Brighter Days Ahead; Retain BUY Rating Upside

India Equity Research | Media & Entertainment © February 2, 2017 Event Update Emkay Your success is our success Sun TV Network

CMP Target Price Rs552 Rs850 () Brighter days ahead; Retain BUY Rating Upside

BUY () 54.1 %

2G Special court announced a landmark decision today, dismissing all charges against Change in Estimates promoters of Sun TV and other accused. Although CBI and Enforcement Directorate (ED) EPS Chg FY17E/FY18E (%) (6.4)/(7.6) would likely appeal in the Supreme Court, we believe Marans are in a stronger position Target Price change (%) 38.2 with today’s announcement. Previous Reco BUY The stock has been trading at benign valuations since 2011 for obvioius reasons i.e. 1) legal cases against promoters and 2) sub-par advertisement revenue growth as non-Tamil Emkay vs Consensus channels were losing market share. Partial re-rating started a few months back with EPS Estimates nd viewership market share gains in Telugu (2 largest market). FY17E FY18E The company has infused investments in content across non-Tamil portfolio, resulting in Emkay 24.9 27.8 consistent viewership market share gains in Telugu and Malayalam genre while the same Consensus 26.2 30.0 is yet to reflect in the Kannada genre. Mean Consensus TP Rs 541 As the legal overhang is now behind, we believe re-rating in the stock is imminent. We raise our target PE mulptile to 26x vs 18x earlier and roll forward valutions to FY19E EPS Stock Details to arrive at TP of Rs850, implying 54% upside. Retain BUY. Bloomberg Code SUNTV IN Face Value (Rs) 5 Focused business initiatives bear result; Ratings improve: SUN TV’s content strategy Shares outstanding (mn) 394 changes have started to reflect in viewership market share gains in Telugu and Malayalam 52 Week H/L 567 / 312 genre while the same is yet to reflect in the Kannada genre. In Q1FY17, it launched 20 new shows (including 5 dubbed shows) for non-Tamil and 2 new shows in Tamil while it continued M Cap (Rs bn/USD bn) 217 / 3.23 its focus on new launches in the following quarters as well. In the last 31 weeks, change in Daily Avg Volume (nos.) 21,52,366 content strategy has started to show results with ~8% and ~4% viewership gains in Telugu Daily Avg Turnover (US$ mn) 15.9 and Malayalam portfolio, while Kannada is grappling to arrest its viewership decline. Advertisement – Monetization of market share improvement from Q1FY18: SUN TV’s Shareholding Pattern Dec '16 advertisement revenue has been underperforming industry and peers in the last 5 years due Promoters 75.0% to inconsistency in content investment resulting in viewership market share loss in all the 3 FIIs 16.8% non-Tamil channels. Recent improvement in ratings failed to translate into advertisement DIIs 1.7% revenue growth, impeded by demonetization. We expect ad growth recovery from Q1FY18 in Public and Others 6.6% anticipation that impact of demonetization would recede by then. We are projecting ad growth

of 1%/14%/14% for FY17/18/19E. Price Performance Digitization benefits yet to accrue: SUN TV’s cable TV subscription revenue has been (%) 1M 3M 6M 12M impacted by continued delays in implementation of digitization in TN due to Arasu and now Absolute 10 3 21 54 delay in implementation of Phase III. Nevertheless, renewed deals with MSOs have resulted Rel. to Nifty 4 1 20 34 in improved traction in cable TV subscription revenue (37% yoy growth in Q1FY17). Growth in the near to medium term would be contingent on 1) resolution of Phase III digitization Relative price chart

(despite Arasu remaining a drag) and 2) continued healthy growth in DTH subscriptions driven 575 Rs % 50 by strong bouquet offering. Sustenance of market share improvement would strengthen its 520 36 bargaining power on both Cable TV and DTH subscription. We expect Cable TV and DTH subscription revenue to grow at 12% CAGR (FY16-19E). 465 22

410 8 Financial Snapshot (Consolidated) 355 -6 (Rs mn) FY15 FY16 FY17E FY18E FY19E 300 -20 Revenue 23,954 25,698 27,957 31,102 34,929 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Jan-17 EBITDA 16,772 17,742 18,769 21,012 24,379 Sun TV Network (LHS) Rel to Nifty (RHS) Source: Bloomberg EBITDA Margin (%) 70.0 69.0 67.1 67.6 69.8

APAT 7,820 8,954 9,808 10,939 13,129 Naval Seth EPS (Rs) 19.8 22.7 24.9 27.8 33.3 [email protected] EPS (% chg) 4.5 14.5 9.5 11.5 20.0 +91 22 66242414 ROE (%) 23.6 25.4 26.1 26.9 29.7

P/E (x) 27.8 24.3 22.2 19.9 16.6 Ashish Agrawal EV/EBITDA (x) 12.5 11.6 10.8 9.6 8.1 [email protected] P/BV (x) 6.3 6.0 5.6 5.2 4.7 +91 22 66121241 Source: Company, Emkay Research

Emkay Research is also available on www.emkayglobal .com, Bloomberg EMKAY, Reuters and DOWJONES. Emkay Global Financial Services Ltd.

