Post on 03-Jul-2020
Company Report Industry: Media Entertainment
Balwindar Singh (balwindarsingh@plindia.com) +91-22-66322239
Sun TV Network
Dominant South player; to benefit from huge digitization potential
June 20, 2014 2
Sun TV Network
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Contents Page No.
Investment Rationale .................................................................................................. 5
Digitization- Phase III/IV implementation accounts for the larger pie .............................................. 5
Potential for digitization .................................................................................................................... 6
Unique business model - lends stability & higher profitability.......................................................... 7
DTH revenues- growth supported by subscriber additions as well as higher ARPUs ........................ 8
ARPU - post digitization, ARPU from digital cable to increase to Rs25 from Rs5 currently ............ 10
Regional broadcasting has emerged as a new growth driver over the last few years .................... 10
Regional advertising - gaining ground ............................................................................................. 11
Indian Premier League- expect IPL to turn profitable in FY17 ......................................................... 12
Addressing problems arising out of TRAI ad cap ............................................................................. 13
Implementation of digitization in Tamil Nadu will solve the Arasu cable problem......................... 14
SUN TV - undisputed leader in the South ........................................................................................ 15
Business Background ................................................................................................ 17
Key Management Personnel ........................................................................................................... 18
Risks .......................................................................................................................... 19
SUN v/s Zee ............................................................................................................... 20
Financials .................................................................................................................. 21
Expect SUN’s revenues to increase at a CAGR of 13% over FY14-16E driven by 18% YoY increase in domestic subscription revenues ...................................................................................................... 21
EBITDA likely to increase by 14% over FY14-16E; PAT growth of 17% ............................................ 21
RoE/ROCE to expand by 220bps/310bps over FY14-16E................................................................. 22
Balance sheet to strengthen further ............................................................................................... 23
Valuations ................................................................................................................. 24
Annexure ................................................................................................................... 25
South India Media & Entertainment Industry ................................................................................. 25
Television industry in South India is expected to grow at a CAGR of 20.0% ................................... 26
TV subscription revenues to grow at 23% CAGR over FY13-17 ....................................................... 27
New channel launches in South India in last one year .................................................................... 27
Sun TV Network
Company Report June 20, 2014
Rating Accumulate
Price Rs430
Target Price Rs510
Implied Upside 18.6%
Sensex 25,106
Nifty 7,511
(Prices as on June 20, 2014)
Trading data
Market Cap. (Rs bn) 169,454.4
Shares o/s (m) 394.1
3M Avg. Daily value (Rs m) 518.4
Major shareholders
Promoters 75.00%
Foreign 16.00%
Domestic Inst. 2.00%
Public & Other 7.00%
Stock Performance
(%) 1M 6M 12M
Absolute 0.9 15.2 19.4
Relative (2.0) (3.9) (14.8)
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2015 21.9 21.9 0.0
2016 25.8 25.8 0.3
Price Performance (RIC:SUTV.BO, BB:SUNTV IN)
Source: Bloomberg
0
100
200
300
400
500
Jun
-13
Au
g-1
3
Oct
-13
De
c-1
3
Feb
-14
Ap
r-1
4
Jun
-14
(Rs)(Rs)
Phase-III/IV digitization provides huge upside potential for SUN TV: We believe
that Phase-III/IV digitization would provide the biggest upside for SUN TV as this
phase collectively accounts for ~85% of the total subscriber base in South India.
This is despite the fact that SUN has been unable to cash in on the opportunities
in Phase-I (Chennai) /Phase-II (Hyderabad, Coimbatore, Vizag).
We estimate Rs5.5bn (Exhibit 2) as the incremental revenue potential from
digitization for SUN TV. However, we have modelled for an increase in domestic
subscription revenues of only Rs2.5bn from Rs6.5bn in FY14 to Rs9.0bn in FY16E
as digitization continues to get delayed. Majority of the incremental revenues
from digitization is likely to translate into bottom-line as there is no incremental
cost attached to it.
Dominant position in South India; indispensable medium for advertisers: SUN
continues to be the market leader in South India by way of its popular content
and wide distribution reach. SUN’s dominant positioning has catapulted it into
an envious position where it has become an indispensable choice for
advertisers. SUN is the only broadcaster in South India to be present across
genres in different languages. SUN is the market leader in Tamil (70% market
share incl. 9 channels), Telugu (collective market share of 38% from 9 channels)
and Kannada channels (collective market share of 38% from 7 channels).
Contd...4
Key financials (Y/e March) 2013 2014 2015E 2016E
Revenues (Rs m) 19,531 22,236 25,069 28,425
Growth (%) 4.6 13.9 12.7 13.4
EBITDA (Rs m) 14,392 15,097 17,124 19,530
PAT (Rs m) 7,096 7,480 8,638 10,179
EPS (Rs) 18.0 19.0 21.9 25.8
Growth (%) 2.4 5.4 15.5 17.8
Net DPS (Rs) 9.5 9.5 11.0 12.0
Profitability & Valuation 2013 2014 2015E 2016E
EBITDA margin (%) 73.7 67.9 68.3 68.7
RoE (%) 26.8 25.4 26.4 27.6
RoCE (%) 35.5 33.2 34.6 36.3
EV / sales (x) 8.5 7.3 6.4 5.6
EV / EBITDA (x) 11.5 10.8 9.4 8.1
PE (x) 23.9 22.6 19.6 16.6
P / BV (x) 6.1 5.5 4.9 4.3
Net dividend yield (%) 2.2 2.2 2.6 2.8
Source: Company Data; PL Research
Sun TV Network
June 20, 2014 4
In a transition mode, addressing TRAI ad cap with some hiccups: After
witnessing double-digit ad growth from Q3FY13 to Q1FY14, SUN TV witnessed a
decline of 4.3% and 7.2% YoY in Q2FY14 and Q3FY14, respectively, due to
implementation of the TRAI ad cap. SUN undertook price hikes to combat
decline in secondages; however, due to weak macros, rising competition and
unchanged ad rates of its content partners, SUN’s strategy fell apart.
SUN has now recalibrated price hikes and undertaken number of initiatives,
including reduction in content partners’ ad slots, extending fiction programming
to six days a week and encouraging cross-selling approach to offset the negative
impact of the ad cap. Thanks to the above-mentioned initiatives, ad growth
bounced back to 4.7% YoY in Q4FY14. In FY15E, we have modelled for ad growth
of 10.3% YoY.
Strong balance sheet with healthy dividend payout; a cash-generating
machine: We expect SUN’s earnings to increase at a CAGR of 16.7% over FY14-
16E. RoE/ROCE is likely to expand by 220bps/310bps to 27.6%/36.3% by FY16E,
respectively. Going forward, improved profitability, coupled with limited capex,
is likely to translate into healthy FCFF generation for SUN. We expect SUN to
generate cumulative FCFF of Rs16bn during this period. Consequently, cash
balances (incl. long & short term investments) are likely to increase to Rs16.3bn
from Rs10.8bn in FY14, despite high dividend payouts. Dividend payout is likely
to remain high at ~50%.
Re-rating imminent; valuation discount with Zee at multi-year highs: SUN is a
key beneficiary of the ongoing digitization due to its wide reach and dominant
positioning in South India. SUN used to trade at an average P/E of 20-22x.
