / Dec (-) in Cash 989 4,260 4,615 4,758 5,395 Creditor days 25 27 29 31 32 Opening Cash Balance 9,864 10,931 15,191 19,805 24,563 Source: Company, JM Financial Closing Cash Balance 10,853 15,191 19,805 24,563 29,959 Source: Company, JM Financial
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History of Earnings Estimate and Target Price Recommendation History FY18E FY19E Target Date % Chg. % Chg. % Chg. EPS (Rs) EPS (Rs) Price 29-Sep-14 480
7-Nov-14 480 0.0 9-Feb-15 480 0.0 22-Feb-16 29.0 450 -6.3 28-May-16 28.5 -1.7 33.9 450 0.0 29-Aug-16 29.2 2.5 34.6 2.1 525 16.7 13-Feb-17 29.2 0.1 34.6 0.0 660 25.7 29-May-17 29.8 2.0 35.9 3.7 750 13.6
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APPENDIX I
JM Financial Institutional Securities Limited Corporate Identity Number: U65192MH1995PLC092522 Member of BSE Ltd. and National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd. SEBI Registration Nos.: BSE - INZ010012532, NSE - INZ230012536 and MSEI - INZ260012539, Research Analyst – INH000000610 Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India. Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: [email protected] | www.jmfl.com Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: [email protected]
Definition of ratings Rating Meaning Buy Total expected returns of more than 15%. Total expected return includes dividend yields. Hold Price expected to move in the range of 10% downside to 15% upside from the current market price. Sell Price expected to move downwards by more than 10%
Research Analyst(s) Certification
The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:
All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and
No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
Important Disclosures This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein. JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst, Merchant Banker and a Stock Broker having trading memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of the investor. JM Financial Institutional Securities provides a wide range of investment banking services to a diversified client base of corporates in the domestic and international markets. It also renders stock broking services primarily to institutional investors and provides the research services to its institutional clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management, brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies) covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from the company(ies) mentioned in this report for rendering any of the above services. JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to, or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged in, it may have potential conflict of interest at the time of publication of this report on the subject company(ies). Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014. The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report. The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts) Regulations, 2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the company(ies) covered under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the time of publication of this report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report. While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision. The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the right to make modifications and alterations to this statement as they may deem fit from time to time.
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This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction. This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject JM Financial Institutional Securities and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of and to observe such restrictions. Persons who receive this report from JM Financial Singapore Pte Ltd may contact Mr. Ruchir Jhunjhunwala ([email protected]) on +65 6422 1888 in respect of any matters arising from, or in connection with, this report.
Additional disclosure only for U.S. persons: JM Financial Institutional Securities has entered into an agreement with JM Financial Securities, Inc. ("JM Financial Securities"), a U.S. registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") in order to conduct certain business in the United States in reliance on the exemption from U.S. broker-dealer registration provided by Rule 15a-6, promulgated under the U.S. Securities Exchange Act of 1934 (the "Exchange Act"), as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission ("SEC") (together "Rule 15a-6"). This research report is distributed in the United States by JM Financial Securities in compliance with Rule 15a-6, and as a "third party research report" for purposes of FINRA Rule 2241. In compliance with Rule 15a-6(a)(3) this research report is distributed only to "major U.S. institutional investors" as defined in Rule 15a-6 and is not intended for use by any person or entity that is not a major U.S. institutional investor. If you have received a copy of this research report and are not a major U.S. institutional investor, you are instructed not to read, rely on, or reproduce the contents hereof, and to destroy this research or return it to JM Financial Institutional Securities or to JM Financial Securities. This research report is a product of JM Financial Institutional Securities, which is the employer of the research analyst(s) solely responsible for its content. The research analyst(s) preparing this research report is/are resident outside the United States and are not associated persons or employees of any U.S. registered broker-dealer. Therefore, the analyst(s) are not subject to supervision by a U.S. broker-dealer, or otherwise required to satisfy the regulatory licensing requirements of FINRA and may not be subject to the Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. JM Financial Institutional Securities only accepts orders from major U.S. institutional investors. Pursuant to its agreement with JM Financial Institutional Securities, JM Financial Securities effects the transactions for major U.S. institutional investors. Major U.S. institutional investors may place orders with JM Financial Institutional Securities directly, or through JM Financial Securities, in the securities discussed in this research report.
Additional disclosure only for U.K. persons: Neither JM Financial Institutional Securities nor any of its affiliates is authorised in the United Kingdom (U.K.) by the Financial Conduct Authority. As a result, this report is for distribution only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii) are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the matters to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as "relevant persons"). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.
Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of the securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities or as a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which such offer or sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits of the securities described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you based on your representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a “permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under no circumstances is the information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as being tailored to the needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their affiliates and authorized agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of this research report or the information contained herein.
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