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Focused business initiatives bear result; Ratings improve SUN TV’s content strategy changes have started to reflect in viewership market share gains in Telugu and Malayalam genre while the same is yet to reflect in Kannada genre. In Q1FY17, it launched 20 new shows (including 5 dubbed shows) for non-Tamil and 2 new shows in Tamil and has since continued its focus on new launches. In the last 31 weeks, change in content strategy has started to show results with ~8% and ~4% viewership gain in Telugu and Malayalam, while Kannada is grappling to arrest its declining vieweship

Exhibit 1: Telugu viewership trend Exhibit 2: Malayalam viewership trend

Uptick started for Gemini TV 80% 35% Uptick started for Surya TV 30% 60% 25% 20% 40% 15% 20% 10% 5% 0% 0% -20% week 1 week 4 week 7 week 3 week week 10 week 13 week 16 week 19 week 22 week 25 week 28 week 31 week 34 week 37 week 40 week 43 week 46 week 49 week 52 week week 1 week 4 week 7 week 3 week week 10 week 13 week 16 week 19 week 22 week 25 week 28 week 31 week 34 week 37 week 40 week 43 week 46 week 49 week 52 week Surya TV Asianet Mazhavil Manorama Gemini TV ETV Telugu Zee Telugu Flowers TV Kiran TV Asianet Movies Maa TV Gemini Movies Asianet News Source: BARC, Emkay Research Source: BARC, Emkay Research

Exhibit 3: Kannada viewership trend

40% 35% 30% 25% 20% 15% 10% 5% 0% week 1 week 3 week 5 week 7 week 9 week 1 week 3 week week 11 week 13 week 15 week 17 week 19 week 21 week 23 week 25 week 27 week 29 week 31 week 33 week 35 week 37 week 39 week 41 week 43 week 45 week 47 week 49 week 51 week

Udaya TV Zee Kannada Colors Kannada Star Suvarna Udaya Movies

Source: BARC, Emkay Research

Exhibit 4: Tamil viewership trend 80% 60% 40% 20% 0% -20% week 1 week 3 week 5 week 7 week 9 week 1 week 3 week week 11 week 13 week 15 week 17 week 19 week 21 week 23 week 25 week 27 week 29 week 31 week 33 week 35 week 37 week 39 week 41 week 43 week 45 week 47 week 49 week 51 week

Sun TV KTV Zee Tamil STAR Vijay Jaya TV

Polimer Kalaignar TV J Movie Adithya TV Source: BARC, Emkay Research

Emkay Research | February 2, 2017 2

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Exhibit 5: Telugu viewership share – monthly trend Oct’15 Nov’15 Dec’15 Jan’16 Feb’16 Mar’16 Apr’16 May’16 Jun’16 Jul’16 Aug’16 Sep’16 Oct’16 Nov’16 Dec’16 Jan’17 ETV Telugu 25% 26% 26% 25% 26% 24% 23% 23% 23% 23% 23% 22% 23% 23% 22% 23% Maa TV 24% 21% 23% 22% 22% 22% 22% 22% 22% 20% 20% 20% 20% 21% 21% 21% Zee Telugu 19% 22% 21% 23% 24% 24% 25% 26% 24% 23% 21% 22% 22% 20% 21% 22% Gemini TV 19% 20% 18% 19% 17% 18% 20% 19% 20% 24% 25% 27% 27% 28% 28% 26% Gemini Movies 12% 12% 12% 11% 11% 11% 10% 10% 11% 11% 10% 9% 9% 9% 9% 8% Source: BARC, Emkay Research

Exhibit 6: Kannada viewership share – monthly trend Oct’15 Nov’15 Dec’15 Jan’16 Feb’16 Mar’16 Apr’16 May’16 Jun’16 Jul’16 Aug’16 Sep’16 Oct’16 Nov’16 Dec’16 Jan’17 Colors Kannada 30% 34% 35% 33% 29% 29% 29% 28% 30% 30% 31% 33% 31% 32% 31% 33% Udaya TV 19% 16% 16% 17% 16% 15% 16% 16% 17% 17% 16% 16% 12% 11% 10% 11% Suvarna 18% 16% 17% 16% 19% 21% 19% 17% 15% 15% 18% 17% 20% 20% 20% 19% Udaya Movies 19% 19% 17% 17% 17% 17% 18% 19% 19% 18% 15% 16% 16% 15% 16% 15% Zee Kannada 14% 16% 16% 16% 18% 18% 18% 20% 19% 19% 20% 18% 21% 21% 23% 22% Source: BARC, Emkay Research

Exhibit 7: Malayalam viewership share – monthly trend Oct’15 Nov’15 Dec’15 Jan’16 Feb’16 Mar’16 Apr’16 May’16 Jun’16 Jul’16 Aug’16 Sep’16 Oct’16 Nov’16 Dec’16 Jan’17 Asianet 55% 55% 51% 55% 54% 53% 51% 50% 54% 50% 49% 45% 45% 49% 50% 53% Mazhavil Manorama 13% 14% 17% 15% 15% 16% 17% 17% 16% 16% 14% 16% 15% 13% 12% 13% Flowers TV 11% 11% 11% 12% 13% 12% 10% 12% 10% 10% 12% 13% 13% 12% 11% 11% Surya TV 10% 11% 12% 9% 8% 10% 11% 11% 11% 15% 16% 17% 15% 12% 13% 13% Asianet Movies 10% 9% 9% 9% 9% 9% 10% 9% 9% 9% 10% 10% 12% 13% 14% 11% Kiran TV 9% 8% 9% 9% 12% 11% 10% Source: BARC, Emkay Research