However, during the last one year, we have seen P/E sliding to 17x-18x due to
continued delay in digitization, overhang of Sun Direct-Astro case, Arasu Cable
asking for a DAS license, implementation of the TRAI ad cap etc. Valuation
discount with Zee has increased to 30% compared to ~8-10% earlier. We believe
concerns are overdone and the valuation discount with Zee would narrow
gradually over the next 1-1.5 years as digitization picks up pace and SUN adjusts
to the ad cap implementation.
Recommend “Accumulate” with target price of Rs510: We value SUN at 19x
FY15E earnings of Rs21.9 and arrive at a price of Rs410. To this, we add the NPV
of Rs106 as the potential of digitization (Exhibit 2) since the complete benefits
from digitization are likely to accrue only beyond FY16E. Consequently, we
arrive at a target price of Rs510 and recommend “Accumulate”. Negative
newsflow related to SunDirect-Astro case remains a risk.
Sun TV Network
June 20, 2014 5
Investment Rationale
Digitization- Phase III/IV implementation accounts for the larger pie
SUN’s dominant position in the southern region provides significant benefits to be
reaped out of digitization. Though it has been unable to cash in on the opportunities
in Chennai during Phase-1 (due to the deadlock related to distribution of cable
services between Arasu Cable and Central Govt.), Phase-II involves five cities with a
larger audience base. Five cities (Bangalore, Coimbatore, Hyderabad,
Vishakhapatnam and Mysore) collectively account for 4.6m TV households
compared to 1.1m households in Chennai.
Phase-III/IV digitization would provide the biggest upside for SUN TV as Phase-
III/IV collectively account for ~85% of the total subscriber base in South India. Since
digitization implementation continues to be delayed, we expect these benefits to
percolate over the medium-term for SUN TV.
Exhibit 1: Opportunity in South India- Number of households in (m)
Region Urban HHs Rural HHs Total HHs TV HHs Penetration of TV
Tamil Nadu 8.9 9.5 18.4 16.1 87.5%
Chennai 1.1 0 1.1 1.1 100.0%
Coimbatore 0.7 0.2 0.9 0.8 88.9%
Others 7.1 9.3 16.4 14.2 86.6%
Andhra Pradesh 6.8 14.3 21.1 12.3 58.3%
Hyderabad 0.9 0 0.9 0.7 77.8%
Vishakhapatnam 0.5 0.6 1.1 0.7 63.6%
Others 5.4 13.7 19.1 10.9 57.1%
Karnataka 5.4 7.9 13.3 7.8 58.6%
Bangalore 2.2 0.2 2.4 2 83.3%
Mysore 0.3 0.4 0.7 0.4 57.1%
Others 2.9 7.3 10.2 5.4 52.9%
Kerala 4.0 4.0 8.0 6.0 75.0%
Total of South India states 25.1 35.7 60.8 42.2 69.4%
Phase-I (Chennai) 1.1 0 1.1 1.1 100.0%
Phase-II (Bangalore, Coimbatore, Hyderabad, Vishakhapatnam, Mysore) 4.6 1.4 6.0 4.6 76.7%
Source: PL Research
Sun TV Network
June 20, 2014 6
Potential for digitization
Four southern states (Andhra Pradesh, Karnataka, Kerala and Tamil Nadu)
collectively constitute 42m TV households. We have assumed different probabilities
for success of digitization and penetration of SUN TV under different scenarios. We
have created three scenarios - Bear, Base and Bull case for the opportunity arising
out of digitization for SUN TV. As per base case, digitization provides incremental
upside revenue potential of Rs4.6bn. As there is no additional cost attached to it,
digitization would lead to incremental PAT of Rs3.1bn translating into EPS of Rs7.9.
Incremental EPS under different scenarios would be Rs6.6/7.9/9.3, respectively.
Since these benefits would only be realized by FY17E, we arrive at NPV of
Rs89/106/126 under different scenarios.
Exhibit 2: Scenario Analysis
Bear case Base case Bull case
No. of TV households in South India (m) 42 42 42
Current DTH subscribers (m) 10 10 10
Digitization Opportunity- No. of subscribers (m) 32 32 32
Success probability of digitization 70.0% 75.0% 80.0%
No. of probable subscribers (m) 22.5 24.2 25.8
Penetration of SUN TV 70.0% 75.0% 80.0%
No. of probable SUN subscribers (m) 15.8 18.1 20.6
Churn to DTH 30.0% 35.0% 40.0%
Subscribers opting for DTH (m) 4.7 6.3 8.2
Incremental DTH ARPU (Rs) 33.0 33.0 33.0
Incremental DTH revenues (Rs m) 1,874 2,510 3,264
Subscribers opting for digital cable (m) 11.0 11.8 12.4
Incremental Digital ARPU post digitization (Rs) 15.0 15.0 15.0
Incremental Digital revenues (Rs m) 1,988 2,119 2,226
Incremental annual revenues owing to digitization (Rs m) 3,862 4,630 5,490
Incremental contribution to PBT (Rs m) 3,862 4,630 5,490
Taxes @33% 1,275 1,528 1,812
Incremental PAT owing to digitization (Rs m) 2,588 3,102 3,678
No. of shares 394 394 394
Incremental EPS 6.6 7.9 9.3
Assigned P/E 19.0 19.0 19.0
Upside potential in stock (Rs) 125 150 177
NPV- Rs/share 89 106 126
Source: Company Data, PL Research
Sun TV Network
June 20, 2014 7
Exhibit 3: Status of digitization in Phase-I/II
Addressable region for SUN State Seeding of set-top boxes CAF compliant Packages deployment Gross Billing ARPU
Phase I
Chennai Tamil Nadu Status quo NA NA NA NA
Phase II
Bangalore Karnataka 90-95% 80-85% Underway Pending Rs250-300
Coimbatore Tamil Nadu Status quo NA NA NA NA
Hyderabad Andhra Pradesh 50-70% NA NA NA NA
Vishakhapatnam Andhra Pradesh ~70% NA NA NA NA
Mysore Karnataka 90% 80-85% Underway Pending Rs220-250
Source: Industry, PL Research
Unique business model - lends stability & higher profitability
SUN operates on a unique business model for its GEC channels, whereby, it partly
leases out prime time advertising slots to third-party content providers, while
charging them a fixed fee (broadcast fee) for broadcasting their content. SUN leases
out primetime slots on 30 minutes basis to content providers, offering them right to
three minutes of advertising inventory, while it retains three minutes of advertising
inventory (based on six minutes of advertising per 30 minutes). SUN also charges
them a fee for broadcasting their content which is termed as broadcast fee in P&L
statement.
Under this differentiated model, the cost of producing the content is borne by the
content producer. Since SUN does not incur any costs, risks associated with the
programming as well as recovering the costs lie with the content producer.
Consequently, SUN enjoys 100% margins under this segment. SUN has also
incorporated strict clauses in this business model - content providers are required to
maintain certain ratings, failing which, SUN can change their slot timings or stop the
content being aired, producer is required to have an exclusive arrangement with
SUN TV i.e. he will work only for SUN TV during this period, post the conclusion of
show producer cannot telecast the serial on any other network for next two years.
SUN’s dominant position in the southern markets has enabled it to operate on such
a unique model as it has become an indispensable network in the Southern region.
