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.

Sun TV
Exhibit 1: Potential Upside to revenue/EBIT/PAT from Arasu going Digital:
Incremental Opportunity
from ARASU (FY19E)
ARASU subscribers (m)
SUN TV's current share from Arasu (INR m)
Sun TV's potential share in ARPU from ARASU
Potential Upside from Arasu going digital
Incremental subscription revenue (INR m)
Current FY19E SUNTV revenue (INR m)
Post-event, FY19E SUNTV revenue estimates (INR
m)
Change (%)
Current FY19E SUNTV EBIT (INR m)
Post-event, FY19E SUNTV EBIT estimates (INR m)
Change (%)
Current FY19E SUNTV PAT (INR m)
Post-event, FY19E SUNTV PAT estimates (INR m)
Change (%)
Assigning probability
FY19E SUNTV PAT estimates (INR m) (adj. for
probability)
Change (%)
Case 1
ARASU gets DAS License
8
300
@INR25/sub/month
2400
2100
33623
35723
6.2%
20796
22896
10.1%
13608
14983
10.1%
20%
14355
5.5%
Source: Company, MOSL
Case 2
ARASU gets DAS License
8
300
@INR12.5/sub/month
1200
900
33623
34823
3.6%
20796
21996
5.8%
13608
14394
5.8%
60%
Case 3
Status Quo
8
300
@INR3/sub/month
300
0
33623
33623
0.0%
20796
20796
0.0%
13608
13608
0.0%
20%
Viewership improving in Telugu market; flagship holding up
While the network through fresh in-house and commissioned content (v/s private
producer-made content earlier) is seeing encouraging results in the AP market,
Karnataka and Kerala offerings are yet to see a sustained increase in viewership.
Despite remaining a dominant player by a stretch, even the flagship Sun TV has
consistently lost share to national broadcasters since January 2016.
20 April 2017
2

