SUN TV Networks : Revenue growth set to take off

BSE SENSEX

34,300

S&P CNX

10,540

SUN TV Networks

CMP: INR984

TP: INR1,225 (+25%)

Revenue growth set to take off

Digitization gains accruing, finally



12 February 2018

Update

| Sector: Media

Buy

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Free float (%)

SUNTV IN

394.1

1097 / 652

-8/22/15

387.9

6.1

1365.0

25.0



Financials Snapshot (INR b)

Y/E MARCH

FY18E FY19E FY20E

Net Sales

28.4

33.6

38.5

EBITDA

19.4

23.4

26.9

10.9

14.1

16.7

EPS (INR)

27.7

35.8

42.5

EPS Gr (%)

11.6

29.1

18.7

BV/Share (INR) 110.2 121.7 135.3

P/E (x)

35.5

27.5

23.2

P/BV (x)

8.9

8.1

7.3

EV/EBITDA (x)

19.1

15.5

13.3

RoE (%)

26.1

30.9

33.1

RoCE (%)

26.1

30.9

33.1

Shareholding pattern (%)

Dec-17 Sep-17 Dec-16

As On

Promoter

75.0

DII

3.2

3.4

1.7

FII

13.8

13.4

16.8

Others

8.0

8.2

6.6

FII Includes depository receipts

Stock Performance (1-year)

Sun TV Network

Sensex - Rebased

1,200

1,050

900

750

600



Subscription revenues are likely to grow at 16% CAGR over FY18-20, led by

digitization in Tamil Nadu. We believe there is further upside, driven by

higher market share of DTH players, growth in MSO-led subscription revenue

following TRAI’s tariff order requiring price parity, as well as growing HD

penetration and ARPU increase.

Higher viewership on the back of content rejig coupled with shift to

commission model should help SUNTV capitalize on potential ad revenue

growth. Given the low base of FY17, we expect 14% CAGR over FY18-20.

Near doubling of IPL revenue to INR2.8b, driven by substantially higher

auction of media rights and fresh inventory driving the radio business bodes

well. Steady movie investments should lead RoCE to reach ~33% by FY20.

With the growth pillars in place, we believe SUNTV is well poised to witness

standalone revenue/PAT CAGR of 16%/24% over FY18-20.

With growth revival in the next 2-3 years driving healthy standalone EPS

CAGR of 24%, RoE of 33% and steady FCF generation, the stock should

continue to offer healthy upside. We value SUNTV at 30x December 2019E

EPS (~15% discount to ZEEL), arriving at a TP of INR1,225.

Subscription revenue growth at inflection point

We expect 16% CAGR in subscription revenue over FY18-20 to INR17.3b (INR11.2b

FY17) on the back of INR30/subscriber for incremental 10m analog subscribers

switching to digital cable/DTH. The slow pace of digitization in the South markets,

primarily Tamil Nadu, is getting reversed with grant of provisional license to Arasu

and the recent blackout of analog signals. This has triggered revision of content

contracts at INR15-20/subscriber. Besides, (a) higher market share of DTH players,

paying higher revenue/subscriber, (b) TRAI’s tariff order requiring price parity,

garnering higher subscription revenue from MSOs, (c) higher HD penetration, and

(d) improving ARPUs offer further upside for subscription growth.

Commission model to capture ad revenue potential

We expect ad and broadcast revenue to surge to INR18.1b by FY20, with 14% CAGR

over FY18-20. With the impact of demonetization and GST implementation waning,

the overall ad market should see healthy growth from 2HFY18. Strong fiction-led

content focus should drive rating-led ad growth. We believe SUNTV’s shift to

commission model from PP model should potentially offer ~20% higher EBITDA and

capture potential upside from limited undercutting and better content ratings.

