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Research
Buy Sun TV Network - Elara Capital
Posted On : 2010-09-04 09:36:39( TIMEZONE : IST )
- Sun TV Network
- Rating : Buy
- Target Price : INR563
- Upside : 20%
- CMP : INR471 (as on 30 August 2010)
Sun pips national peers with incredible growth in ad revenues
Our observation of the ad volume data across Sun TV channels indicates that there has been a sharp come back of advertisers (especially FMCG companies) starting H2FY10, helping the company post an incredible ad revenue growth during the period. Ad volume growth for Sun TV Network has significantly outpaced its national peers in consumer categories during FY08-FY10. We expect the volume growth trend in regional markets to continue, enabling the company to sustain a high double digit growth during FY10-FY1E.
Subscription revenue to generate a CAGR of 32%
Sun TV Network has witnessed a robust growth in its subscription revenues in recent quarters, led by a strong push from its DTH (Direct to Home) subscription revenues. Historically, Sun TV has mostly relied on advertisement revenues (accounting for 70% of the total revenues) for its topline growth. However, we believe that the trend is set to change significantly as we see various measures taken by the company on the DTH, domestic cable and international subscription revenues bearing fruit going forward, generating a revenue CAGR (Compound Annual Growth Rate) of 32% during FY10-FY12E.
Expecting EPS CAGR of 27% during FY10-FY12E
We expect a consolidated EPS growth of 27% during FY10-FY12E, helped by lower expected losses in the radio business and rising subscription revenues. Radio business, which eroded the profitability of consolidated operations in FY09 and FY10, is expected to cut losses sharply going forward. In the same time, subscription revenues of the company are expected to grow in a robust manner. We believe that these two drivers are enough to help the company comfortably placed to post an EPS CAGR of 27% during FY10-FY12E.
Valuation
Sun TV Network's share price has exhibited a strong outperformance over its peers during the past 12 months, and we expect this trend to continue. We value the company on PEG (Price Earning Growth) valuation framework in order to factor in superior fundamentals of the company into target P/E multiple. We assign a P/E of 26.6x to our FY12E expected EPS of the company, to value Sun TV based on a PEG of 1x. We recommend 'Buy' on the stock with a one year forward target price of INR563, indicating an upside of 20% from current levels.
