We stay neutral on Sun TV Network but cut our DCF-based target price to R410 per share (earlier R450). Our TP implies a FY15e PER of 19x which is c13% premium to last 12 month average.
Sun TV stock is marginally up c1% over last six months in comparison to Zee, which has moved up 33% (adjusted for pref shares issue) over the same period. Comparison of last nine month performance between Zee and Sun TV, suggests that Sun TV has done poorly on advertisement revenues with c1% y-o-y growth versus Zee’s growth in ad revenues of c21%.
Notably one of the major concerns for Sun TV last year (FY13) was growth in subscription revenues. However, despite better performance this fiscal (in FY13, Sun TV subscription revenue growth was c3% versus Zee, which recorded c23% growth); the stock price has seen more correlation with ad revenue growth.
Sun TV’s advertisement revenues have been affected by over-estimation of pricing power in our view. Nonetheless in Q3FY14, the company recorded 17% q-o-q growth in ad-revenues, which we view as a respite. That said, company has taken various steps to implement the 10+2ad cap norms including reduction in broadcaster slots, extension of fiction programming by one additional day, rate hikes and moving away from a rate card approach to a cross selling approach. Despite this, FY14 ad growth is unlikely to be more than 3%.