Sun TV Network - Subdued results, outlook strong; Buy - Anand Rathi

Sun TV Network's (Sun TV) 2QFY13 standalone results belied our estimates due to weak ad revenues and high investment on film content. Management is, however, upbeat on 2H outlook for both advertisement and subscription income. We have tweaked our estimates, but retain the target price (Rs.400). We re-iterate Buy, as we expect revival in earnings growth and softening of overhang.

- Subdued results. Sun TV's 2Q standalone revenues/EBIT were 3%/15% below our expectation, due to lower ad revenue growth (4% vs. 8% expected) and higher film content investments (more TV premiers). Also, net income (-16.7% vs. expectation) was hit by lower other income.

- Strong outlook. Management expects double-digit ad revenue growth in FY13 (vs. 4.5% in 1H), driven by higher spends from FMCG segment and higher viewership (post Arasu deal). Management said the DTH industry subscriber additions have jumped post 2Q due to impending analog phase-off in Chennai (daily additions up 3-4x). This would drive subscription revenue growth. Sun TV recorded revenues of Rs.40m from Arasu; full quarter revenues of Rs.75m would start from 3Q.

- Takeaways from earnings call. (1) Hyderabad IPL team expected loss funding to be ~Rs.300m at most in FY14, which will further fall to Rs.40-60m in FY15; (2) rising business confidence, rural expansion plans to drive ad spends; (3) spend on film's satellite rights to be ~Rs.800-900m/qtr; and (4) radio business is generating small, positive PAT.

- Tweaking estimates. We have cut our FY13 revenue/PAT estimates 1.4%/3.8%, based on 1H results. FY14 estimates are broadly unchanged and do not include IPL losses (lack of clarity on team expenses).

- Valuation. Sun TV trades at 17x 1-year forward EPS (vs. past 3-yr average. of 20x). Our target is based on 19x FY14e EPS. Risk. Sluggish economy.

Source : Equity Bulls

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