Sun TV gets 'buy' rating from ICICI & Edelweiss

MUMBAI: Leading brokerages in India have recommended a 'buy' rating for Sun TV, the television channel consistently leading across genres for weeks as per BARC India ratings.

ICICI Direct has recommended 'buy' rating with a target price of Rs 830 in its research report dated 14 August, and Edelweiss too has maintained a ‘buy’ rating with Rs 1,024 target price.

Revenues came in Rs 7863 million (up 3.4 per cent YoY) versus ICICI's estimate of Rs 7634 million supported by higher subscription revenues, which grew 15.3 per cent YoY to Rs 2705 million (better than ICICI's estimate of eight per cent YoY growth).

Sun TV, ICICI says, continued to disappoint on the advertisement revenue front. Ad revenues declined approximately four per cent YoY to Rs 3260 million EBITDA came in at Rs 4484 million, up 2.7 per cent YoY, better than its estimate of Rs 4206 million supported by lower IPL losses (loss of Rs 220 million versus expected loss of Rs 550 million). Though market share erosion in Sun TV is a concern owing to intense competition from Star Vijay, Edelweiss believed it is temporary as viewership is intact. However, competition from Colors is a key monitorable.

The near-term competitive pressures, ICICI notes, have led to concerns over the expected full throttle ad recovery. However, it has highlighted that the overall levers such as low base, the upcoming festive season and monetisation of improved rating in non-Tamil markets, would provide healthy visibility of ad growth revival ahead. A faster resolution of Chennai digitisation could also provide strong subscription revenue growth. ICICI rates well Sun TV's strategy of revamping its content strategy and focussing on superior ad yield.

Edelweiss notes Sun TV's main positives of approx 29.7 per cent y-o-y growth in cable subscription supported by catch-up revenue and 9.4 per cent y-o-y jump in DTH subscription and IPL losses were stable at Rs 241 million in FY17, even though it lost the series in FY18. The main negatives, Edelweiss notes, was the 4.1 per cent y-o-y dip in ads base of 3.7 per cent y-o-y decline owning to GST.

The company guided for 15 per cent y-o-y growth in subscriptions in FY18, led by south markets, ex-Tamil Nadu. With phase-III digitisation on track, Edelweiss estimated 15 per cent / 12.0 per cent y-o-y growth in subscriptions in FY18/FY19.

Factoring in lower ad growth in Q1FY18, Edelweiss cut FY18E ad growth to 9.0 per cent y-o-y from 11.0 per cent earlier.

Hit by GST, Sun's ad revenue fell 4.1 per cent y-o-y. However, Edelweiss expects it to bounce back riding on strong content in H2FY18 following improvement in Telugu and Malayalam ratings.

Sun's overall subscription grew 16.1 per cent y-o-y supported by catch-up revenue and upswing in digital revenues. The content cost rose 37.6 per cent y-o-y as Sun TV shifted to commissioned model from the ad slot model. It moved entirely into the commissioned model in all its markets, except Tamil Nadu, 2 out of 18 programmes are on commissioned model.

Sun TV now expects August and September to report better ad growth as GST impact withers away.

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