Sun TV
Exhibit 2:
Tamil market
Sun TV
KTV
Zee Tamil
STAR Vijay
Jaya TV
Polimer
J Movie
Thanti TV
Sun Music
Adithya TV
Telugu Market
Gemini TV
ETV Telugu
Zee Telugu
STAR Maa
Gemini Movies
TV 5 News
TV9 Telugu
Kannada Market
Colors Kannada
Zee Kannada
Udaya TV
Star Suvarna
Udaya Movies
Malayalam Market
Asianet
Surya TV
Mazhavil Manorama
Flowers TV
Kiran TV
Asianet Movies
Surya Movies
Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Change (YoY)
62.3
17.2
6.0
11.8
2.8
0.0
0.0
0.0
0.0
0.0
Mar-16
17.7
24.9
24.3
22.5
10.7
0.0
0.0
Mar-16
29.3
18.0
15.2
21.3
16.2
Mar-16
53.8
11.0
15.4
12.4
7.4
0.0
0.0
62.7
16.9
7.2
10.4
2.8
0.0
0.0
0.0
0.0
0.0
59.3
18.8
7.0
11.0
3.9
0.0
0.0
0.0
0.0
0.0
58.0
18.7
8.3
11.8
3.2
0.0
0.0
0.0
0.0
0.0
57.4
16.4
10.5
12.8
3.0
0.0
0.0
0.0
0.0
0.0
57.1
15.0
11.5
11.8
4.6
0.0
0.0
0.0
0.0
0.0
56.1
15.2
12.2
11.5
3.3
1.8
0.0
0.0
0.0
0.0
58.0
13.3
13.0
9.5
3.7
0.0
0.0
0.0
2.4
0.0
Oct-16
26.5
22.1
21.3
19.5
8.5
2.1
0.0
Oct-16
30.8
20.7
12.0
20.5
16.0
Oct-16
45.1
15.1
15.3
12.5
3.1
8.9
0.0
58.4
14.4
13.0
9.8
2.1
1.2
1.1
0.0
0.0
0.0
Nov-16
28.2
24.0
20.4
20.6
6.9
0.0
0.0
Nov-16
31.8
21.3
11.7
20.0
15.2
Nov-16
50.6
13.0
13.3
9.6
0.0
13.5
0.0
57.0
14.4
13.2
10.3
1.8
1.6
0.0
1.7
0.0
0.0
Dec-16
27.8
21.6
20.7
21.3
8.5
0.0
0.0
Dec-16
30.7
22.6
10.3
20.5
15.9
Dec-16
49.7
12.6
12.3
11.4
0.0
14.0
0.0
58.0
13.3
12.6
10.9
3.1
2.1
0.0
0.0
0.0
0.0
57.0
14.3
12.4
11.3
0.0
5.0
0.0
0.0
0.0
0.0
55.8
15.1
12.2
12.5
0.0
3.5
0.0
0.0
0.0
0.9
-651bps
-209bps
618bps
72bps
-275bps
351bps
0bps
0bps
0bps
94bps
Apr-16 May-16
19.5
18.4
23.1
23.4
25.0
26.0
22.0
21.7
10.3
10.6
0.0
0.0
0.0
0.0
Apr-16 May-16
29.2
27.1
18.2
20.6
16.0
15.8
18.8
17.2
17.9
19.2
Apr-16 May-16
53.0
51.3
11.1
11.5
18.0
17.5
10.8
12.0
7.2
7.6
0.0
0.0
0.0
0.0
Jun-16 Jul-16 Aug-16 Sep-16
19.9
23.7 25.6 26.7
23.4
22.8 22.6 22.5
24.8
22.8 21.6 21.9
21.6
20.0 19.8 19.8
10.3
10.7 10.4
9.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Jun-16 Jul-16 Aug-16 Sep-16
30.5
30.2 30.9 32.3
18.3
19.1 19.8 19.0
17.1
16.7 15.9 16.0
15.1
16.2 18.0 17.2
19.0
17.8 15.4 15.5
Jun-16 Jul-16 Aug-16 Sep-16
52.5
50.3 49.1 45.8
11.2
15.0 16.0 16.4
17.0
15.9 14.5 15.4
10.5
10.3 11.6 12.8
8.7
8.5
8.8
5.4
0.0
0.0
0.0
4.3
0.0
0.0
0.0
0.0
Jan-17 Feb-17 Mar-17 Change (YoY)
25.9 26.4
27.7
1005bps
22.7 21.1
21.3
-355bps
22.4 21.7
21.6
-270bps
20.5 22.2
20.6
-187bps
8.5
8.6
8.7
-193bps
0.0
0.0
0.0
0bps
0.0
0.0
0.0
0bps
Jan-17 Feb-17 Mar-17 Change (YoY)
33.0 30.6
29.4
10bps
22.3 22.7
22.1
412bps
10.7 12.5
11.6
-354bps
19.3 18.8
19.9
-147bps
14.6 15.4
17.0
80bps
Jan-17 Feb-17 Mar-17 Change (YoY)
55.5 50.7
48.1
-571bps
13.5 13.2
12.7
169bps
13.5 14.1
14.9
-54bps
12.0 11.4
7.0
-539bps
0.0
2.8
4.6
-273bps
5.5
7.8
10.0
999bps
0.0
0.0
2.7
269bps
Source: Company, MOSL
Exhibit 3: SUNTV: P/E band chart
52
40
28
16
4
19.6
9.7
PE (x)
Median(x)
Peak(x)
Min(x)
Avg(x)
Exhibit 4: SUNTV: Relative P/E v/s Sensex
210
140
26.9
70
0
-70
23.0
48.4
Sun TV PE Relative to Sensex PE (%)
LPA (%)
43.7
21.0
Source: Company, MOSL
Source: Company, MOSL
20 April 2017
3

Sun TV
Story in charts
Exhibit 5: India’s ad growth to real GDP multiplier has averaged ~1.8x
Real GDP growth (%)
TV industry ad growth (%)
Ad to GDP multiplier (x)
17
13
7
1.9
9
FY11
7
FY12
1.9
5
FY13
8
1.5
7
FY14
7
FY15
1.3 9
14
1.9
8
17
12
2.2
7
FY17E
1.8
7
FY18E
13
13
1.8
7
FY19E
0.9
9
1.8
FY10
FY16
Source: Company, MOSL
Exhibit 6: India - TV and C&S households (m)
238
241
153
130
243
161
139
245
169
149
247
177
158
249
185
166
251
193
174
253
201
182
Exhibit 7: C&S connections mix: Analog v/s Digital (%)
Analogue Cable (%)
DTH (%)
7
26
5
62
7
26
15
53
FY13
6
27
18
49
FY14
7
27
19
47
FY15
6
30
25
38
FY16
Digital Cable (%)
Other Digital HH (%)
5
35
32
28
5
40
40
16
4
46
148
119
45
FY12
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: MOSL
FY12
5
FY17E FY18E FY19E
Source: MOSL
Exhibit 8: Analysis of broadcasters’ share of Pay TV
subscription revenue
FY16E
Pay TV subscription rev (INR b)
-Analog
-Digital
Total
Broadcaster's share (INR b)
-Analog
-Digital
Total
Broadcaster's share ( %)
-Analog
-Digital
Total
10
31
22.8
10
30
28.6
Source: MOSL
13
65
79
4
171
175
132
213
346
37
575
612
FY19E
Exhibit 9: India Pay TV subscription revenue split (INR b)
Analogue Cable
DTH
Total Subscription Revenue
346
23
123
67
132
FY15E
389
24
151
86
128
FY16
445
24
194
121
106
FY17E
Digital Cable
Other Digital
520
24
251
172
74
FY18E
612
27
315
233
37
FY19E
Source: MOSL
20 April 2017
4

