StockMarket Update on SUN TV Network for 1QFY2012 with a Buy recommendation and a Target Price of `371 (12 months).
We remain positive on Sun TV’s (STNL) business. However, we have downgraded our P/E multiple to 16x (discount to its industry peer Zee Ent.) due to uncertainties’ surmounting the company. We maintain our Buy view on the stock.
Key highlights of the quarter: STNL posted muted top-line growth of 3.1% yoy and a qoq decline of 1.4%. Earnings recorded modest growth of 9.8% yoy but declined by 9.9% sequentially. Apart from ad income and subscription income from analogue, rest all revenue streams delivered double-digit growth on a yoy basis. For the quarter, revenue contribution from both analogue and DTH subscription increased on a yoy and qoq basis. The company plans to launch 5–6 channels during FY2012. STNL witnessed a dip of 111bp yoy in its operating margin due to higher other expenditure and increased staff costs. Management expects the radio business to be EBITDA positive in FY2012.
Outlook and valuation: We expect STNL to post a CAGR of 15%, 9.3% and 9% over FY2011–13E in its advertisement revenue, EBIT (post amortisation) and earnings, respectively. The recent not-in-favour incidents in which the company has got engulfed has resulted in the stock taking a beating. Nevertheless, we remain positive on the company’s business, considering its vast dominance in the markets in which it is present. At the CMP, the stock is currently trading at 13.1x FY2013E (below its median of 23x). We maintain our Buy view on the stock with a revised target price of `371, based on 16x revised consolidated EPS of `23 (a discount to its industry peer Zee Entertainment).
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