Broadcast fee contributed 6.4% to the top-line in FY14. Our estimates suggests that
SUN is able to generate ~12-14% of its top-line through this model, while 6% of top-
line is reported as broadcast fee; ~6-8% is included under advertising revenues as
SUN retains three minutes/thirty minutes of primetime advertising.
Sun TV Network
June 20, 2014 8
Exhibit 4: Broadcasting revenues
1,537
1,640
1,436
1,267 1,270 1,302
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
FY11 FY12 FY13 FY14 FY15E FY16E
(Rs
m)
Broadcast fees Broadcast revenues as a % of total (RHS)
Source: Company Data, PL Research
SUN’s differentiated strategy helps the company to boast of higher margins across
the industry. SUN TV reported EBIT margins of 46.1% in FY14. Compared to this, Zee
reported EBIT margins of 26.1% during FY14. Adjusting for Zee’s loss-making sports
business and SUN’s high-margin broadcasting business, SUN still generated
comparatively higher margins of 42.6% (excl. broadcasting) in FY14 compared to
33.3% for Zee (excluding sports). Exhibit 5: Reported EBIT margins - Sun v/s Zee
18%
25%
32%
39%
46%
53%
60%
FY11 FY12 FY13 FY14 FY15E FY16E
Sun Zee
Source: Company Data, PL Research
Exhibit 6: Adjusted EBIT margins - Sun v/s Zee
18%
25%
32%
39%
46%
53%
60%
FY11 FY12 FY13 FY14 FY15E FY16E
SUN excl. broadcast fees ZEE excl. sports
Source: Company Data, PL Research
DTH revenues- growth supported by subscriber additions as well as higher ARPUs
SUN TV has benefitted tremendously from the increasing penetration of DTH
services over the last few years. Sun’s DTH revenues stood at Rs4.5bn in FY14 and
have grown at a scorching pace of 25% over FY09-14. It is estimated that SUN Direct
constitutes a major chunk (~60%) of SUN TV’s revenues. SUN Direct is the DTH arm
of SUN Network which began operations in 2007 and today ranks among one of the
fastest growing DTH service providers in the country, having garnered over 9+ m
subscribers.
Sun TV Network
June 20, 2014 9
DTH subscribers for SUN totalled 10.2m at the end of FY14 and have grown at a
CAGR of 13% over FY09-14. With Phase-III/IV digitization on the cards, we expect
SUN’s subscriber base to grow rapidly over the medium-term. We estimate SUN’s
DTH subscribers to grow at a CAGR of 14% over FY14-16, while we expect DTH
revenues to grow at a CAGR of 15% during the same period.
Exhibit 7: SUN’s DTH subscribers
7.0 8.2 8.7
10.2 11.8
13.2
-10%
0%
10%
20%
30%
40%
50%
60%
1.0
3.0
5.0
7.0
9.0
11.0
13.0
15.0
FY11 FY12 FY13 FY14 FY15E FY16E
(m)
Sun's DTH subscribers YoY gr. (RHS)
Source: Company Data, PL Research
Exhibit 8: SUN’s DTH revenues & growth
2,900 3,330
3,730
4,492 5,139
5,897
-10%
0%
10%
20%
30%
40%
50%
60%
1,000
2,000
3,000
4,000
5,000
6,000
7,000
FY11 FY12 FY13 FY14 FY15E FY16E(R
s m
)
DTH revenues YoY gr. (RHS)
Source: Company Data, PL Research
Growth in the DTH business has also been supported by substantially higher ARPUs.
In FY14, SUN’s ARPU from the DTH business stood at Rs37 compared to Rs5 on the
analog platform. Due to its dominance, SUN has been able to negotiate with DTH
operators on a per subscriber basis, resulting into substantially higher realizations.
While subscriber base for DTH constituted only one-fourth of SUN’s total subscriber
base in FY14, revenues from DTH contributed 70% of total subscription revenues in
FY14.
Exhibit 9: SUN’s ARPU comparison - DTH v/s analog
DTH Analog
Total number of subscribers in FY14 10.2 33.0
% of total subscribers 23.6% 76.4%
Revenues in FY14 (Rs m) 4,492 1,957
% of subscription revenues 69.7% 30.3%
ARPU 36.7 4.9
Source: Company Data, PL Research
Sun TV Network
June 20, 2014 10
ARPU - post digitization, ARPU from digital cable to increase to Rs25 from Rs5 currently
Our analysis shows that due to rampant under-declaration by LCOs during the
analog regime, SUN TV has been unable to monetize its offerings despite a dominant
position in the South. Further, fixed fee deals with MSOs, Arasu Cable paying only
Rs25m/month to SUN and SUN TV network channels being free-to-air in Chennai
have also led to depressed ARPUs for the company.
Though SUN operates on a ‘per subscriber model’ even with MSOs, pricing is
significantly lower than DTH, resulting into lower monetization from cable.
According to SUN’s management, they expect analog ARPU to inch upto Rs25 post
digitization. We have assumed incremental ARPU of Rs15 post digitization from
digital cable.
Regional broadcasting has emerged as a new growth driver over the last few years
Rising per capita income, increasing aspirations of the Tier-II cities and rapid
technology advancements have resulted into demand for regional channels inching
up fast. As per FICCI-KPMG, regional channels accounted for ~26.7% of total
television viewership in CY13. With a sizeable chunk of viewership being generated
from the regional base, broadcasters are rushing to strengthen their regional
portfolio through launch of newer channels. CY12 witnessed Zee and Star launching
their Bengali movie channels – Zee Cinema Bangla and Jalsha Movies. Star owned
Asianet Communications also launched Asianet Movies, the first satellite movie
channel in Malayalam.
Within the regional basket, Tamil is the largest category, accounting for 27% share of
regional viewership, followed by Telugu accounting for 24%. Marathi accounted for
14% of viewership share, while Kannada accounted for 12% of viewership share.
Exhibit 10: Viewership share by genres in CY13
Hindi GEC30.0%
Regional GEC18.0%Hindi Movies
15.1%
Kids7.5%
Music3.6%
Regional News3.6%
Regional Movies3.4%
Others18.6%
Source: FICCI-KPMG Report2014, PL Research
Exhibit 11: Viewership share of regional channels in CY13
Tamil27%
Telugu24%Marathi
14%
Kannada12%
Bengali11%
Malayalam6%
Others6%
Source: FICCI-KPMG Report2014, PL Research
Sun TV Network
June 20, 2014 11
Within regional channels, regional GEC is the most dominant genre by viewership
share, accounting for 76-78% of audiences in the Bengali and Marathi markets and
65-70% in the entire southern market. Fiction offerings continue to dominate
viewership trends.
Regional advertising - gaining ground
Regional advertising accounted for 27.7% of the national advertising pie in CY13
which is proportionate to their viewership market share. Rapid growth in Tier-II/III
cities has created opportunities for national/regional entrepreneurs who have a
localized offering and want to cash in on the boom in these markets. Regional
advertising offers localized content as it gives local advertisers the platform to
advertise on regional channels where they have a higher product appeal. While
regional ad accounts for 27.7% of the total advertising pie, they contribute 53% in
terms of ad volumes resulting into significantly lower yields.
