Sun TV Research Report By Motilal Oswal

Stellar performance; Upbeat outlook

 Strong revenue drives EBITDA:

Standalone revenue grew 23% YoY to INR7.2b (3% beat), driven by strong 26% ad revenue growth and 28% domestic subscription revenue growth. EBITDA surged 33% YoY to INR5.2b, with the margin expanding 530bp YoY to 72.9%.

However, a steep rise in depreciation expense restricted PAT to INR2.9b (+23% YoY). Cable/DTH revenue surged 49%/20% YoY to INR1b/INR2.1b, mainly led by higher ARPU (from digitization of the TN market).

For FY18, standalone revenue/EBITDA grew 12%/13% YoY to INR28.6b/19.6b (1% beat), while PAT rose 12% to INR10.9b (in-line).

 Concall highlights:

(1) Management indicated that incremental subscription revenue from digitization in Tamil Nadu would surpass INR3b. Expect domestic subscription revenue to grow at 20-25% in FY19.

(2) EBITDA margin should improve in FY19, driven by a) IPL biz turning profitable and b) increasing mix of subscription revenue.

(3) Expects to foray into one new regional market in FY19.

 Multiple levers for growth:

We expect domestic subscription revenue CAGR of 17% over FY18-20, primarily led by higher ARPU, which is largely due to digitization of ~10m analog subscribers (~50% of the TN market).

Ad revenue should witness strong momentum, led by a healthy ad outlook, a steady shift to the commission model in the TN market and a consistent healthy viewership share.

Subsequently, we expect 12% ad revenue CAGR over FY18-20. IPL business turning profitable in FY19E is further expected to bolster earnings growth. We largely maintain our estimates – 16% revenue CAGR and 17%/21% EBITDA/PAT CAGR over FY18-20.

 Valuation view:

SUNTV is trading at 24.7x/21.3x FY19/20E EPS, and is valued at ~30-35% discount to ZEE. We believe PAT CAGR of 21% over FY18-20, coupled with a steady increase in RoCE to 30%, should help reduce the valuation gap. We value the stock at 30x (~15% discount to ZEE) FY20E EPS of INR41, arriving at a revised TP of INR1,200 (prior: INR1,225). Maintain Buy.