Sun TV
Story in charts
Exhibit 10: SUNTV - Advertising and broadcast revenue
growth (%)
31
26
19
22
15
8
0
-1
-2
5
6
11
2.2
4.5
5.3
Exhibit 11: SUNTV - Subscription revenue (INR b)
DTH revenue
Cable revenue
International revenue
8.6
7.8
6.6
5.9
3.0
1.6
3.6
4.3
1.8 2.9
2.1
2.1 2.3
1.3 1.6
1.6 1.4 2.0
1.3 1.4 1.4
1.0
0.8
0.4 0.5 0.6 0.7 0.8
0.1
3.3
3.7
1.8 2.0
Source: Company, MOSL
Source: Company, MOSL
Exhibit 12: SUNTV - EBITDA and EBITDA margin (INR b)
EBITDA
81 80
76
70
72
71
69
70
71
EBITDA margin (%)
Exhibit 13: SUNTV - IPL revenue and EBITDA (INR b)
IPL Revenue
1.1
1.0
IPL EBITDA
1.4
1.0
1.6
1.7
77
71
72
80
5
6
8
11
16
14
14
15
16
17
18
21
24
-0.4
FY14
-0.6
FY15
-0.6
FY16
-0.3
FY17E
-0.2
FY18E
-0.1
FY19E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 14: SUNTV - PAT and YoY growth
106
PAT (INR b)
PAT growth (%)
Exhibit 15: SUNTV - Dividend per share and payout
DPS
52
54
Dividend Pay-out (%)
55
52
60
59
60
61
61
37
13
36
36
-10
-2
5
3
45
17
15 18.5 16.1
22
27
26
2.7 3.7 4.2 5.7 7.7 6.9 6.8 7.2 7.4 8.6 9.9 11.7 13.6
1.5 2.5 2.8 7.5 8.8 9.5 9.5 9.5 11.3 13.0 15.0 18.0 21.0
Source: Company, MOSL
Source: Company, MOSL
20 April 2017
5

Sun TV
Financials and Valuations
Income Statement
Y/E March
Advertising Revenue
Broadcasting Revenue
International Subscrip.
Domestic Subscription
Others
Net Sales
Change (%)
EBITDA
% of Net Sales
Depreciation and amortization
Film Amortization
Interest
Other Income
PBT before EOI
Tax
Rate (%)
Reported PAT
Extra-ordinary income
Adjusted PAT
Change (%)
2012
9,450
1,640
840
4,961
682
17,574
-8.6
14,007
79.7
4,430
3,430
56
742
10,263
3,317
32.3
6,946
0
6,946
-10.0
2013
10,200
1,730
1,040
5,125
82
18,176
3.4
13,769
75.8
4,132
3,048
48
550
10,139
3,306
32.6
6,833
-2
6,835
-1.6
2014
10,206
1,726
1,253
6,446
1,336
20,968
15.4
14,634
69.8
4,533
3,385
45
792
10,847
3,678
33.9
7,170
132
7,038
3.0
2015
10,775
1,735
1,366
7,380
1,176
22,431
7.0
16,143
72.0
5,878
4,600
30
879
11,114
3,746
33.7
7,369
0
7,369
4.7
2016
12,103
1,104
1,434
8,153
1,246
24,040
7.2
17,031
70.8
4,835
4,112
21
911
13,086
4,633
35.4
8,453
180
8,274
12.3
2017E
11,939
1,017
1,566
9,546
1,814
25,882
7.7
17,982
69.5
4,175
3,504
21
1,315
15,102
5,210
34.5
9,892
0
9,892
19.6
(INR Million)
2018E
13,795
1,075
1,762
11,326
2,001
29,958
15.7
21,056
70.3
4,554
3,749
21
1,409
17,890
6,172
34.5
11,718
0
11,718
18.5
2019E
15,386
1,136
1,982
12,910
2,210
33,623
12.2
24,016
71.4
4,629
3,824
21
1,409
20,775
7,167
34.5
13,608
0
13,608
16.1
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Deffered Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other Current Asset
Current Liab. & Prov.
Creditors
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2012
1,970
24,482
26,452
382
26,834
22,664
18,053
4,612
6,030
4,775
13,514
4
4,649
2,899
5,282
680
2,097
296
1,437
364
11,417
26,834
2013
1,970
26,958
28,929
284
29,213
28,445
22,252
6,193
6,036
4,678
15,111
5
5,353
3,886
5,098
768
2,806
296
1,556
954
12,305
29,213
2014
1,970
29,748
31,718
284
32,002
33,240
26,854
6,386
6,036
4,624
17,740
6
5,745
7,764
3,435
791
2,783
425
1,214
1,144
14,957
32,002
2015
1,970
31,827
33,797
221
34,018
38,306
33,596
4,710
6,036
4,624
20,448
5
6,835
9,217
3,522
870
1,800
375
1,358
68
18,648
34,018
2016
1,970
34,315
36,285
221
36,506
38,871
37,703
1,168
6,036
4,624
23,958
5
6,603
12,871
3,522
957
2,046
470
1,494
81
21,912
36,506
2017E
1,970
37,379
39,350
221
39,570
44,306
41,945
2,360
6,036
4,624
27,767
5
6,994
16,195
3,522
1,052
2,271
530
1,643
97
25,496
39,570
(INR Million)
2018E
1,970
40,904
42,875
221
43,095
48,306
46,568
1,738
6,036
4,624
33,794
5
8,123
20,987
3,522
1,158
2,522
598
1,807
117
31,272
43,095
2019E
1,970
44,954
46,924
221
47,145
52,306
51,265
1,041
6,036
4,624
34,984
5
9,130
21,054
3,522
1,273
2,773
645
1,988
140
32,210
47,145
20 April 2017
6