TV advertising market in South India is worth Rs40bn in FY13 and is likely to grow at
a CAGR of 14% over FY13-17E to reach Rs68bn. Growth is likely to be driven by both
volumes (new channel launches) and price hikes (to compensate for decline in ad
inventory due to 12minutes/hr ad cap). Tamil Nadu and Andhra Pradesh collectively
accounted for 60% of TV ad revenues, while the remaining 40% was equally
contributed by Karnataka and Kerala.
Exhibit 12: TV advertisement market in South India
15 18 21 24 27 10 12
13 15
17 7
8 9
10 12
7 8
10 11
12
5
15
25
35
45
55
65
75
FY13* FY14E FY15E FY16E FY17E
(Rs
bn)
Tamil Nadu Andhra Pradesh Karnataka Kerala
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research
Exhibit 13: Advertisement expenditure by genre
Hindi GECs27.1%
Regional
GECs+News
+Movies+Music
27.7%
Hindi News
8.6%
Hindi
Movies
6.7%
English News+Ente
rtain9.7%
Others20.2%
Source: FICCI-KPMG Report 2014, PL Research
Sun TV Network
June 20, 2014 12
Indian Premier League- expect IPL to turn profitable in FY17
In Oct 2012, SUN won the bid for Hyderabad franchisee of the IPL for a consideration
of Rs850m p.a. payable for five years which would result in total outflow of Rs4.2bn.
In addition to this, SUN would also be bearing players’ salary and other overhead
costs. Assuming ~Rs500-550m as annual outflow related to overhead costs and
players’ salary, SUN would have an outflow of Rs1.4bn p.a. From the 6th year
onwards, the Rs850m obligation will not have to be paid and only 20% of the
revenue will be shared with BCCI.
SUN TV had earlier targeted that this business will breakeven in FY15E. However,
given that IPL-7’s initial phase had been shifted out of India, we believe there might
be some losses. SUN expects this business to turn profitable from third year
onwards. However, we have estimated IPL to turn profitable in FY17E.
Exhibit 14: SUN's expectation of IPL business - PAT
Year (Rs m)
FY14- Year 1 -350
FY15- Year 2 Losses will be lower than FY14
FY16- Year 3 100
FY17- Year 4 200
FY18- Year 5 400
Source: Company Data, PL Research
Exhibit 15: IPL financials
1,040 1,123 1,293
1,483 1,613
(354)(261)
(162)
18 77
(500)
-
500
1,000
1,500
2,000
FY14 FY15E FY16E FY17E FY18E
(Rs
m)
IPL revenues IPL PAT
Source: Company Data, PL Research
Sun TV Network
June 20, 2014 13
Movies
SUN entered movie production and distribution business in Sep 2008 through its
division, SUN Pictures. SUN buys ~70-80% of regional language movies and boasts of
more than 9,000 movie titles. SUN TV has a policy of buying movie rights as exclusive
owner so as to generate exclusive content. Through its exclusive content rights, the
movie content is used in various forms such as comedy clips, music clips, action clips,
etc. on its channels. Sun has an accounting policy of amortizing movies on the day of
first telecast of the film.
Addressing problems arising out of TRAI ad cap
TRAI’s regulation restricting advertisement time to 12minutes/hr has claimed
number of victims, the most prominent one being SUN. After witnessing double-digit
ad growth from Q3FY13 to Q1FY14, SUN TV witnessed decline of 4.3% and 7.2% YoY
in Q2FY14 and Q3FY14, respectively. This was due to the TRAI ad cap regulations
which were supposed to come into effect from Oct 1, 2013. To combat the decline in
secondages (from 16 mins/hr to 10 mins/hr of commercial advertisements), SUN TV
took a sharp price hike of 19% across the board in July’13. However, due to weak
macros, rising competition (in Telugu, Kannada and Malayalam) and unchanged ad
rates of its content partners SUN’s strategy fell apart.
SUN has now recalibrated price hikes and undertaken number of initiatives,
including reduction in content partners’ ad slots, extending fiction programming to
six days a week and encouraging cross-selling approach to offset the negative impact
of TRAI ad cap:
Reduction of content partners’ ad slots: SUN has reduced the content partners’
ad slots to three minutes/half hour compared to four minutes/half hour on its
primetime GECs earlier. Remaining one minute of ad slot has been adjusted on
some other non-GEC channel. Thus, SUN has been successful in reducing its
losses to the minimum.
Extension of fiction programming to Saturday: Extension of programming to
Saturday has resulted in increasing the original hours of programming per week
and thereby, increasing the ad revenues. This move has the potential to increase
ad revenues by ~1/6th.
Rate hikes across different channels: For its primetime GEC slots on SUN TV,
SUN has increased ad rates from Rs43,000/10 seconds in Q2FY14 to
Rs65,000/10 seconds in Q4FY14. For non-primetime slots or for its smaller
channels, ad rates have been hiked in the 5-15% range.
Sun TV Network
June 20, 2014 14
Transferring inventory from GECs to other smaller channels: Reduction in ad
inventory on GECs has been somewhat mitigated by transferring part of the
inventories to other niche channels like music, kids, comedy, news etc.
Customers have been benefitted by way of broadcasting their ads at lower rates
on these channels. Alternately, SUN has benefitted as inventory is at least
getting utilized rather than a complete miss due to ad cap.
Thanks to the above-mentioned initiatives, ad growth bounced back to 4.7% YoY in
Q4FY14 after witnessing two consecutive quarters of decline. It has also been helped
by the fact that SUN ran 12 (commercial advertisements) +2 (self-promotion)
minutes of advertising in Q4 compared to 10+2 in Q3 due to no final decision on the
ad cap. Meanwhile, SUN continues to push through the rate hikes. Management
does not plan to take any further rate hikes in H1FY15. We believe customers will
eventually absorb the price hikes after initial reluctance due to SUN’s wide
distribution reach and leadership position in the South. In FY15E, we have modelled
for ad growth of 10.3% YoY.
Implementation of digitization in Tamil Nadu will solve the Arasu cable problem
FY12 witnessed re-launch of Arasu Cable TV Corp. Ltd., a public undertaking under
the Jayalalitha government in Tamil Nadu, which started offering cable TV services at
a modest price of Rs70/month and was declared as the only official cable distributor
in Tamil Nadu. Arasu Cable went live on Sep 2, 2011 and since Arasu-Sun was not
able to arrive at an agreement, Sun’s channels were not available on Arasu’s
network across Tamil Nadu (except Chennai) in 2011.
Finally, after 9-10 months of intense discussions, in Aug 2012, SUN-Arasu entered
into an agreement, whereby, Arasu agreed to distribute SUN’s channels on its
network. Arasu agreed to pay Rs 5m/month to SUN for broadcasting these channels
in Tamil Nadu (except Chennai). In Chennai, SUN’s channels continue to be Free-to-
Air (FTA). As SUN TV’s one-year deal with Arasu expired in Aug 2013, SUN is in talks
with Arasu to renew its subscription deal on fresh commercial terms. However, no
new negotiations have gone through and Arasu continues to pay SUN on older rates
currently even as Sun TV is asking for an increase in payout.
Further, digitization in Chennai & Coimbatore continues to elude due to deadlock
over DAS license to Arasu. In July 2011, Arasu had applied for DAS license but the
Ministry of Information & Broadcasting (MIB) has refused to grant it a license stating
that state-owned bodies are not supposed to run cable TV network. Tamil Nadu
govt. has repeatedly objected to it and the matter is currently in Madras High Court.
