20 April 2017
Update
| Sector:
Media
Sun TV
Neutral
BSE SENSEX
29,337
S&P CNX
9,104
CMP: INR895
TP: INR860 (-4%)
Digital MSO license to Arasu could mean facelift for
SUNTV’s subscription
TP revised to INR860/share
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg. Val, INR m
Free float (%)
SUNTV IN
394
899/334
18/64/137
352.7
5.3
1042
25.0
Media reports (Report
1, Report 2)
suggest that state-owned Arasu Cable has been
granted a provisional digital MSO license by the Ministry of Information (MIB) after a
five-year-old logjam. This would be a first instance in the pay TV distribution space,
where a state-run organization will largely cater to the cable needs of subscribers.
The decision to grant a permanent license to Arasu hinges on the outcome of the
Inter-Ministerial Committee’s (IMC) meeting on the TRAI’s recommendation of not
allowing government entities to enter the broadcasting and pay TV distribution
business.
The MIB has also set a three-month deadline to switch-off analog signals.
Financials Snapshot (INR b)
2017E 2018E 2019E
Y/E Mar
Net Sales
25.9
30.0
33.6
EBITDA
18.0
21.1
24.0
Adj. Net Profit
9.9
11.7
13.6
EPS (INR)
25.1
29.7
34.5
EPS Gr. (%)
19.6
18.5
16.1
BV/Sh (INR)
99.9 108.8 119.1
RoE (%)
25.1
27.3
29.0
RoCE (%)
26.0
28.4
30.2
P/E (x)
35.7
30.1
25.9
P/BV (x)
9.0
8.2
7.5
Shareholding pattern (%)
As On
Dec-16 Sep-16 Dec-15
Promoter
75.0
75.0
75.0
DII
1.7
3.6
3.3
FII
16.8
15.3
16.1
Others
6.6
6.1
5.6
FII Includes depository receipts
Stock Performance (1-year)
Sun TV Network
Sensex - Rebased
900
750
600
450
300
TN’s digitization status, and theoretical upside for SUNTV from Arasu going
digital:
Tamil Nadu has ~17m subscribers (C&S households), of which ~2.5m
reside in Chennai (largely digitized). Of the 17m subscribers, ~8m reside with
Arasu (which pays a minimum guarantee of ~INR25m/month to SUNTV – i.e.
~INR3/sub/month), while the remaining 9m reside with other MSOs and DTH
operators. SUN TV is estimated to garner ~INR25 and INR40 per sub per month
from MSOs (ex-Arasu) and DTH operators, respectively. The incremental
opportunity for SUNTV from Arasu going digital is INR2.1b. However, Arasu
being the most dominant player is expected to extract a lion’s share of ARPU
even in a digitized Tamil Nadu. We believe the needle could move meaningfully
if the new tariff regulation is implemented as that would reduce Arasu’s
bargaining power.
Arasu could remain non-committal on STB investment till grant of final
license:
While Arasu has already invested in digital head-ends and other DAS
infrastructure across the four southern states, we note that set-top box (STB)
procurement for an estimated ~8m subscribers is yet to be made. This
translates into ~INR10-11b capital outlay (INR1,300/STB) over next three
months, and deployment of STBs could take ~6-9 months. Arasu could remain
non-committal on capital outlay before it is granted a permanent license by
MIB. It is also likely to seek timeline extension to roll-out STBs on the ground.
Valuation and view:
We maintain our estimates given the lack of clarity on the
outcome of IMC meeting on granting a permanent license to Arasu. The MIB’s
actions provides visibility on TN’s digitization (whether through Arasu or
otherwise), narrowing the valuation gap between Sun and Zee. While SUNTV
has managed to stem the decline in viewership in ex-Tamil markets over the
past quarter, the jury is still out on whether the newly commissioned
programming strategy will help it get back in the reckoning in terms of
viewership. We are revising our target price to INR860/share, based on 25x
FY19E EPS (earlier 23x). The stock trades at a P/E of 29.8x FY18E and 25.6x
FY19E EPS. Maintain
Neutral.
Jay Gandhi
(Jay.Gandhi@MotilalOswal.com); +91 22 6129 1546
Aliasgar Shakir
(Aliasgar.Shakir@MotilalOswal.com); +91 22 6129 1565
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.