Exhibit 8: Tamil viewership share – monthly trend Tamil Oct’15 Nov’15 Dec’15 Jan’16 Feb’16 Mar’16 Apr’16 May’16 Jun’16 Jul’16 Aug’16 Sep’16 Oct’16 Nov’16 Dec’16 Jan’17 Sun TV 60% 59% 58% 60% 62% 61% 61% 58% 57% 57% 57% 56% 59% 58% 57% 58% KTV 19% 20% 18% 17% 17% 16% 17% 19% 18% 16% 15% 15% 14% 15% 14% 13% STAR Vijay 11% 10% 13% 12% 12% 11% 10% 11% 12% 13% 12% 12% 10% 10% 10% 11% Zee tamil 5% 5% 7% 7% 7% 9% 10% 12% 12% 13% 13% 13% 13% Polimer 6% 6% 6% 6% 5% 5% 5% 5% 5% 4% 5% 4% 5% 4% 4% Source: BARC, Emkay Research

Emkay Research | February 2, 2017 3

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Advertisement growth uptick expected from Q1FY18 SUN TV’s advertisement revenue has been underperforming industry and peers in the last 5 years due to inconsistency in content investment resulting in loss in viewership market share in all the 3 non-Tamil channels. Recent improvement in ratings failed to translate into advertisement revenue growth, impeded by demonetization. We expect ad growth recovery from Q1FY18 pinning hopes that the impact of demonetization would recede by then. We are projecting ad growth of 1%/14%/14% for FY17/18/19E.

Exhibit 9: Sub-par growth from last many quarters Exhibit 10: Advertisement growth to bounce back Rs mn Rs mn 16% 20,000 30% 35% 3,500 15% 16% 20% 3,000 11% 15% 30% 2,500 8% 10% 15,000 25% 2,000 5% 3% 5% 20% 1,500 7% 2% 14% -3% 10,000 15% 1,000 -4% 0% 500 1% -5% 11% 7% 10% -7% -6% 5,000 2% 5% 0 -10% 6% 1% -3% 0% 0 -5% FY12 FY13 FY14 FY15 FY16 FY17EFY18EFY19E Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

Advt. Revenue YoY Growth Advertisement Revenue yoy growth

Source: Company, Emkay Research Source: Company, Emkay Research

Exhibit 11: SUN TV underperformed ZEE Ent. and industry in last 5 Exhibit 12: SUN TV underperformed ZEE Ent. from last many quarters years

30% 40%

25% 30% 20% 20% 15% 10% 10% 5% 0%

0% -10% CY11 CY12 CY13 CY14 CY15 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

Industry Zee TV Sun TV Zee TV Sun TV

Source: Company, Emkay Research Source: Company, Emkay Research

Emkay Research | February 2, 2017 4

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Digitization benefits yet to accrue SUN TV’s cable TV subscription revenue has been impacted by continued delays on implementation of digitization in TN due to Arasu and now delay in implementation of Phase III. Nevertheless, renewed deals with MSOs have resulted in improved traction with 37% yoy growth in cable TV subscription in Q1FY17. Growth in the medium term would be contingent on 1) resolution on Phase III digitization (despite Arasu remaining a drag) and 2) continued healthy growth in DTH subscription driven by strong bouquet offering. Sustenance of market share improvement would strengthen its bargaining power on both Cable TV and DTH subscription. We expect Cable TV and DTH subscription revenue to grow at 12% CAGR (FY16-19E).

Exhibit 13: Cable TV subscription has started to pick up; Digitization Exhibit 14: DTH subscription has been supporting growth in the past to drive continued uptrend

800 Rs mn 50% 2,000 Rs mn 25% 40% 600 1,500 20% 30% 15% 400 20% 1,000 10% 10% 200 500 0% 5% 0 -10% 0 0% Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

Cable TV (analog+Digital) YoY Growth DTH YoY Growth

Source: Company, Emkay Research Source: Company, Emkay Research

DTH subscription revenue has been growing at healthy pace of 14% CAGR (FY14-16), driven by 21% CAGR growth in non-Sun Direct DTH operators. Revenue growth from SUN Direct (promoter entity) has been softer at 5% CAGR (FY14-16). This has reduced dependence of DTH revenues from Sun Direct, which is positive in our view. SUN Direct’s subscriber market share in southern markets was >55%, which has now fallen below 40%. Going forward, we expect growth to be driven by other DTH operators.

Exhibit 15: Dependence for DTH subscription on SUN direct reducing over the years Particulars (Rsmn) FY10 FY11 FY12 FY13 FY14 FY15 FY16 % Growth DTH revenues 1,862 3,016 3,416 3,728 4,492 5,260 5,887 12% Of which Sun Direct 1,090 1,591 1,830 1,778 1,912 2,099 2,090 0% Other DTH 772 1,425 1,586 1,950 2,580 3,161 3,797 20% Cable revenues (Sun Distribution Services Pvt Ltd) 1,569 2,142 1,630 1,392 1957 2120 2267 7% Domestic subscription 3,431 5,157 5,046 5,120 6,449 7,380 8,154 10% Overseas subscription 544 623 826 1,031 1250 1377 1434 4% Total subscription 3,976 5,780 5,872 6,151 7,699 8,757 9,588 9% Source: Company, Emkay Research

Exhibit 16: Subscription revenue trend and estimates Rs mn FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E DTH 3330 3730 4492 5260 5887 6439 7061 7791 YoY Growth 16% 12% 20% 17% 12% 9% 10% 10% Cable TV (Analogue + Digital) 1626 1390 1957 2120 2267 2766 3208 3753 YoY Growth -24% -15% 41% 8% 7% 22% 16% 17% Domestic Total 4,956 5,120 6,449 7,380 8,154 9,204 10,269 11,544 YoY Growth -1% 3% 26% 14% 10% 13% 12% 12% International 843 1,031 1,250 1,377 1,434 1,535 1,673 1,807 YoY Growth 22% 22% 21% 10% 4% 7% 9% 8% Total Subscription Revenue 5,799 6,151 7,699 8,757 9,588 10,739 11,942 13,351 YoY Growth 2% 6% 25% 14% 9% 12% 11% 12% Source: Company, Emkay Research

Emkay Research | February 2, 2017 5

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Digitization led potential upside on subscription We have assumed three scenarios of digitization, indicating upside potential in Cable TV subscription revenue over the coming 3-4 years. Given the slow progress, we have assumed scenario 3 to calculate potential upside on subscription revenues. Per share value works out to Rs93. We have not assumed this in our target price due to slower than expected progress in Phase III digitization and possibility of delay in sun-set date for Phase IV digitization from 31st January 2017.

