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Edelweiss Financial Services has a buy call on Sun TV Network with a target price of Rs 1,208.
The current market price of Sun TV Network is Rs 786.25.
Time period given by the brokerage is one year when Sun TV Network price can reach the defined target.
View of the brokerage on the company:
Sun TV Network’s (Sun TV) Q1FY19 revenue and EBITDA surpassed our estimates led by higher-than-expected IPL revenue.
Key positives: (i) about 20 per cent YoY spurt in advertising, albeit on a negative base of -4.1 per cent; and (ii) about 15 per cent YoY jump in overall subscription—subscription revenue growth would have been higher but for catch-up revenue, which made the base higher.
Management’s decision to cap their salary at last-year levels and a likely increase in dividend payout are major positives.
Management believes an addition of 8–8.5mn subscribers is possible after the completion digitisation in Tamil Nadu (TN; end-FY19).
The second GEC in TN and entry into other regional markets such as Marathi and Bengali are key monitorables.
We are raising FY19/20E EPS by 7.9 per cent/13.5 per cent factoring in speedy digitisation in Tamil Nadu and a good performance by Sun TV’s IPL team.
Maintain ‘BUY’ with a revised TP of Rs 1,208 (earlier Rs 1,064).
All round surge in revenue streams: Ad revenue clocked 20 per cent YoY growth in Q1FY19, albeit on a negative base of 4.1 per cent YoY.
Share of Tamil market to the total ad revenues fell from the earlier 67 per cent to 60 per cent which in fact helps in reducing concentration risk from 1 market.
Management estimates double digit ad growth in FY19.
Subscription income grew about 15 per cent YoY.
Sun TV has signed a deal with Jio for its content on SUN NXT.
Q1FY19 conference call: Key takeaways - i) Sun TV is planning to re-position Sun Life channel as its second GEC in Tamil; ii) the company expects to enter the Bengali market by the end of FY19 and break even soon in the new channels; iii) it expects a lot of sponsorship opportunities as its IPL team is becoming popular; iv) Management believes it can earn extra Rs 3bn to 5bn due to digitization in the Tamil Nadu market and v) Sun Nxt is in its early days and the company will share numbers once it becomes substantial part of the business.
Outlook and valuation: Gathering steam; maintain ‘BUY’: We anticipate re-rating due to the robust beat in Q1FY19 on all fronts, management salary being capped at FY18 levels and likely increase in dividend payout.
Digitisation in Tamil Nadu is a key positive trigger.
We retain the target multiple of 28x FY20E EPS that yields our TP of Rs 1,208.
We maintain ’BUY/SO’.
At CMP, the stock is trading at 19.2X FY20E EPS.