Aliasgar Shakir – Research Analyst

(Aliasgar.Shakir@MotilalOswal.com); +91 22 6129 1565

Hafeez Patel – Research Analyst

(Hafeez.Patel@MotilalOswal.com); +91 22 6129 1568

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Investors are advised to refer through important disclosures made at the last page of the Research Report.

SUN TV Network

IPL, Movies and Radio to further fuel overall growth

IPL’s substantially higher TV broadcasting, digital and title sponsor rights v/s

previous value, should lead to almost doubling of SUNTV’s IPL revenue to INR2.8b

coupled with a turnaround in PBT to INR1.3b v/s a loss of about INR210m earlier.

We expect revenue/EBITDA from the radio business to grow at 15%/25% CAGR over

FY17-20, turning it into a potential value unlocking asset. Fresh inventory from the

launch of 21 new (Phase III) stations coupled with increasing penetration of the

radio industry bodes well for the radio business. Movie acquisition should be

restricted to INR3.5b in the next 1-2 years.

EBITDA to witness healthy 18% CAGR over FY18-20

Despite the structural reforms of demonetization and GST implementation, SUNTV

managed to register 5% YoY revenue and EBITDA growth in 1HFY18 on standalone

basis. EBITDA margin stood at ~65%. Waning of the impact of these reforms should

only drive revenue higher. We believe, (a) the shift to commission model, (b)

digitization-led APRU increase, and (c) near-doubling of IPL revenue should provide

impetus to standalone revenue/EBITDA – expect 16%/18% CAGR over FY18-20.

Maintain Buy with a revised target price of INR1,225

With growth revival in the next 2-3 years driving standalone EPS CAGR of 24%, RoE

of 33%, and steady FCF generation, the stock should continue to offer healthy

upside. We value SUNTV at 30x December 2019E EPS (~15% discount to ZEEL),

arriving at a TP of INR1,225. SUNTV currently trades at ~19% discount to ZEEL.

Despite being a regional player, this valuation gap should reduce, as SUNTV is likely

to grow at a steady pace.

12 February 2018

SUN TV Network

Subscription revenue growth at inflection point

Expect 16% CAGR over FY18-20



We expect 16% CAGR in subscription revenue over FY18-20 to INR17.3b (INR11.2b in

FY17), assuming INR30/subscriber for incremental 10m analog subscribers.

The slow pace of digitization in the South markets, primarily Tamil Nadu, is getting

reversed with grant of provisional license to Arasu and the recent blackout of analog

signals. This has triggered revision in content contracts at INR15-20/subscriber.

Besides, (a) higher market share of DTH players, paying higher revenue/subscriber, (b)

TRAI’s tariff order requiring price parity, garnering higher subscription revenue from

MSOs, (c) higher HD penetration, and (d) improving ARPUs offer further upside for

subscription growth.

Asymmetry in India’s digitization

The digitization status in India is lopsided towards Hindi-speaking markets (HSM),

with over 90% of the subscribers either on digital cable or DTH. In contrast, over

1/3

of the subscribers in the South markets use analog cable (December 2016).

Exhibit 1: Proportion of analog subscribers in South - ~4x of HSM (%)

Analog

Digital Cable

DTH

Overall

Urban

Rural

Source: FICCI-KPMG 2017, MOSL

TN digitization to propel growth…

SUNTV’s subscription revenue has grown at 13% over FY14-17, led by moderate

domestic subscription growth, particularly due to the slow digitization process in

Tamil Nadu, SUNTV’s key market. This has picked up pace in 1HFY18, with 14%

growth. As digitization in Tamil Nadu has caught up pace, we expect at least 16%

CAGR in overall subscription growth over FY18-20.

…providing impetus to ARPU upturn

Tamil Nadu holds about 17m households, with a population size of about 85m. Of

these, about 6m would be DTH subscribers and an additional 1m would be digitized

cable subscribers in Chennai. Thus, nearly 10m households remain with analog

cable, generating meager monthly revenue of INR25m (INR2.5/subscriber). In

contrast, DTH companies pay monthly subscription revenue of INR42/subscriber.