Exhibit 17: Scenarios to calculate potential upside on subscription revenues Particulars Scenario 1 Scenario 2 Scenario 3 Total HHs (Mn) 50 50 50 Already paying DTH Subs (Mn) 12 12 12 Total TV HHs -4 states (Mn)- Yet to come on Digital/DTH Platform 38 38 38 Subscribers on Sun Network 80% 80% 80% Digitization Success 75% 65% 60% Sun TV Subscribers (Mn) 23 20 18 Current DTH subs (Mn) 12 12 12 FY16 Cable Revenue (Rs Mn) 2,267 2,267 2,267 Cable ARPU (Rs/month) 5 5 5 FY16 DTH Revenue (Mn) 5,887 5,887 5,887 DTH ARPU (Rs/month) 41 41 41

Digitization Current Cable HHs 22 19 18 % of subscribers switched to DTH 30 30 30 Incremental DTH subscribers 7 6 6 Switched to Digital Cable 16 14 13 DTH ARPU (Rs/month) 38 38 38 Incremental DTH revenue post digitization (Rs Mn) 3156 2735 2525 Incremental Digital Cable ARPU (Rs/month) 15 15 15 Digital cable revenue post digitization (Rs Mn) 2907 2519 2325 Total Incremental digitization revenue upside (Rs Mn) 6063 5254 4850 Source: Company, Emkay Research

Exhibit 18: Incremental upside from digitization Incremental PBT upside from digitization beyond FY17 (Rs mn) 4850 Tax outgo (Rs mn) 1,649 PAT upside (Rs mn) 3201 No. of Shares (Mn) 394 Incremental EPS (Rs) 8.1 P/E of 20x (Rs/share) 162 NPV (Rs) 93 Source: Company, Emkay Research

Emkay Research | February 2, 2017 6

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Estimate revision We have cut our advertisement revenue growth assumptions for FY17E and FY18E as we incorporate impact of demonestization. However, other estimates largely remain unchaged.

Exhibit 19: Estimate revision FY17E FY18E Particulars Old New % Change Old New % Change Revenue 29,109 27,957 -4.0 32,791 31,102 -5.2 EBITDA 19,800 18,769 -5.2 22,401 21,012 -6.2 EBITDA Margin % 68.0 67.1 -88 bps 68.3 67.6 -76 bps PAT 10,492 9,808 -6.5 11,852 10,939 -7.7 EPS 26.6 24.9 -6.5 30.1 27.8 -7.7 Source: Company, Emkay Research

Emkay Research | February 2, 2017 7

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Outlook and valuations

Overhang of last 6 years has come to an end with today’s decision by 2G Special court to acquit promoters of SUN TV and others. This clearly pave way for re-rating in the stock. As mentioned earlier that SUN TV has been trading at low valuations since 2011 due to obvious reasons i.e. 1) legal cases against promoters and 2) sub-par advertisement revenue growth as non-Tamil channels were losing market share. Partial re-rating started a few months back with viewership market share gain in Telugu (2nd largest market). In our view, valuation gap of SUN TV would bridge with today’s court decision while continuation of the same would require consistency with at par to higher than industry advertisement revenue growth.

Exhibit 20: Share price trend with major events

600 Rs/share Improved market share Impact of 10+2 ad cap Strong ad growth of 20% Supreme Court stays ED move to attach Sun TV assets 500

400

300 CBI filed charge sheet against marans brother Delhi court summons Maran brothers, Kavery Kalanithi as accused 200 ED attached assets ~ Rs7.4bn held by Marans

Radio license canceallation 100 CBI started Preliminary investgation for 2G spectrum case

0 03/02/2010 03/02/2011 03/02/2012 03/02/2013 03/02/2014 03/02/2015 03/02/2016

Source: Company, Emkay Research

The company has changed the content strategy across the non-Tamil channels over the last 6- 9 months, which has started to show results with market share gains in Telugu and Malayalam genre. We believe that continued aggression in content strategy with consistency of investment could pay-off. Z IN’s advertisement growth has largely been coming from regional markets, which has been primarily driven by improving market share. In our view, success of content strategy with at par or better than industry advertisement growth would continue to drive re-rating, to reach at par with Z IN’s multiple of 30x one-year forward). Valuations have been inexpensive over the last couple of years, due to known facts of underperformance in advertisement revenues, delayed benefits of digitization and legal issues against promoters. One year forward PE multiple for Zee Ent. got re-rated to 30x vs 25x from the year (FY13) it started to deliver. We value SUN TV at 26x FY19E EPS to arrive at a price target of Rs850. Key risks to our call; Unfavorable judgment by Supreme Court against Special Court’s decision, inconsistency in content strategy to result in loss of viewership share. Loss of sight on Tamil market could risk the upsides on advertisement and subscription revenue. Implementaion of 10+2ad cap would be detremenatl to ad growth as company is currently at ~17-18min/hr of advertisemtnts on main channels

Emkay Research | February 2, 2017 8

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Exhibit 21: Consistency will pay-off similar to Z IN