Consequently, digitization in Chennai has not yet kicked off.
Sun TV Network
June 20, 2014 15
Though digitization deadlock in Tamil Nadu continues to prevail, we believe things
will eventually fall in place sooner than later. We expect the new govt. to carry
through the digitization process as digitization is beneficial for all the stakeholders
viz. Broadcasters, Consumers, MSOs, Government etc. With the implementation of
digitization, SUN would be able to effectively monetize its offerings on the digital
cable platform as higher ARPU as prescribed under digitization regime would come
into play.
SUN TV - undisputed leader in the South
SUN continues to be the market leader in South India through its wide array of
offerings. Popular content, wide distribution reach, South India’s preference for
regional channels has catapulted SUN into an envious position where it has become
an indispensable choice for advertisers. SUN is the only broadcaster in South India to
be present across genres in different languages which has become a key
differentiating factor. SUN is the market leader in Tamil, Telugu and Kannada
channels with a wide margin, while it is rated second in Malayalam.
Exhibit 16: Viewership share of SUN TV Network
State Language Prominent channels SUN (all
channels) Market Share
Competition
Tamil Nadu Tamil SUN TV, Sun Music, K TV 70% Kalaignar TV, Raj TV, Zee Tamil, Star Vijay, Jaya TV
Andhra Pradesh Telugu Gemini TV, Gemini Music, Gemini Movies 38% E TV, Maa Telugu, Zee Telugu, Sneha TV, Vissa
Karnataka Kannada Udaya TV, Udaya Music, Udaya Movies 38% ETV Kannada, Zee Kannada, Suvarna TV, Kasthuri
Kerala Malayalam Surya TV, Surya Music, Kiran TV 25% Asianet, Kairali, Amrita TV
Source: Company Data, Industry, PL Research
Tamil Nadu (Tamil) - SUN is the clear market leader in Tamil, offering nine
regional channels and enjoying a market share of 70% (including nine channels).
Its flagship GEC, SUN TV continues to remain a market leader with no
meaningful competition. SUN TV enjoyed a market share of >60% in FY14, while
its nearest competitor, Star Vijay had a market share of 12-14%. Tamil remains
the bastion of SUN Network and company continues to strengthen its market
positioning through its differentiated strategy. SUN’s market leadership in Tamil
enables it to enjoy a lion’s share of the Tamil advertising market, which in itself
is the largest regional ad market in South India with market size of Rs18bn (39%
of the South India TV Advertisement market).
Kerala (Malayalam) - In the Malayalam space, SUN Network operates six
regional channels with a collective market share of 25%. Within the Malayalam
GEC genre, Surya TV is ranked second with market share of 20%, while the
leader Asianet commands a market share of 51%. In terms of advertising
market, Malayalam market has a market size of Rs8.4bn (18% of South Indian TV
advertisement market).
Sun TV Network
June 20, 2014 16
Andhra Pradesh (Telugu) - SUN Network continues to dominate the Telugu
space through its offering of nine channels and enjoys a collective market share
of 38%. Within the Telugu GEC space, GEMINI TV remains the market leader
with a market share of 27% in FY14 compared to 20% market share for its
nearest competitor, ETV and 17% market share for Zee Telugu. Lately, GEMINI
TV has been facing increased competition from other GECs in the fiction genre.
However, the company has increased its focus on strengthening content which
should yield results over the next few months. In terms of advertising market in
South India, Telugu is the second largest with market size of Rs12bn (25% of
South India TV advertisement market) and GEMINI’s dominance in Andhra
makes it a preferred choice for advertisers.
Karnataka (Kannada) - SUN Network is also a market leader in the Kannada
space through its offerings of seven channels across genres and collectively
enjoys a market share of 38%. Within the Kannada GEC space, Udaya TV leads
the market with a market share of >30%, while its nearest competitor, Suvarna
has a market share of ~23% followed by Zee with market share of ~20%. From
an advertising perspective, Kannada language has a market size of Rs8.1bn (18%
of South Indian TV advertisement market).
Sun TV Network
June 20, 2014 17
Business Background
SUN TV Network is promoted by the SUN Group, one of the largest conglomerates in
India. SUN TV Network is a leading broadcasting company operating 33 television
channels in South India, reaching out to more than 95m households. Apart from
broadcasting, SUN operates 41 radio stations through its two subsidiaries, has
interests in film production through SUN Pictures and owns the Hyderabad franchise
of Indian Premier League.
Exhibit 17: Revenues break-up FY14
Advertising income51.1%
Broadcast fees6.1%
Program
licensing income
6.0%
Cable
subscription
9.4%
DTH revenues
21.5%
Others6.0%
Source: Company Data, PL Research
Exhibit 18: SUN TV’s offerings
Language GEC Music Movies News Old songs Comedy Kids Action
Tamil Sun TV Sun Music K TV Sun News Sun Life Adithya TV Chutti TV Sun Action
Telugu Gemini TV Gemini Music Gemini Movies Gemini News Gemini Life Gemini Comedy Kushi TV Gemini Action
Kannada Udaya TV Udaya Music Udaya Movies Udaya News
Udaya Comedy Chintu TV Suriyan TV
Malayalam Surya TV Surya Music Kiran TV
Chirithira Kochu TV Surya Action
Tamil HD Sun TV HD Sun Music HD K TV HD
Telugu HD Gemini TV HD
Source: Company, PL Research
Sun TV Network
June 20, 2014 18
Key Management Personnel
Kalanithi Maran - Executive Chairman: Mr. Kalanithi Maran serves in the
capacity of Executive Chairman of SUN TV Network. He also serves as a Director
on the Board of Sun TV Network, Kal Radio, South Asia FM, Udaya FM Pvt. Ltd,
Kungumam Publications Pvt. Ltd, Sun Direct TV Pvt. Ltd, Sun Business Solutions
and a number of other companies. He also serves as the Non-Executive
Chairman of SpiceJet and has been its Non-Executive Director since November
2010.
K. Vijaykumar - Managing Director & CEO: Mr. K. Vijaykumar has been the Chief
Executive Officer at Sun TV Network since July 12, 2011 and has been its
Managing Director since April 20, 2012. Mr. Vijaykumar served as a Senior Vice
President at Kannada Programmes until March 2011. Mr. Vijaykumar served as
the Chief Operating Officer of Sun TV Network from March 2011 to July 2011.
Kaveri Kalanithi - Executive Director: Mrs. Kavery Kalanithi Maran served as the
Managing Director at Sun TV Network since April 20, 2012. Mrs. Maran served
as the Chairman at SpiceJet since November 2010 and has been its Non-
Executive Director since November 15, 2010. She has been an Executive Director
of Sun TV Network since April 20, 2012. She served as a Director of Sun TV
Network from June 16, 2005 to April 20, 2012. She holds a Bachelor's Degree in
Arts from University of Madras.
Sun TV Network
June 20, 2014 19
Risks
Final decision on TRAI’s ad cap of 12 minutes/hr can impact earnings
modestly: SUN TV is currently running 12+2 minutes of advertising on
primetime GECs against TRAI’s restriction limiting ad minutes to 10+2/hr. Final
decision on the TRAI ad cap is due soon. Implementation of TRAI ad cap can
make ad growth volatile for 1-2 quarters.
