Sun TV network - market share losses moderate but reduced ad volumes continue to hurt - Kotak

Sun reported continued pressure on ratings with around 50 bps decline in network market share, led by (1) weak performance of Gemini TV (flagship Telugu channel), (2) modest decline in Udaya TV and Movies (flagship Kannada channels) and (3) rising competitive intensity in South India across markets (Zee, Star, ETV-TV18). However, we highlight that a qoq decline in network market share has moderated over the past three quarters. The company has also highlighted renewed efforts to improve fiction content in the Telugu and Kannada markets. Sun had reduced its ad volumes to 12 minutes/hour from 17-18 minutes/hour in 2QFY14 and the impact of the large decline will continue in 3QFY14. However, we highlight that the impact may be partially negated by (1) sharp rate hikes in Sun TV (flagship Tamil channel) and (2) claw-back of ad volumes shared with content partners (6-7 minutes/hour in 3QFY14 from eight minutes/hour previously). Sun TV rates were under-priced versus leading channels in other markets; the discount is now bridged.

We retain ADD on Sun (fair value: Rs. 430) as we believe the worst is over, assuming 50-100 bps market share declines continue. Sun is in compliance with TRAI's 12 minutes/hour ad cap implying (1) Sun will benefit from industry-led rate hikes (or complete pass-through of 2QFY14 rate hikes) if the court rules in favor of the ad cap or (2) higher ad volumes (with modest decline in ad rates), if the court does not. Strong DAS-led subs growth in Sun has begun given Phase-I DAS in Chennai is still pending.

Source : Equity Bulls

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