Sun TV - CBI probe clouds strong fundamentals... - ICICIdirect

Sun TV reported its Q1FY13 results, which were slightly below our estimates. The topline stood at Rs.425.8 crore representing de-growth of 6.2% YoY, due to the absence of income from movie production and impact of competition from ARASU Cable. However, ad revenues grew 5.1% to ~ Rs.243 crore. EBITDA for the quarter stood at Rs.323.0 crore at 75.9% of revenues, representing a decline of 474 bps due to higher raw material cost owing to production of three non-fiction shows in this quarter. The PAT stood at Rs.164.3 crore against our expectation of Rs.173.7 crore, de-growing 12.4% YoY. Though the company is fundamentally a very strong player, the ongoing CBI investigation against the promoters has remained an overhang on the stock. We remain cautious on the stock and rate it as HOLD with a target price of Rs.281.

Ad revenue grows; Arasu deal to help, going forward!!!

After witnessing a decline in the last two quarters, ad revenues for Q1FY13 grew 5.1% YoY to Rs.243 crore. Going forward, with the help of the Arasu deal and a possible solution to the power cut problem in South Indian states leading to increase in TRPs, we expect ad revenues to grow by 7.0% and 11.8% in FY13 and FY14, respectively. However, a tough macroeconomic environment can pressurise ad growth subsequently.

Ongoing CBI investigation takes precedence

Though fundamentally the company remains a very strong player being a strong leader in the south Indian markets with RoEs in excess of 25% even in a sluggish macroeconomic environment, the ongoing CBI investigation against the promoters of the company have remained an overhang on the stock.

Cautious stance on the stock

The stock has taken a beating on the recent news of the ongoing CBI investigation against the promoters of the company. We remain cautious on the stock and value it at 16x FY13E EPS to arrive at a target price of Rs.281. We maintain our HOLD recommendation on the stock.

Source : Equity Bulls

Keywords