35% 20 Re-rating with Legal issues on Radio impacted 30% valuation and wek performance advt. grpwth in 18 25% FY13 added to the pain 20% Investors were hopeful of reversal 16 15% in advt. grpwth post reversal of Valuation to catch up soon, implemenation of 10+2ad cap 10% consistency in advt. growth 14 5% is key to fill this gap 12 0% -5% FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E 10

Advt. growth- LHS 1 year forwrad P/E (x)- RHS

Source: Emkay Research, Company

Exhibit 22: Zee Entertainment’s advertisement revenue growth and multiple re-rating

36 30%

32 25%

28 20%

24 15%

20 10% FY13 FY14 FY15 FY16

P/E (x)- LHS Advt. growth (RHS)

Source: Company, Emkay Research

Exhibit 23: Dividend per share Exhibit 24: Dividend payout continues to remain healthy

25 70 20 20 65 17 16 15 60 15 11 10 10 10 55 10 50 5 45 0 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E Dividend payout ratio

Source: Emkay Research, Company Source: Emkay Research, Company

Exhibit 25: P/E band chart Exhibit 26: P/B band chart

800 1000 25x 700 8x 600 20x 800 6x 500 15x 600 400 10x 4x 300 400 200 200 2x 100 0 0 Jul-12 Jul-16 Apr-13 Apr-15 Apr-06 Apr-06 Apr-08 Oct-11 Oct-16 Oct-11 Oct-12 Oct-13 Oct-14 Oct-09 Jun-14 Jan-16 Jun-16 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-07 Jan-09 Jun-09 Feb-12 Feb-14 Mar-17 Feb-12 Feb-13 Feb-14 Feb-15 Mar-16 Mar-17 Feb-07 Mar-10 Dec-12 Sep-13 Nov-14 Aug-15 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Nov-15 Nov-16 Sep-06 Nov-07 Aug-08 Aug-10 Dec-10 May-07 May-08 May-09 May-10 May-11

Source: Emkay Research, Company Source: Emkay Research, Company

Emkay Research | February 2, 2017 9

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Exhibit 27: EV/EBITDA band chart

800 14x

11x 600 8x 400 5x 200

0 Jul-12 Oct-09 Oct-16 Apr-06 Apr-08 Oct-11 Apr-13 Apr-15 Jun-07 Jan-09 Jun-09 Jun-14 Jan-16 Jun-16 Feb-07 Mar-10 Feb-14 Mar-17 Feb-12 Sep-06 Nov-07 Aug-08 Aug-10 Dec-10 Dec-12 Sep-13 Nov-14 Aug-15 May-11 Source: Company, Emkay Research

Exhibit 28: Key assumptions- Standalone Revenue break-up (Rs mn) FY13 FY14 FY15 FY16 FY17E FY18E FY19E Advertisement Revenue 10,497 10,670 11,361 12,107 12,210 13,920 15,869 yoy growth 11% 2% 6% 7% 1% 14% 30% Broadcast Fees 1,436 1,273 1,146 1,100 1,068 1,044 1,047 yoy Growth -12% -11% -10% -4% -3% -2% -2% Total Ad+Broadcast 11,933 11,944 12,507 13,207 13,279 14,964 16,916 yoy Growth 8% 0% 5% 6% 1% 13% 27% Subscription Domestic 5,120 6,449 7,380 8,154 9,204 10,269 11,544 yoy Growth 3% 26% 14% 10% 13% 12% 25% International 1,031 1,250 1,377 1,434 1,535 1,673 1,807 yoy Growth 22% 21% 10% 4% 7% 9% 18% IPL 0 1,055 1,002 963 1,440 1,398 1,498 Others 92 274 170 281 344 320 400 Total Revenue 18,176 20,972 22,436 24,040 25,801 28,623 32,164 Source: Company, Emkay Research

Emkay Research | February 2, 2017 10

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Annexure

About the Aircel-Maxis 2G case : Special Judge OP Saini discharged Maran, his brother Kalanithi Maran, Kalanithi's wife Kavery Kalanithi, South Asia FM Ltd (SAFL) Managing Director K. Shanmugam and two companies — SAFL and Sun Direct TV Pvt Ltd (SDTPL) in two different cases. The court was hearing two different matters related to Aircel-Maxis deal lodged by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED). The court was hearing two different matters related to Aircel-Maxis deal lodged by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED). The CBI had alleged Dayanidhi Maran, as minister in the UPA-I government, used his influence to help Malaysian businessman TA Ananda Krishnan to buy Aircel by coercing its owner Sivasankaran to part with his stake. In the other case, the Enforcement Directorate had chargesheeted Maran brothers, along with others for laundering Rs7.4bn. The former union minister had, however, refuted all allegations laid against him claiming that during the time period in which the alleged crime was committed, Chennai-based businessman C Sivasankaran was in talks with several other companies to sell his stakes in Aircel. The CBI had chargesheeted the Maran brothers and Chennai-based firm Sun Direct TV, Malaysian businessman TA Ananda Krishnan, Augustus Ralph Marshall and the two accused firms — Maxis Communications Berhad of Malaysia and Astro All Asia Networks. They were chargesheeted for the offences punishable under section 120-B (criminal conspiracy) of the IPC and under relevant provisions of the Prevention of Corruption Act. The chargesheet alleged that Dayanidhi Maran used his influence to help Krishnan buy Aircel by coercing its owner, C. Sivasankaran, to part with his stake. It was alleged by Sivasankaran that Dayanidhi Maran favoured the Maxis Group in the takeover of his company. In return, he alleged, the company made investments through Astro Network in a company stated to be owned by the Maran family.

