Source: Business Standard
Strong leadership in the southern markets, foray in related businesses and traction in the DTH segment augur well for Sun TV.
The adoption of DTH platform has seen the industry notch up around 4,50,000 subscribers on a monthly basis, which according to a report by FICCI and PricewaterhouseCoopers will expand at a CARG of 44 per cent over 2008-2012 to 25 million. One of the major beneficiaries of this phenomenon is expected to be broadcasting companies. And among them, which is profitable, diversified and has a strong foothold in its territory, is Sun TV Network (Sun).
The company’s revenues and profits have grown at a CAGR of 44 per cent and 68 per cent, respectively in the last three years. While increasing competition in the south Indian TV industry and projected cuts in ad budgets could reduce Sun’s revenue in the broadcasting business, the company is diversifying into radio and film production segments and banking on the DTH-driven subscriptions to provide itself, the next leg of growth.
Taming the lion
Sun dominates the south Indian television broadcasting market with 20 channels in four different languages. Besides, the company owns two newspapers and four magazines in Tamil and has license to operate in 44 radio stations (42 of which are operational). It has also acquired a 48.9 per cent stake in Red FM, one of the leading radio players in Mumbai, Delhi and Kolkata. In broadcasting, Sun is a leading player in the Tamil, Telugu and Kannada markets, and is a close second to Asianet in Kerala (See table: Leading the pack).
With the Hindi space getting extremely crowded, the focus is shifting towards regional markets. Zee News has already made some inroads through ‘Zee Kannada’ and ‘Zee Telugu’ and will hope a similar performance from its Tamil initiative too. Recently, STAR Jupiter (a JV between Star TV and Jupiter Entertainment) acquired a majority stake in Asianet, which also has a relatively smaller presence in Kannada and Telugu markets. Reliance ADAG is also planning a foray in the regional markets. So, will the competition have the better of Sun?
Sound model
Sun TV has an agreement with content providers for prime-time serials, under the time-slot model. Unlike the usual arrangement, it is the content provider who has to pay Sun a fixed fee (Rs 1.5-2.1 lakh as per analyst’s estimates) for a half-hour slot of broadcasting. In return, the content provider receives the right to sell advertising time for four out of six or seven minutes per slot.
Sun TV retains the right to the revenue from the sale of advertising time for the balance two or three minutes. This model enables Sun to limit production costs and the associated risks. Given that content providers need to sell airtime, they would look for channels with high viewership, which Sun offers.
Sun has exclusive contracts with the likes of UTV and Balaji Telefilms, which restricts them from selling content to competing channels. For the other time slots (non-prime time), Sun produces the content in-house, which again helps it keep costs under control.
Sun’s presence across genres like GECs, music, movies, news and a library of over 8,500 movies has resulted in a large viewer-base, which in turn provides strong pricing power in comparison to its peers. The company had increased the ad rate of its premier channels across markets, in the range of 10-20 per cent effective from February, 2008.
But, despite having the maximum number of programmes in the list of Top 100, analysts feel that Sun will find it difficult to hike advertisement rates substantially in the near-term, on account of increasing competition and a slowdown in the economy.
Changing revenue mix
Apart from the existing subscription-based revenues stream (about a fourth of total revenues), the increasing DTH-led subscription revenues could act as a silver lining for the broadcasting business. There has been a strong ramp-up in DTH subscriber additions in the south Indian market with Sun Direct (a DTH venture owned by Sun’s promoters) capturing 1.3 million subscribers in the first nine months of its operations.
Dish TV, Tata Sky and, the recently launched, Big TV have seen similar traction in numbers. Sun TV receives Rs 25 per month per subscriber for its entire bouquet of channels and has a DTH-subscriber base of close to two million. With regards to new channel launches, the company plans to replicate the success of its Tamil-based kid’s channel - Chutti TV, in the other three languages as well.
Sun TV has also forayed into film production under Sun Pictures-a division of Sun TV Network. The company released its first Tamil movie – Kadhalil Vazunthen in September 2008, which was well received by the audience. It plans to release four-five low-budget movies every year and is targeting revenues of about Rs 40 crore in FY09 from this segment.
Investment rationale
Sun’s Q2FY09 revenues grew by 22 per cent y-o-y to Rs 238 crore, driven by growth in advertising (30 per cent) and international revenues (45 per cent). The company’s net profit rose by 35.11 per cent at Rs 108.31 crore. However, given the slowing economy, Sun’s advertising revenues are expected to grow at an average rate of 15 per cent (annually) in FY09 and FY10.
The good thing though is, about 45 per cent of its ad revenues comes from the FMCG sector. The company’s strategy to change the revenue-mix in favour of stable,high-margin subscription revenues should help the company protect its margins. Analysts expect Sun’s radio business to pose losses to the tune of Rs 50 crore in FY09 (Rs 38 crore loss last year), and hope that it will breakeven in FY11.
Sun has negligible debt on its books, while its cash balance stood at Rs 400 crore as on September 30, 2008. This will hold the company in good stead, in successfully completing existing expansion plans in its core operations (niche TV channels, FM radio) and any potential acquisition opportunities.
Zee News, it’s nearest listed competitor, is trading at 14.2xFY09E, which is almost equal to Sun’s valuations. Although Zee News has been gaining traction in the southern markets, Sun is better leveraged to ad-revenue growth due to its strong leadership position. Huge content library, strong distribution and high return ratios are other positives.
Current valuations seem to factor in the concerns and look reasonable, considering that Sun has historically been traded in the one-year forward P/E of over 25. Those with an investment horizon of 12-18 months can enter this stock, which can deliver 18-20 per cent returns on an annualised basis.
