Sun TV Network - Here we go again - Kotak

The Sun TV stock declined 16% (23% last week) on news-flow related to a CBI inquiry into the company's promoters, related to the 2G scam. We are not in a position to verify the allegations and clarifications but (1) note limited impact on Sun operations (DTH subs revenues from group company Sun Direct is the only link) and (2) we factor this in our DCF valuation (100 bps higher WACC than Zee). On operations: (1) Pressure on ad revenues (ad limit regulations but potential consolidation in the market, as well); (2) strong growth in subs revenues (voluntary DTH, mandatory DAS), (3) cost inflation and (4) strong cash flows (limited capex beyond FY2008-13).

Our REDUCE rating is under review; our 12-month forward fair value is Rs400 (from Rs420).

Source : Equity Bulls

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