Pending case: CBI has filed charge sheet against the then telecom minister Dayanidhi Maran and BSNL officials in alleged illegal telephone exchange case

Key allegations against Maran brothers CBI had registered an FIR against Maran and others in 2013 alleging that ~364 high-speed telephone lines were provided at his residence in Chennai and extended to his brother Kalanithi Maran's SUN TV channel to enable its uplinking when Dayanidhi was Telecom Minister and did not raise bills for the same during the period from 2004 to 2007, thereby caused huge loss to the Government Exchequer. There was huge data transfer, which included voice, video & audio through these telephone connections and all these facilities were allegedly used for the benefits of said television channel network (SUN TV), owned by Kalanithi Maran. CBI also filed the charged against then two Chief General Managers (now retired), BSNL, then Additional PS to Maran, two then officials of a private channel and then Chairman & Managing Director of private channel. Marans were not immediately available for comment. It was alleged that between June 2004 and December 2006, around 364 telephone numbers/lines were installed at Gopalapuram, Chennai residence of the Minister and during the period December 2006 to September 2007, around 353 number of telephone lines were installed at Ist Avenue Boat Club Road, Chennai, which was the new residence of Maran. Around 10 post-paid mobile connections with vanity numbers in respect of nine numbers were given to a private television channel as per the verbal orders of Maran and that these connections were given under "service category" and no bill was raised. It was further alleged that no payment was made for installation charges as well as for rentals of these telephone connections which included High end facilities Iike ISDN-PRA- BRA, broadband, leased circuits with OFC laying connecting both the residents thereby, causing an alleged loss to the tune of around Rs12mn to the BSNL, which did not include the call charges. The investigation has revealed that altogether 764 telephone numbers were allegedly provided to then Minister of Communication & IT by BSNL, Chennai Telephones and MTNL, New Delhi. No bills were allegedly raised for all these facilities and thereby an alleged loss to the tune of around Rs17.9mn was caused to BSNL, Chennai and MTNL, Delhi.

Emkay Research | February 2, 2017 11

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Exhibit 29: Case history Date Maxis- Aircel case updates 02-Feb-17 Special 2G court dismisses all charges against Marans and other accused 24-Jan-17 Special CBI court deffered hearing of the case on 2nd Feb 17 19-Jan-17 Special CBI court deffered hearing of the case to 24th Jan 2017, saying order is yet to be framed 09-Jan-17 Special CBI court deffered hearing of the case to 19th Jan 2017 23-Dec-16 Special CBI court deffered hearing of the case to 9th Jan 2017 30-Nov-16 ED filled against Dhayanidhi maran . To pronounce order on 19th dec 20-Nov-16 reserved its order on framing charges against Dayanidhi Maran, Kalanithi Maran and others 17-Oct-16 SC dismissed plea challenging the jurisdiction of special 2G court to hear the Aircel-Maxis money laundering case Aircel-Maxis case: Special CBI court issues bailable warrants against Malaysian accused. Trial against Maran brothers and two accused 24-Sep-16 companies be segregated from that of those based in Malaysia 24-Sep-16 SC to hear plea on court jurisdiction 21-Sep-16 Court reserves order on arrest warrants against two Malaysian accused 17-Sep-16 Special CBI court rejected plea challenging its jurisdiction 02-Aug-16 Marans want money-laundering case shifted; ED opposes their bail 11-Jul-16 Maran brothers seek bail in money-laundering case 27-Feb-16 Delhi court summons Maran brothers, Kavery Kalanithi as accused 01-Feb-16 As per ED, Dayanidhi Maran illegally generated Rs7.4bn and Kavery Kalanithi participated in money laundering 23-Jan-16 ED summons Ralph Marshall, former non-executive director of Maxis Communications Bhd in Malaysia ED names the Maran brothers, Mr. Kalanithi Maran’s wife Kavery Maran and three others, including two companies as accused in its 08-Jan-16 charge sheet 09-Sep-15 CBI files status report 25-Aug-15 The Enforcement Directorate summons two directors of private firm Advantage Strategic Consulting 21-Aug-15 Supreme Court stays ED move to attach Sun TV assets The CBI told a special court that Malaysian authorities were not “cooperating” in the service of summons against four accused in the Aircel- 03-Aug-15 Maxis deal case after which the judge issued fresh summons 01-Apr-15 ED attached assets estimated at Rs7.4bn held by Dayanidhi Maran and his brother Kalanithi Maran and wife Kavery Kalanithi 16-Mar-15 Marans challenged the jurisdiction of the Special CBI Court over the Aircel-Maxis deal case The Supreme Court refused to intervene with a summons order issued by the 2G Special Court to former Telecom Minister Dayanidhi 09-Feb-15 Maran and his brother Kalanithi Maran in connection with the Aircel-Maxis deal case. The Supreme Court recalled its order refusing to entertain petitions of the former Telecom Minister Dayanidhi Maran and his brother, 06-Feb-15 Kalanithi Maran, to quash summons in the Aircel-Maxis case issued by a special court trying the 2G spectrum scam. 05-Feb-15 The Marans moved the Supreme Court challenging the 2G Special Court’s decision to summon them in the Aircel-Maxis case The CBI on August 29 filed charge sheet against former Telecom Minister Dayanidhi Maran and his brother Kalanidhi Maran; T. Ananda 01-Aug-14 Krishnan, owner of Malaysian company Maxis; Ralph Marshall, a senior executive of the Maxis Group, and four companies, including the Sun Direct TV Pvt. Ltd. Maxis Communications Berhad on July 25 urged Finance Minister Arun Jaitley that it be treated in a fair manner, citing a contrary opinion 01-Jul-14 by two retired Chief Justices of India The CBI told the Supreme Court that there was difference of opinion between the CBI Director and the prosecution regarding filing of the 01-May-14 charge sheet. On reference, the Attorney General opined that there was enough prosecutable evidence The CBI filed a case alleging that Mr. Sivasankaran, who had applied for spectrum licence, was coerced into selling his company to Maxis. 01-Oct-11 It is later alleged that the Maxis Group, which bought 74% stakes in Aircel in March 2006, invested Rs7.4bn in Sun Direct between 2007 and 2009 The Arbitral Tribunal rejected Mr. Sivasankaran’s allegation regarding breach of obligations on the part of buyers in undertaking an IPO of 01-Sep-11 Aircel. The tribunal directed him to pay Maxis’s legal costs of $7.9 million, of which at least $1.4 million was paid. The award was not challenged The Aircel-Maxis deal came under the scanner after Aircel owner C. Sivasankaran lodged a complaint with the CBI alleging that he was April-May 2011 pressurized to sell his stakes to Maxis Source: News Reports, Emkay Research