Strong leadership in the southern markets, foray in related businesses and traction in the DTH segment augur well for Sun TV.
The adoption of DTH platform has seen the industry notch up around 4,50,000 subscribers on a monthly basis, which according to a report by FICCI and PricewaterhouseCoopers will expand at a CARG of 44 per cent over 2008-2012 to 25 million. One of the major beneficiaries of this phenomenon is expected to be broadcasting companies. And among them, which is profitable, diversified and has a strong foothold in its territory, is Sun TV Network (Sun).
The company’s revenues and profits have grown at a CAGR of 44 per cent and 68 per cent, respectively in the last three years. While increasing competition in the south Indian TV industry and projected cuts in ad budgets could reduce Sun’s revenue in the broadcasting business, the company is diversifying into radio and film production segments and banking on the DTH-driven subscriptions to provide itself, the next leg of growth.
Taming the lion
Sun dominates the south Indian television broadcasting market with 20 channels in four different languages. Besides, the company owns two newspapers and four magazines in Tamil and has license to operate in 44 radio stations (42 of which are operational). It has also acquired a 48.9 per cent stake in Red FM, one of the leading radio players in Mumbai, Delhi and Kolkata. In broadcasting, Sun is a leading player in the Tamil, Telugu and Kannada markets, and is a close second to Asianet in Kerala (See table: Leading the pack).
With the Hindi space getting extremely crowded, the focus is shifting towards regional markets. Zee News has already made some inroads through ‘Zee Kannada’ and ‘Zee Telugu’ and will hope a similar performance from its Tamil initiative too. Recently, STAR Jupiter (a JV between Star TV and Jupiter Entertainment) acquired a majority stake in Asianet, which also has a relatively smaller presence in Kannada and Telugu markets. Reliance ADAG is also planning a foray in the regional markets. So, will the competition have the better of Sun?
Sound model
Sun TV has an agreement with content providers for prime-time serials, under the time-slot model. Unlike the usual arrangement, it is the content provider who has to pay Sun a fixed fee (Rs 1.5-2.1 lakh as per analyst’s estimates) for a half-hour slot of broadcasting. In return, the content provider receives the right to sell advertising time for four out of six or seven minutes per slot.
Sun TV retains the right to the revenue from the sale of advertising time for the balance two or three minutes. This model enables Sun to limit production costs and the associated risks. Given that content providers need to sell airtime, they would look for channels with high viewership, which Sun offers.
Sun has exclusive contracts with the likes of UTV and Balaji Telefilms, which restricts them from selling content to competing channels. For the other time slots (non-prime time), Sun produces the content in-house, which again helps it keep costs under control.
Sun’s presence across genres like GECs, music, movies, news and a library of over 8,500 movies has resulted in a large viewer-base, which in turn provides strong pricing power in comparison to its peers. The company had increased the ad rate of its premier channels across markets, in the range of 10-20 per cent effective from February, 2008.
But, despite having the maximum number of programmes in the list of Top 100, analysts feel that Sun will find it difficult to hike advertisement rates substantially in the near-term, on account of increasing competition and a slowdown in the economy.
Changing revenue mix
Apart from the existing subscription-based revenues stream (about a fourth of total revenues), the increasing DTH-led subscription revenues could act as a silver lining for the broadcasting business. There has been a strong ramp-up in DTH subscriber additions in the south Indian market with Sun Direct (a DTH venture owned by Sun’s promoters) capturing 1.3 million subscribers in the first nine months of its operations.
Dish TV, Tata Sky and, the recently launched, Big TV have seen similar traction in numbers. Sun TV receives Rs 25 per month per subscriber for its entire bouquet of channels and has a DTH-subscriber base of close to two million. With regards to new channel launches, the company plans to replicate the success of its Tamil-based kid’s channel - Chutti TV, in the other three languages as well.
Sun TV has also forayed into film production under Sun Pictures-a division of Sun TV Network. The company released its first Tamil movie – Kadhalil Vazunthen in September 2008, which was well received by the audience. It plans to release four-five low-budget movies every year and is targeting revenues of about Rs 40 crore in FY09 from this segment.Investment rationale
Sun’s Q2FY09 revenues grew by 22 per cent y-o-y to Rs 238 crore, driven by growth in advertising (30 per cent) and international revenues (45 per cent). The company’s net profit rose by 35.11 per cent at Rs 108.31 crore. However, given the slowing economy, Sun’s advertising revenues are expected to grow at an average rate of 15 per cent (annually) in FY09 and FY10.
The good thing though is, about 45 per cent of its ad revenues comes from the FMCG sector. The company’s strategy to change the revenue-mix in favour of stable,high-margin subscription revenues should help the company protect its margins. Analysts expect Sun’s radio business to pose losses to the tune of Rs 50 crore in FY09 (Rs 38 crore loss last year), and hope that it will breakeven in FY11.
Sun has negligible debt on its books, while its cash balance stood at Rs 400 crore as on September 30, 2008. This will hold the company in good stead, in successfully completing existing expansion plans in its core operations (niche TV channels, FM radio) and any potential acquisition opportunities.
Zee News, it’s nearest listed competitor, is trading at 14.2xFY09E, which is almost equal to Sun’s valuations. Although Zee News has been gaining traction in the southern markets, Sun is better leveraged to ad-revenue growth due to its strong leadership position. Huge content library, strong distribution and high return ratios are other positives.
Current valuations seem to factor in the concerns and look reasonable, considering that Sun has historically been traded in the one-year forward P/E of over 25. Those with an investment horizon of 12-18 months can enter this stock, which can deliver 18-20 per cent returns on an annualised basis.
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