Delay in digitization will put at risk our earnings estimates: Implementation of
digitization has met with multiple headwinds in Phase-I and II delaying the
process by more than a year. Unless gross billing commences, the benefits of
digitization will not be visible. While we are modelling for delay of 6-12months
in implementation, any further delay can put at risk our earnings assumptions,
going forward.
Aggressive bidding for movies/sports can offset benefits of digitization:
Though implementation of digitization is likely to result in improved profitability
for broadcasters, aggressive bidding for movies/sports rights to strengthen
content and maintain market share might result into partially offsetting benefits
of digitization. Successful monetization of such high costs property remains a
risk to earnings.
Ongoing case against Sun Direct - promoter group entity: Ongoing case related
to Sun Direct’s alleged involvement in illegal transactions during 2006 has been
a major overhang on stock. The Central Bureau of Investigation (CBI) has been
carrying out investigation on former Telecom Minister Dayanidhi Maran in the
Aircel-Maxis case. Mr. C Sivasankaran, former owner of Aircel has alleged that
Maran forced him to sell his stake in Aircel in 2006 to Maxis Group, owned by
Kuala Lumpur-based business tycoon T. Ananda Krishnan. It is also alleged that
Maxis made a quid-pro-quo investment in Sun Direct TV, owned by Dayanidhi’s
brother, Kalanidhi Maran, through Astro All Asia Networks Ltd. CBI is
investigating whether Astro had to pay a premium to buy the stake in Sun
Direct.
SUN generates significant proportion of its DTH revenues through SunDirect.
Though any unfavourable decision will not impact day to day operations of
SunDirect, it may result in one-time penalty which can impact its growth
prospects.
Intensifying competition: With regional broadcasting emerging as a new growth
driver for the industry over the last few years, national broadcasters like Zee and
SUN have increased their focus on regional markets by strengthening their
content, launching new channels, acquisition of movies etc. Though SUN
remains a market leader in Telugu, Tamil and Kannada, its absolute market
share has come down from its peak. Decline in market share can reduce the ad
premium that SUN enjoys over other broadcasters.
Sun TV Network
June 20, 2014 20
SUN v/s Zee
SUN TV continues to trade at a significant discount to Zee due to the ongoing CBI
investigation against SunDirect, which is a promoter group entity and delay in
digitization in SUN’s geographical footprint. While the news flow related to the
ongoing CBI investigation might keep the stock under pressure, we try to analyse
SUN and Zee on different business parameters:
Exhibit 19: Zee V/s SUN
Parameters Zee Sun
Digitization- Phase-I/II Zee has already seen some benefits flowing in from
Phase-I/II. Gross billing remains the next trigger
Phase-I digitization in Chennai not yet kicked off. In Phase-II, Hyderabad, Coimbatore, Vizag remain
laggard
Digitization- Phase-III/IV Huge opportunity for Zee Big opportunity for Sun as Phase-III/IV collectively account for ~85% of the total subscriber base in
South India
Reach Zee has higher reach of 70-80m households SUN is predominantly a South India focused player.
Reaches 30-40m households
Other issues NA Ongoing case against SUN Direct promoters remains
a major overhang
Loss-making business currently Sports Sunrisers Hyderabad
FY15E losses of Rs800m FY15E losses of Rs261m
Source: Company Data, PL Research
Exhibit 20: Zee v/s SUN financials (Rs m)
ZEE SUN
Domestic Subscription revenues FY14 13,184 6,449
Domestic Subscription revenues FY16E 18,823 8,957
Domestic Subscription CAGR FY14-16E 19.5% 17.9%
FY16E TV Advertising revenues 31,476 14,641
FY14-16E Ad growth CAGR% 15.0% 11.7%
FY16E Total revenues 57,676 28,425
FY16E PAT 12,115 10,179
FY16E PAT margin (%) 21.0% 35.8%
FY16E RoCE % 27.3% 36.3%
FY16E RoE % 21.1% 27.6%
FY16E FCFF 8,979 8,461
Source: Company Data, PL Research
Sun TV Network
June 20, 2014 21
Financials
Expect SUN’s revenues to increase at a CAGR of 13% over FY14-16E driven by 18% YoY increase in domestic subscription revenues
We expect SUN’s revenues to increase at a CAGR of 13% over FY14-16E driven
primarily by growth in domestic subscription revenues. Subscription revenues are
expected to increase at a CAGR of 18% over FY14-16E led by ongoing digitization.
Phase-III/IV provides a larger opportunity for SUN TV as it encompasses the
maximum number of South Indian cities. Though the potential from digitization is
huge for SUN TV (Exhibit 2), we have incorporated only a small proportion of it in
our financials as digitization continues to be delayed. Rather, we have incorporated
the NPV of Rs106 as potential digitization value in our target price. We expect
international revenues to increase at a CAGR of 14% during this period.
On the advertising side, we expect ad growth to recover in FY15E as rate hikes get
absorbed gradually and market adjusts to the TRAI ad cap. Improvement in
economic scenario post a stable govt. coming in at the Centre, would also support
advertising recovery.
Exhibit 21: Consolidated revenues and growth
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
-
5,000
10,000
15,000
20,000
25,000
30,000
FY11 FY12 FY13 FY14E FY15E FY16E
(Rs
m)
Consol revenues YoY gr. (RHS)
Source: Company Data, PL Research
Exhibit 22: Subscription revenues contribution set to surge
52% 56% 60% 53% 53% 52%
26% 27% 27%29% 31% 32%
8%9% 7%
6% 5% 5%14% 8% 6% 11% 11% 11%
0%
20%
40%
60%
80%
100%
FY11 FY12 FY13 FY14E FY15E FY16E
Advertising Subscription Broadcast fees Others
Source: Company Data, PL Research
EBITDA likely to increase by 14% over FY14-16E; PAT growth of 17%
We expect consolidated EBITDA to increase by 13.7% CAGR over FY14-16E. Though
increase in subscription revenues are likely to flow directly to EBITDA (as there is no
incremental cost attached to it), part of it will be offset by losses in the IPL business.
Overall, we expect EBITDA margins to improve by 80bps over FY14-16E. PAT is likely
to increase at a CAGR of 16.7% over FY14-16E, with EPS increasing to Rs25.8 in FY16E
compared to Rs19.0 in FY14.
Sun TV Network
June 20, 2014 22
Exhibit 23: EBITDA & EBITDA margins
60.0%
65.0%
70.0%
75.0%
80.0%
-
5,000
10,000
15,000
20,000
25,000
FY11 FY12 FY13 FY14E FY15E FY16E
(Rs
m)
Consol EBITDA Margin (RHS)
Source: Company Data, PL Research
Exhibit 24: PAT and PAT growth
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
0
2,000
4,000
6,000
8,000
10,000
12,000
FY11 FY12 FY13 FY14E FY15E FY16E
(Rs
m)
Consol PAT YoY gr. (RHS)
Source: Company Data, PL Research
RoE/ROCE to expand by 220bps/310bps over FY14-16E
We expect RoE/ROCE to expand by 220bps/310bps to 27.6%/36.3% by FY16E,
respectively. Improvement in margins driven by higher subscription revenues are
likely to result in improvement in return ratios. However, cash pile up in the Balance
Sheet will restrict further expansion in return ratios.
