Buy Sun TV shares, target price Rs 470: Edelweiss

Sun TV Network?s Q2FY14 revenue and PAT were slightly below our estimates, but well below Street expectations. Key positives were: (a) Strong traction in domestic subscription revenue ? while cable subscription revenue jumped 45% y-o-y, DTH subscription revenue grew 21% y-o-y; and (b) A 29% y-o-y growth in international revenue largely due to rupee depreciation.

Key negatives were ~4.5% y-o-y dip in ad revenue (in spite of low base of 3.8% y-o-y ad growth in Q2FY13) due to market share pressure in non-Tamil markets and Trai?s diktat of reducing ad duration to 16 minutes per hour till July 2013; and200bps y-o-y fall in Ebitda margin (ex-IPL team) to 73.9%.

Sun TV?s subscription revenue will continue to rise, driven by the ongoing digitisation process, but recovery in ad growth will be gradual. Maintain ?buy?.

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In spite of strong growth in subscription revenue, Sun TV?s revenue growth (ex-IPL team) grew a meagre 6.4% y-o-y due to decline in ad revenue.

In our view, achieving earlier FY14 guidance of 12% y-o-y ad growth looks unlikely due to possible further q-o-q reduction in ad inventory in Q3FY14, high base (ad growth of 17.4% y-o-y in H2FY13) and a meagre 5.2% y-o-y ad growth in H1FY14.

Edelweiss