SUNTV could garner incremental annual subscription revenue of INR3,600m by

FY20, (16% CAGR over FY18-20), building subscription revenue of INR30/subscriber.

This is based on the assumption that 50% of the 10m analog subscribers shift to DTH

(INR40/subscriber) and 50% move to digitized cable at INR20/subscriber.

12 February 2018

SUN TV Network

Exhibit 2: Tamil Nadu market – Current v/s Digitized scenario

Particulars

Current scenario

Subscribers (m)

APRU (INR)

Revenue (INR m)

Incremental digitized subscribers

Subscribers (m)

APRU (INR)

Revenue (INR m)

Analog

2.5

300

Digital

1,440

1,200

DTH

504

Total

2,244

2,400

3,600

Source: MOSL, Company

Room for subscription growth far higher

We believe subscription revenue has room to grow beyond our 16% estimate over

FY18-20, on the back of:

a.)

DTH subscriber growth:

Higher proportion of subscribers are shifting to DTH,

which offers INR42/subscriber, double the estimated INR20/subscriber for

digital cable. Our estimated INR30/subscriber is assuming 50% of the

subscribers shift to DTH. Given the growth of DTH players in the last five years,

they could take a lion’s share, leading to higher blended revenue/subscriber.

b.)

New tariff order:

TRAI’s draft tariff order, which requires parity and

transparency in content cost, will improve cable subscription revenues and bring

them at par with DTH subscribers. This would mean multiple system operators

(MSOs) would have to pay monthly subscription cost of INR42/subscriber,

leading to incremental revenue of INR1.2b.

c.)

Growth in HD subscribers:

HD penetration is growing at an accelerated pace,

which may increase ARPUs.

d.)

Improving ARPUs in TV subscription:

India’s TV subscription is far below global

peers as well as other entertainment modes like Netflix and other OTT

platforms, despite offering huge amount of content. As distributors (DTH, MSOs)

take ARPU increase, broadcasters like SUNTV should benefit.

Provisional license to Arasu – a boon for SUNTV

A key reason for slow digitization in Tamil Nadu was delay in granting of digital

license to government-owned cable distributor in ARASU. This is in line with TRAI’s

earlier recommendation of privatizing the cable distribution business. In April 2017,

the government granted provisional license to Arasu, which has kick-started the

process on digitization. This gives us confidence that the digitization process should

complete in the next 2-3 years, keeping the pace of subscription growth high.

Expect overall digitization gains to pan out by FY20

Monthly installation of 1m-2m set-top boxes (STB) may complete the digitization

process in 8-10 months. Further, recent blackout of analog services in TN triggered

acceleration in digitization. Broadcasters have recently signed revised pricing deal

with leading DTH players and MSOs. We expect the digitization-led subscription

growth to pan out over the next two years until FY20.

12 February 2018

SUN TV Network

Exhibit 3: Status of digitization (December 2016)

Phase I

Phase II

Phase III

Phase IV

Total

Regulatory sunset date

Jun'12

Mar'13

Jan'17

Mar'17

No. of C&S subs (m)

169

Non Digitized Base (m)

0.2

0.3

% Digitization

100% excluding Chennai

100% excluding parts of TN

~90%

~50%

~70%

Source: FICCI-KPMG 2017, MOSL

Exhibit 4: Huge upside for Indian TV industry ARPU

(USD/month)

Exhibit 5: Digital/DTH ARPU to rise at 11%/9% CAGR

2016

368

217

255

2021(E)

400

Digital Cable

Source: Zee Entertainment, MOSL

DTH

Source: FICCI-KPMG 2017, MOSL

TRAI’s tariff order on price parity – a big positive

TRAI’s tariff order requires broadcasters to offer their pay channels on a-la-carte

basis. They have to declare the monthly maximum retail price (MRP) of the channel

with the condition that no pay channel that is a part of a bouquet is priced above

INR19. Free-to-air (FTA) and pay channels have to be segregated in different

bouquets with the MRP of a pay channel bouquet being not less than 85% of the a-

la-carte cost of all the pay channels forming it. SUNTV has introduced a-la-carte

prices of all its channels along with the bouquet (85% discount to a-la-carte prices)

for all four markets.