Exhibit 25: RoE/RoCE to improve
37.2%
29.1%26.8% 25.4% 26.4%
27.6%
51.2%
37.6% 35.5%33.2% 34.6%
36.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
FY11 FY12 FY13 FY14E FY15E FY16E
RoE RoCE
Source: Company Data, PL Research
Sun TV Network
June 20, 2014 23
Balance sheet to strengthen further
Going forward, improved profitability, coupled with limited capex, is likely to
translate into healthy FCFF generation for SUN. We expect SUN to generate FCFF of
Rs7.6bn/8.5bn for FY15E/16E, respectively, translating into cumulative FCFF of
Rs16bn during this period. Consequently, cash balances (incl. long & short term
investments) are likely to increase to Rs16.3bn from Rs10.8bn in FY14, despite high
dividend payouts. Strong balance sheet would enable SUN to invest further into
content as digitization will throw up newer opportunities for niche channels.
Exhibit 26: FCFF generation
8,124
929
6,117 6,496
7,617 8,461
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
FY11 FY12 FY13 FY14E FY15E FY16E
(Rs
m)
Source: Company Data, PL Research
Exhibit 27: Cash (incl. Investments)
8,747
5,319 6,599
10,781
13,053
16,335
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
FY11 FY12 FY13 FY14E FY15E FY16E
(Rs
m)
Source: Company Data, PL Research
Exhibit 28: Expect dividend payouts to remain high
FY11 FY12 FY13 FY14 FY15E FY16E
Dividend (Rs m) 3,448 3,744 3,744 3,744 4,335 4,729
No. of shares (m) 394 394 394 394 394 394
DPS (Rs) 8.7 9.5 9.5 9.5 11.0 12.0
EPS (Rs) 19.5 17.6 18.0 19.0 21.9 25.8
Dividend payout % 44.8% 54.0% 52.8% 50.0% 50.2% 46.5%
Source: Company Data, PL Research
Sun TV Network
June 20, 2014 24
Valuations
While Phase-I digitization (Chennai) has not yet started, Phase-II digitization benefits
continue to elude due to delay in gross billing. Further, implementation of the TRAI
ad cap has resulted in reworking of the entire ad structure.
However, we believe, concerns are overdone and CMP factors in all negatives.
Phase-III/IV digitization would provide the biggest upside for SUN TV as Phase-III/IV
collectively account for ~85% of the total subscriber base in South India. On the
advertising side, SUN has now recalibrated price hikes and undertaken number of
initiatives, including reduction in content partners’ ad slots, extending fiction
programming to six days a week and encouraging cross-selling approach to offset
the negative impact of TRAI ad cap. We believe SUN will return to a growth
trajectory over the next couple of quarters.
Historically, SUN has traded at an average P/E of ~20x. However, recent negative
newsflow related to continued delay in digitization, implementation of the TRAI ad
cap, overhang of SunDirect-Astro case, standstill on Arasu Cable’s issue has led to
pressure on valuations. SUN is currently trading at ~25-30% discount to Zee
compared to ~8-10% earlier. We believe concerns are overdone and the valuation
discount with Zee would narrow gradually over the next 1-1.5 years as digitization
picks up pace and SUN adjusts to the ad cap implementation.
We value SUN at 19x FY15E earnings of Rs21.9 and arrive at a price of Rs410. To this,
we add the NPV of Rs106 as the potential of digitization (Exhibit 2) since the
complete benefits from digitization are likely to accrue beyond FY16E. This leads to a
target price of Rs510 and recommend “Accumulate”.
Exhibit 29: 1 year forward Price/Earnings
29.1
19.7
19.2
13.0
18.0
0.0
10.0
20.0
30.0
40.0
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
P/E (x) Peak(x) Avg(x)
Median(x) Min(x)
Source: Company Data, Bloomberg, PL Research
Exhibit 30: 1yr. Forward EV/EBITDA
4.0x
6.5x
9.0x
11.5x
14.0x
0
50,000
100,000
150,000
200,000
250,000
300,000
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Source: Company Data, Bloomberg, PL Research
Sun TV Network
June 20, 2014 25
Annexure
South India Media & Entertainment Industry
The South Indian Media & Entertainment (M & E) industry is estimated at Rs239bn in
FY13 and is estimated to grow at 16% CAGR over the medium term to reach Rs436bn
by FY17. Strong demand for regional content driven by rising per capita income,
increasing aspirations of the Tier-II cities, rapid technology advancements have
resulted into evolving this regional M & E industry.
Exhibit 31: South India Media and Entertainment market 2013-2017- Media-wise split (Rs bn)
FY13* FY14E FY15E FY16E FY17E CAGR '13-'17
Film 27 30 34 38 42 12.0%
Television 135 165 202 241 280 20.0%
Print 67 70 75 83 90 7.8%
Radio 4 5 6 7 8 18.6%
New Media 7 9 11 13 16 23.4%
South India M & E market size 239 278 327 381 436 16.2%
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research
Within the southern markets, TV is the largest medium accounting for 56% of the
industry during FY13. State-wise, Tamil Nadu accounts for 36% of the market, while
Andhra Pradesh accounts for 31% of the market.
Exhibit 32: Split of South India M & E market by medium in FY13
Film11.2%
Television56.3%
Print27.9%
Radio1.8%
New Media
2.9%
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research
Exhibit 33: Split of South India M & E market by states in FY13
Tamil Nadu36.2%
Andhra Pradesh
30.7%
Karnataka18.7%
Kerala14.4%
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research
Tamil Nadu M&E industry is worth Rs84bn in FY13 and is expected to grow at a CAGR
of 17% over FY13-17. Growth is expected to be marginally higher than other states
with all four media platforms expected to grow faster in Tamil Nadu. Andhra Pradesh
is the second largest market with a size of Rs71bn and is expected to grow at 16%
CAGR over FY13-17E to reach Rs127bn.
Sun TV Network
June 20, 2014 26
Exhibit 34: South India Media and Entertainment market 2013-2017- State wise split
(Rs bn) FY13* FY14E FY15E FY16E FY17E CAGR '13-'17
Tamil Nadu 84 100 118 138 159 17.1%
Andhra Pradesh 71 82 96 112 127 15.6%
Karnataka 43 50 59 68 77 15.4%
Kerala 34 38 44 51 57 14.4%
South India M & E market size 233 270 317 368 420 16.0%
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research Note: New Media has not been included in the state level market size calculations
Television industry in South India is expected to grow at a CAGR of 20.0%
The South Indian TV industry is valued at Rs135bn in FY 2013 and is expected to
grow at a CAGR of 20% over the next four years driven by ongoing digitization.
Subscription revenues, which currently account for 66% of the industry, are likely to
increase to 73% by FY17 as digitization benefits flow in.