Emkay Research | February 2, 2017 12

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Key Financials (Consolidated) Income Statement Y/E Mar (Rs mn) FY15 FY16 FY17E FY18E FY19E Revenue 23,954 25,698 27,957 31,102 34,929 Expenditure 7,181 7,956 9,188 10,090 10,550 EBITDA 16,772 17,742 18,769 21,012 24,379 Depreciation 6,153 5,049 4,857 5,529 5,721 EBIT 10,619 12,693 13,912 15,483 18,658 Other Income 989 1,106 1,051 1,151 1,221 Interest expenses 23 22 41 75 40 PBT 11,585 13,777 14,922 16,558 19,838 Tax 3,760 4,755 5,114 5,564 6,709 Extraordinary Items 0 180 0 0 0 Minority Int./Income from Assoc. 135 106 196 220 263 Reported Net Income 7,820 9,134 9,808 10,939 13,129 Adjusted PAT 7,820 8,954 9,808 10,939 13,129

Balance Sheet Y/E Mar (Rs mn) FY15 FY16 FY17E FY18E FY19E Equity share capital 1,970 1,970 1,970 1,970 1,970 Reserves & surplus 32,445 34,227 37,119 40,219 44,127 Net worth 34,416 36,197 39,089 42,190 46,098 Minority Interest 547 1,756 1,756 1,756 1,756 Loan Funds 0 0 0 0 0 Net deferred tax liability 226 176 176 176 176 Total Liabilities 35,188 38,129 41,020 44,121 48,029 Net block 11,792 9,087 7,726 6,847 6,251 Investment 5,058 5,919 5,919 5,919 5,919 Current Assets 20,582 25,881 30,620 34,790 39,927 Cash & bank balance 7,593 10,931 14,082 16,195 19,159 Other Current Assets 1,240 3,754 4,084 4,543 5,102 Current liabilities & Provision 2,262 2,765 3,251 3,442 4,075 Net current assets 18,320 23,115 27,368 31,348 35,852 Misc. exp 0 0 0 0 0 Total Assets 35,188 38,129 41,020 44,121 48,029

Cash Flow Y/E Mar (Rs mn) FY15 FY16 FY17E FY18E FY19E PBT (Ex-Other income) (NI+Dep) 10,596 12,671 13,872 15,408 18,618 Other Non-Cash items 0 0 0 0 0 Chg in working cap (2,768) (1,508) (1,102) (1,867) (1,540) Operating Cashflow 8,578 12,377 12,461 12,734 15,770 Capital expenditure (4,221) (2,334) (3,495) (4,650) (5,125) Free Cash Flow 4,357 10,043 8,966 8,084 10,645 Investments (346) (861) 0 0 0 Other Investing Cash Flow 0 0 0 0 0 Investing Cashflow (3,578) (2,089) (2,444) (3,500) (3,904) Equity Capital Raised 0 0 0 0 0 Loans Taken / (Repaid) 0 0 0 0 0 Dividend paid (incl tax) (5,293) (7,352) (6,916) (7,838) (9,221) Other Financing Cash Flow 7,909 8,016 11,022 14,873 16,555 Financing Cashflow 2,592 643 4,066 6,960 7,293 Net chg in cash 7,593 10,931 14,082 16,195 19,159 Opening cash position 6,107 7,593 10,931 14,082 16,195 Closing cash position 7,593 10,931 14,082 16,195 19,159

Emkay Research | February 2, 2017 13

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Key Ratios Profitability (%) FY15 FY16 FY17E FY18E FY19E EBITDA Margin 70.0 69.0 67.1 67.6 69.8 EBIT Margin 44.3 49.4 49.8 49.8 53.4 Effective Tax Rate 32.5 34.5 34.3 33.6 33.8 Net Margin 32.7 35.1 35.1 35.3 37.6 ROCE 34.3 37.6 37.8 39.1 43.1 ROE 23.6 25.4 26.1 26.9 29.7 RoIC 48.0 58.0 65.8 72.0 83.0

Per Share Data (Rs) FY15 FY16 FY17E FY18E FY19E EPS 19.8 22.7 24.9 27.8 33.3 CEPS 35.5 35.5 37.2 41.8 47.8 BVPS 87.3 91.9 99.2 107.1 117.0 DPS 11.3 15.5 15.0 17.0 20.0

