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Sun TV Network 4QFY2014 performance highlights and results update

May 29, 2014, Thursday, 14:54 GMT | 10:54 EST | 19:24 IST | 21:54 SGT
Contributed by Angel Broking

For 4QFY2014, Sun TV Network Ltd (STNL)’s top-line and bottom-line performance was a tad higher than our expectations. Its top-line grew by 10.1% yoy to Rs.520cr, primarily on account of a 4.7% yoy growth in advertising revenue to Rs.282cr and 24.6% yoy growth in subscription revenue to Rs.172cr. After two consecutive quarters of decline in advertising revenue (due to transition to new TRAI dispensation which limits ad time to 12 minutes/hour), the growth in advertising revenue can be partly attributed to interim relaxation of 12 minutes ad limit till next court hearing on the matter which is on July 15, 2014. STNL has also hiked its advertising rates and reduced private producers advertising inventory from 4 minutes to 3 minutes to offset the impact of reduction in ad inventory.

Reduction in content cost led to OPM expansion: The reduction in content cost (down 8.3% yoy to Rs.44cr as couple of non-fiction programs were discontinued) is primarily responsible for the 316bp yoy expansion in operating margin to 76.9%. Consequently, the net profit for the quarter grew by 11.3% yoy to Rs.198cr.

Impressive Subscription revenue growth continues: STNL reported a 24.6% yoy growth in subscription revenue to Rs.172cr, driven by a robust 34.2% yoy growth in analogue subscription revenue to Rs.51cr and 21.0% yoy growth in DTH subscription revenue to Rs.121cr. Among other segments, international revenue grew by 19.2% yoy to Rs.31cr while broadcast fee declined 28.1% yoy to Rs.26cr.

Outlook and valuation: STNL is expected to be among the key beneficiaries of mandatory digitization due to its strong presence in South India. At the current market price, STNL is trading at 15.9x FY2016E consolidated EPS of Rs.25.8. We recommend an Accumulate rating on the stock, assigning a multiple of 18x FY2016E EPS to arrive at a target price of Rs.460.