Exhibit 35: Market size of TV industry in South India (Rs bn)
FY13* FY14E FY15E FY16E FY17E CAGR '13-'17
Subscription revenues 90 113 142 173 203 22.7%
Ad revenues 40 46 53 60 68 14.1%
Content revenues 5 6 7 8 9 14.1%
TV Industry in South India 135 165 202 241 280 20.0%
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research
Exhibit 36: Split of South India TV market by medium in FY13
Subscrip-tion
66.4%
Advertise-ment
29.7%
Content3.9%
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research
Exhibit 37: Split of South India TV market by medium in FY17
Subscrip-tion
72.6%
Advertise-ment
24.2%
Content3.1%
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research
Sun TV Network
June 20, 2014 27
TV subscription revenues to grow at 23% CAGR over FY13-17
TV subscription market in South India is valued at Rs90bn in FY13 and is expected to
grow at a CAGR of 22.7% over the medium term to reach Rs203bn. Growth in
subscription revenues will be driven by digitization as leakage will be plugged and
ultimately every TV in the country will be mapped.
Tamil Nadu and Andhra Pradesh collectively account for 70% of the TV industry’s
subscription revenues. Although Andhra Pradesh is the most populous state in South
India, Tamil Nadu contributes the largest proportion of subscription revenues owing
to the high C&S penetration. In Tamil Nadu, C & S penetration is 90% which is
substantially higher than Andhra Pradesh’s C&S penetration of about 70%.
Exhibit 38: TV subscription market in South India (Rs bn)
FY13* FY14E FY15E FY16E FY17E CAGR '13-'17
Tamil Nadu 32 42 53 65 77 24.5%
Andhra Pradesh 30 37 46 56 65 21.7%
Karnataka 18 23 28 34 40 21.7%
Kerala 10 12 15 18 21 21.6%
TV subscription market in South India 90 113 143 173 203 22.7%
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research
Exhibit 39: % share of states in South India’s population v/s subscription revenues
State % Share of South Indian population % Share of South Indian subscription revenues
Tamil Nadu 29% 36%
Andhra Pradesh 34% 33%
Karnataka 24% 20%
Kerala 13% 11%
Total 100% 100%
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research
New channel launches in South India in last one year
With regional broadcasting emerging as a new stream of revenue generator for
broadcasters, South India has witnessed several new channel launches over the last
one year across states and genres. Further, with digitization on the cards,
broadcasters are investing in niche content to drive revenues.
Sun TV Network
June 20, 2014 28
Exhibit 40: TV channels launched post Aug' 12
Channel Genre Language Broadcaster
10TV News Telugu Co-operative news channel
Captain News News Tamil Captain Media Network
Mathrubhumi News News Malayalam Mathrubhumi group
Raj News News Kannada Raj TV Network
Media One Infotainment Malayalam Madhyamam Broadcasting Limited
Kappa TV Music Malayalam, Tamil, Hindi, English Mathrubhumi group
Surya Music Music Malayalam SUN TV
Suvarna Plus GEC Kannada Asianet
Source: Deloitte-FICCI The Digital March, Media & Entertainment in South India, PL Research
Sun TV Network
June 20, 2014 29
Income Statement (Rs m)
Y/e March 2013 2014 2015E 2016E
Net Revenue 19,531 22,236 25,069 28,425
Raw Material Expenses 1,844 3,009 3,307 3,636
Gross Profit 17,686 19,228 21,762 24,789
Employee Cost 1,994 2,190 2,507 2,843
Other Expenses 1,301 1,941 2,131 2,416
EBITDA 14,392 15,097 17,124 19,530
Depr. & Amortization 4,417 4,783 5,216 5,567
Net Interest (373) (820) (850) (1,050)
Other Income 422 866 900 1,100
Profit before Tax 10,347 11,134 12,758 15,014
Total Tax 3,306 3,682 4,210 4,955
Profit after Tax 7,042 7,452 8,548 10,059
Ex-Od items / Min. Int. 103 204 150 180
Adj. PAT 7,096 7,480 8,638 10,179
Avg. Shares O/S (m) 394.1 394.1 394.1 394.1
EPS (Rs.) 18.0 19.0 21.9 25.8
Cash Flow Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
C/F from Operations 8,690 12,392 11,543 13,472
C/F from Investing (4,768) (6,178) (4,239) (4,727)
C/F from Financing (3,823) (4,310) (5,032) (5,463)
Inc. / Dec. in Cash 100 1,903 2,272 3,282
Opening Cash 512 4,162 6,065 8,337
Closing Cash 4,155 6,065 8,337 11,619
FCFF 6,117 6,496 7,617 8,461
FCFE 5,994 4,910 8,276 9,285
Key Financial Metrics
Y/e March 2013 2014 2015E 2016E
Growth
Revenue (%) 4.6 13.9 12.7 13.4
EBITDA (%) 0.3 4.9 13.4 14.1
PAT (%) 2.4 5.4 15.5 17.8
EPS (%) 2.4 5.4 15.5 17.8
Profitability
EBITDA Margin (%) 73.7 67.9 68.3 68.7
PAT Margin (%) 36.3 33.6 34.5 35.8
RoCE (%) 35.5 33.2 34.6 36.3
RoE (%) 26.8 25.4 26.4 27.6
Balance Sheet
Net Debt : Equity (0.1) (0.2) (0.2) (0.3)
Net Wrkng Cap. (days) 37 48 — —
Valuation
PER (x) 23.9 22.6 19.6 16.6
P / B (x) 6.1 5.5 4.9 4.3
EV / EBITDA (x) 11.5 10.8 9.4 8.1
EV / Sales (x) 8.5 7.3 6.4 5.6
Earnings Quality
Eff. Tax Rate 31.9 33.1 33.0 33.0
Other Inc / PBT 4.1 7.8 7.1 7.3
Eff. Depr. Rate (%) 12.3 11.7 11.4 10.8
FCFE / PAT 84.5 65.6 95.8 91.2
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
Shareholder's Funds 27,854 30,954 34,521 39,167
Total Debt — — — —
Other Liabilities 1,597 1,643 1,643 1,643
Total Liabilities 29,451 32,597 36,163 40,810
Net Fixed Assets 13,797 13,779 13,703 13,964
Goodwill — — — —
Investments 6,025 4,698 5,630 6,100
Net Current Assets 9,629 14,120 16,830 20,746
Cash & Equivalents 4,162 6,065 8,337 11,619
Other Current Assets 8,412 11,094 11,857 12,941
Current Liabilities 2,945 3,039 3,364 3,814
Other Assets — — — —
Total Assets 29,451 32,597 36,163 40,810
Quarterly Financials (Rs m)
Y/e March Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net Revenue 6,019 4,664 5,083 5,202
EBITDA 3,537 3,377 3,720 4,000
% of revenue 58.8 72.4 73.2 76.9
Depr. & Amortization 1,174 1,176 1,061 1,123
Net Interest (127) (369) (125) (126)
Other Income 134 378 149 132
Profit before Tax 2,489 2,570 2,785 3,003
Total Tax 845 879 927 1,027
Profit after Tax 1,644 1,692 1,858 1,976
Adj. PAT 1,644 1,692 1,858 1,976
Key Operating Metrics
Y/e March 2013 2014 2015E 2016E
Revenue Growth (%)
Advertisement 11.0 1.6 10.3 13.0
Domestic Subs. 3.2 26.0 18.4 17.3
International Subs. 21.7 26.9 13.4 10.3
Source: Company Data, PL Research.
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Sun TV Network
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Rating Distribution of Research Coverage
27.4%
52.8%
19.8%
0.0%0%
10%
20%
30%
40%
50%
60%
BUY Accumulate Reduce Sell
% o
f To
tal C
ove
rage
PL’s Recommendation Nomenclature
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