Sun TV
Financials and Valuations
Ratios
Y/E March
Basic (INR)
Adjusted EPS
Growth (%)
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios
Debtors (Days)
Creditors (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2012
17.6
-10.0
28.9
67.1
9.5
53.9
2013
17.3
-1.6
27.8
73.4
9.5
54.8
2014
17.9
3.0
29.4
80.5
9.5
52.2
2015
18.7
4.7
33.6
85.8
11.3
60.2
2016
21.0
12.3
33.3
92.1
13.0
59.3
2017E
25.1
19.6
35.7
99.9
15.0
59.8
2018E
29.7
18.5
41.3
108.8
18.0
60.5
2019E
34.5
16.1
46.3
119.1
21.0
60.8
50.2
30.7
24.7
19.7
13.2
1.1
51.6
32.2
25.3
19.2
12.2
1.1
50.1
30.5
23.6
16.5
11.1
1.1
47.9
26.6
21.3
15.3
10.4
1.3
42.6
26.9
20.0
14.1
9.7
1.5
35.7
25.1
18.7
13.0
9.0
1.7
30.1
21.7
15.8
11.1
8.2
2.0
25.9
19.3
13.8
9.9
7.5
2.3
26.3
27.3
57.5
97
30
0.7
23.6
24.5
46.8
107
25
0.6
22.6
23.5
47.4
100
25
0.7
21.8
22.4
49.1
111
22
0.7
23.3
24.0
58.1
100
25
0.7
25.1
26.0
70.4
99
25
0.7
27.3
28.4
89.5
99
25
0.7
29.0
30.2
94.5
99
25
0.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Cash Flow Statement
Y/E March
PBT before Extraordinary Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(Inc)/Dec in FA
(Pur)/Sale of Investments
CF from Investments
Free cash flow
(Inc)/Dec in Net Worth
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2012
10,263
4,430
56
3,317
-5,630
5,801
-4,948
636
1,489
853
-55
56
4,324
-4,435
-2,945
5,844
2,899
2013
10,139
4,132
48
3,306
98
11,112
-5,718
97
5,490
5,393
-130
48
4,324
-4,502
988
2,899
3,887
2014
10,847
4,533
45
3,678
1,226
12,974
-4,727
55
8,302
8,248
-56
45
4,324
-4,426
3,877
3,886
7,763
2015
11,114
5,878
30
3,746
-2,238
11,039
-4,202
0
6,837
6,837
-233
30
5,121
-5,383
1,453
7,764
9,217
2016
13,086
4,835
21
4,633
390
13,700
-1,293
0
12,407
12,407
183
21
6,148
-5,979
6,427
9,217
12,833
2017E
15,102
4,175
21
5,210
-261
13,827
-5,367
0
8,460
8,460
0
21
6,828
-6,856
1,604
12,871
15,365
(INR Million)
2018E
17,890
4,554
21
6,172
-983
15,310
-3,932
0
11,378
11,378
0
21
8,193
-8,214
3,164
16,195
19,403
2019E
20,775
4,629
21
7,167
-871
17,387
-3,932
0
13,455
13,455
0
21
9,559
-9,580
3,875
20,987
24,907
20 April 2017
7

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Sun TV
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