We recently met with the Sun TV management, and following are the key takeaways.
According to the management, Sun TV’s Q4FY09 revenues are expected to grow at 24% y-o-y to Rs30.6 billion. In line with this growth, the company’s revenues for FY09 are estimated to touch Rs103.8 billion, an upside of 19.3% over FY08.
Sun TV claimed that it has not yet witnessed any slowdown in its advertisement revenues. The company indicated that its advertisement slots were booked two months in advance
The company believes that if the overall ad revenues for the industry drops, the company will also suffer from lower growth in ad revenues. Nevertheless, according to the management, the company’s ad revenues would continue to grow, albeit at a slower pace, but not turn negative in the near term.
A key positive for the company is that more than 50% its ad revenues come from the FMCG sector that is expected to grow at 10-12% per annum over the next two years.
Sun TV faces high regional concentration risk as it derives more than 50% of its ad revenues from Tamil Nadu. This remains a key concern.
The radio business is expected to breakeven in FY11; losses for FY10 are estimated to stand at Rs600 million.
For FY10, Sun TV’s movie budget is estimated to be in the Rs700-800 million range for 9-10 small and medium budget movies. In addition, the company is also planning a big budget movie (amounting to Rs700 million) during FY10.
As against its earlier stance, Sun TV has abandoned its proposed foray into Hindi GEC space. The company intends to continue its focus on the southern Indian market for future growth.
As of Q3FY09, Sun TV had 3.3mn DTH subscribers, up from 2.6mn subscribers in Q2FY09, with an ARPU of Rs26 per month. The company continues to remain bullish on the prospects of revenue growth from this segment.
The management believes that it has better control over cost items, and is confident of maintaining its margins in the medium-term.
Currently, at the CMP of Rs150, the stock trades at 12.3X of consensus FY10 earnings of Rs12.2. We do not have a rating on the stock.