In line with the earlier pricing model, where low-viewership channels were clubbed

with larger channels in a bouquet, SUNTV’s revised channel pricing indicates that in

a typical bouquet, top-rated channels account for 80-85% of the cumulative a-la-

carte pricing. Hence, the consumer is likely to continue to opt for the bouquet,

which is at 15% discount to a-la carte pricing (getting rest of the channels

complimentary). This ensures wide coverage for SUNTV’s non-key channels too.

Exhibit 6:

SUNTV: Bouquet v/s a-la-carte prices

Tamil

Sun TV

KTV

Adithya TV

Sun Music

Chutti TV

Sun News

Sun Life

Total

Bouquet

Discount

19.0

15.0

4.0

3.0

1.0

2.0

47.0

40.0

-15%

Telugu

Gemini TV

Gemini Movies

Gemini Comedy

Gemini Music

Kushi TV

Gemini Life

Gemini News

50.0 Total

42.5 Bouquet

-15% Discount

19.0

12.0

15.0

8.0

3.0

2.0

1.0

34.0

28.9

-15%

19.0

16.0

10.0

Kannada

Udaya TV

Udaya Movies

Udaya Comedy

Udaya Music

Chintu TV

Udaya News

12.0

11.0

3.0

1.0

33.0

28.1

-15%

HD Malayalam

15.0 Surya TV

Surya Movies

Kochu TV

Surya Music

Surya Comedy

9.0

6.0

4.0

2.0

15.0

45.0 Total

38.3 Bouquet

-15% Discount

15.0 Total

NA Bouquet

Discount

23.0

15.0

19.6

-15%

Source: MOSL, Company

12 February 2018

SUN TV Network

Commission model to capture ad revenue potential

Expect 14% CAGR over FY18-20



We expect ad and broadcast revenue to surge to INR18.1b by FY20, with 14% CAGR

over FY18-20.

With the impact of demonetization and GST implementation waning, the overall ad

market should see healthy growth from 2HFY18.

Strong fiction-led content focus should drive rating-led ad growth.

We believe SUNTV’s shift to commission model from PP model should potentially offer

~20% higher EBITDA and capture potential upside from limited undercutting and

better content ratings.

Low base of FY17 bodes well

The TV ad industry has grown at a healthy 11% CAGR over CY11-16 to INR201b

(according to FICCI-KPMG). However, marred by structural reforms of

demonetization and GST implementation (with frequent changes in rates and

compliance), the ad spends have been muted across categories. Further, the impact

has been more severe on local players than on national advertisers. This is also

evident from the 3QFY18 performance of Print and Radio companies.

Our channel checks suggest that the overall GST impact is subsiding. Sector-wise

apart from Jewelry, all other sectors including Retail are increasing ad spends. With

a favorable base and increasing spends across sectors, we expect overall ad growth

to be supportive.

Further, the management indicated that in general entertainment (GE) channels,

both fill rates (in non-prime time) and price increases (in prime time) should drive

growth. In non-GE channels, ad growth should come from improvement in fill rates.