Valuations (x) FY15 FY16 FY17E FY18E FY19E PER 27.8 24.3 22.2 19.9 16.6 P/CEPS 15.6 15.5 14.8 13.2 11.5 P/BV 6.3 6.0 5.6 5.2 4.7 EV / Sales 8.8 8.0 7.3 6.5 5.7 EV / EBITDA 12.5 11.6 10.8 9.6 8.1 Dividend Yield (%) 2.0 2.8 2.7 3.1 3.6

Gearing Ratio (x) FY15 FY16 FY17E FY18E FY19E Net Debt/ Equity (0.2) (0.3) (0.4) (0.4) (0.4) Net Debt/EBIDTA (0.5) (0.6) (0.8) (0.8) (0.8) Working Cap Cycle (days) 163.5 173.1 173.5 177.8 174.4

Growth (%) FY15 FY16 FY17E FY18E FY19E Revenue 7.7 7.3 8.8 11.2 12.3 EBITDA 11.1 5.8 5.8 11.9 16.0 EBIT 3.0 19.5 9.6 11.3 20.5 PAT 4.5 16.8 7.4 11.5 20.0

Quarterly (Rs mn) Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Revenue 5,676 5,741 5,707 7,608 6,255 EBITDA 4,305 4,404 4,266 4,364 4,663 EBITDA Margin (%) 75.9 76.7 74.7 57.4 74.6 PAT 2,221 2,156 2,180 2,331 2,704 EPS (Rs) 5.6 5.5 5.5 5.9 6.9

Shareholding Pattern (%) Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Promoters 75.0 75.0 75.0 75.0 75.0 FIIs 16.1 16.7 16.6 15.3 16.8 DIIs 3.3 3.0 2.8 3.6 1.7 Public and Others 5.6 5.3 5.6 6.1 6.6

Emkay Research | February 2, 2017 14

Sun TV Network (SUNTV IN) India Equity Research | Event Update

Emkay Rating Distribution BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months. ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months. HOLD Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months. REDUCE Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months. SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.

Emkay Global Financial Services Ltd. CIN - L67120MH1995PLC084899 7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com

DISCLAIMERS AND DISCLOSURES: Emkay Global Financial Services Limited (CIN -L67120MH1995PLC084899) and its affiliates are a full -service, brokerage, investment banking, investment management and financing group. Emkay Global Financial Services Limited (EGFSL) along with its affiliates are participants in virtually all securities trading markets in India. EGFSL was established in 1995 and is one of India's leading brokerage and distribution house.EGFSL is a corporate trading member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited(NSE), MCX Stock Exchange Limited (MCX-SX).EGFSL along with its subsidiaries offers the most comprehensive avenues for investments and is engaged in the businesses including stock broking (Institutional and retail), merchant banking, commodity broking, depository participant, portfolio management, insurance broking and services rendered in connection with distribution of primary market issues and financial products like mutual funds, fixed deposits. Details of associates are available on our website i.e. www.emkayglobal.com

EGFSL is registered as Research Analyst with SEBI bearing registration Number INH000000354 as per SEBI (Research Analysts) Regulations, 2014. EGFSL hereby declares that it has not defaulted with any stock exchange nor its activities were suspended by any stock exchange with whom it is registered in last five years, except that NSE had disabled EGFSL from trading on October 05, October 08 and October 09, 2012 for a manifest error resulting into a bonafide erroneous trade on October 05, 2012. However, SEBI and Stock Exchanges have conducted the routine inspection and based on their observations have issued advice letters or levied minor penalty on EGFSL for certain operational deviations in ordinary/routine course of business. EGFSL has not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has its certificate of registration been cancelled by SEBI at any point of time.

EGFSL offers research services to clients as well as prospects. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Other disclosures by Emkay Global Financial Services Limited (Research Entity) and its Research Analyst under SEBI (Research Analyst) Regulations, 2014 with reference to the subject company(s) covered in this report-:

EGFSL or its associates may have financial interest in the subject company.

Research Analyst or his/her relative’s financial interest in the subject company. (NO)

EGFSL or its associates and Research Analyst or his/her relative’s does not have any material conflict of interest in the subject company. The research Analyst or research entity (EGFSL) have not been engaged in market making activity for the subject company.

EGFSL or its associates may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report.

Research Analyst or his/her relatives have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report: (NO)

EGFSL or its associates may have received any compensation including for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EGFSL or its associates may have received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EGFSL or its associates may have received any compensation or other benefits from the Subject Company or third party in connection with the research report. Subject Company may have been client of EGFSL or its associates during twelve months preceding the date of distribution of the research report and EGFSL may have co-managed public offering of securities for the subject company in the past twelve months.

The research Analyst has served as officer, director or employee of the subject company: (NO)

The Research Analyst has received any compensation from the subject company in the past twelve months: (NO)

The Research Analyst has managed or co ‐managed public offering of securities for the subject company in the past twelve months: (NO)

The Research Analyst has received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months: (NO)

The Research Analyst has received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months: (NO)

The Research Analyst has received any compensation or other benefits from the subject company or third party in connection with the research report: (NO)

EGFSL and/or its affiliates may seek investment banking or other business from the company or companies that are the subject of this material. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that may be inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest including but not limited to those stated herein. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This report is not directed to, 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 or regulation or which would subject EGFSL or its group companies to any registration or licensing requirement within such jurisdiction. Specifically, this document does not constitute an offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument or as an official confirmation of any transaction to any U.S. person. Unless otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may be distributed in Canada or used by private customers in United Kingdom. All material presented in this report, unless specifically indicated otherwise, is under copyright to Emkay. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of EGFSL . All trademarks, service marks and logos used in this report are trademarks or registered trademarks of EGFSL or its Group Companies. The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read “Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report includes current or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

Emkay Research | February 2, 2017 www.emkayglobal.com 16