Sun TV Network - Q3FY12 Result update - Centrum

Challenging quarter

Sun TV Network's Q3FY12 results were below our expectation on the back of 6.6% YoY drop in advertising revenue. Analog subscription revenue de-grew by 45% as the state run MSO did not carry the network's channels in Tamil Nadu. High movie content cost impacted EBIT margins which were at 15 quarter low. We lower our FY12/FY13 estimates but maintain BUY on the stock.

- Weak performance: For the first time the company posted 6.7% drop in advertisement revenue due to the economic slowdown as key sectors such as FMCG and telecom cut spends. The company posted 29% drop in revenue as no movies were released during the quarter compared to 'Robot' in Q3FY11 which garnered Rs1.5bn in revenue. In the radio business the company posted a revenue of Rs620mn with an operating profit of Rs60mn for 9MFY12.

- Subscription revenues under pressure: The company posted 45% YoY drop in analog subscription revenues as the channels were not carried by state run MSO in the Tamil Nadu. Management maintained that talks were on with the MSO but there was no definite time frame for resolving the issue. DTH subscription revenue was up by 19% to Rs840mn on the back of 7.43mn paid subscribers. International subscription revenue was up by 19% at Rs240mn due to the expanding footprint in USA and Canada, introduction of new packages in Middle East and increasing number of channels.

Margins under pressure: Operating margins of the company declined by 367bps YoY and 73bps on a sequential basis to 80.2% on the back of lower revenue. Operating profit declined by 32% YoY as no movies were released during the quarter while sequentially the drop was 6.6%. EBIT margin was the lowest in the last 15 quarters following high content cost at 53.8% down 102bps YoY and 112bps sequentially. However PAT margins increased by 178bps YoY on the back of higher than expected other income.

- Estimates lowered; Maintain BUY: We have lowered our earnings estimates for FY12/FY13 factoring in lower than expected advertising revenue, lower analog subscription revenue on the back of nonagreement with Arasu Cable and lower growth in radio business. The stock is currently trading at 18.2x FY12E and 16.5x FY13E EPS of Rs17.8 and Rs19.6, respectively. We maintain BUY rating on the stock with a target price of Rs373 (valuing the stock at 19x FY13E EPS).

Source : Equity Bulls

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