Exhibit 7: Indian ad industry size (INR b)

Digital Advertising

OOH

Radio

227

276

343

295

296

Exhibit 8: Indian ad industry mix (%)

Digital Advertising

OOH

Radio

139

116

150

125

163

136

176

155

189

181

201

102

215

225

134

233

257

174

255

298

394

Source: FICCI-KPMG 2017, MOSL

12 February 2018

SUN TV Network

Exhibit 9: TV ad revenue to witness 14% CAGR over 2016-

21E (INR b)

394

Exhibit 10: TV reach outpacing other mediums (m)

702

549

450

282

155

116 125 136

181 201

225

257

298

343

Television -

weekly

Source: FICCI-KPMG 2017, MOSL

Television -

daily

Digital -

monthly

Print - daily

Source: MOSL, Zee Entertainment

Exhibit 11: Category-wise ad contribution (2016, INR b)

51%

Exhibit 12: Category-wise ad growth in 2016 (%)

12%

26%

-34%

-11%

23.2

Source: Pitch Madison Report 2017, MOSL

Shift to commission model to capture ad revenue potential

Unlike most broadcasters operating on commission model, SUNTV has historically,

operated on private producer (PP) model, offering fixed allocation of advertisement

inventory to producers (3minutes/30minutes) to recover content cost. SUNTV is in

the process of reversing this business model and already has all channels except the

Tamil genre on commission model, where instead of offering ad inventory, it pays a

fixed sum for content cost and retains ad inventory as well as content IP. By the end

of FY19, SUNTV plans to shift the entire content in Tamil Nadu market to the

commission model. The shift should be gradual – many shows are at peak in terms

of viewership and any sudden rejig could impact ratings. Presently only ‘Nandini’

and ‘Jai Hanuman’ in the Tamil genre are on commission model while the rest of the

shows are on PP model. By the end of FY18, the ratio of commission to PP model

content should be 50:50, with a complete shift to commission model by FY19.

Assuming INR300k content cost/hour, and pricing of INR5,000/10 seconds, the

commission model would offer 20% higher EBITDA/hour on a 12-minute ad

inventory/hour. This goes up to over 60% if the content garners good ratings and

receives ad pricing of INR7,000/10 seconds. Even on a stable state basis, the

EBITDA/hour for the commissioned content is superior to the private producer

model and the upside could be far higher if the content becomes popular. Further,

SUNTV would retain the content IP, allowing it to monetize on its OTT platform or

other time periods.

12 February 2018

SUN TV Network

Exhibit 13: Operating leverage from shift to commission model (INR’000)

Commission model

Revenue per hour (12 min ad)

Content cost/hour

EBITDA/hour

EBITDA growth (%)

Private Producer model

Revenue per hour (6 min ad)

EBITDA/hour

INR5k/10 sec

360

300

20%

INR5k/10 sec

180

INR7k/10 sec

504

300

204

68%

INR7k/10 sec

252

INR10k/10 sec

720

300

420

140%

INR10k/10 sec

360

INR15k/10 sec

1,080

300

780

260%

INR15k/10 sec

540

INR20k/10 sec

1,440

300

1,140

380%

INR20k/10 sec

720

Source: MOSL, Company

Content-driven focus to get more eyeballs

Of the total TV ad market of INR188b, the four southern markets constitute INR40b.

Tamil Nadu remains the strongest market in the southern region, with industry

potential of INR16b-19b. SUNTV remains a key player, contributing over 50% of total

ad revenues.

Exhibit 14: Genre-wise ad revenue contribution (2016, INR

27%

Revenue (INR b)

11% 10%

Revenue share (%)

23%

14%

19%

Kannada

Malayalam

Tamil

Telugu

45%

Exhibit 15: Tamil constitutes ~45% of South markets (INR b,

Source: Pitch Madison Report 2017, MOSL



Source: Pitch Madison Report 2017, MOSL

Tamil genre – ready to regain momentum

Increased competition across genres has been impacting ratings, primarily in Tamil

genre. Sun TV, the flagship channel, which used to garner strong 60%+ viewership in

2016, now has only 47-48% share. Sun TV also suffered in terms of ratings due to

the PP model (lower control on content to fight peers).

Despite the continuous decline in ratings, the Sun TV channel continues to

outperform its peers on the top five shows, with all of the top five rated shows in

BARC ratings coming from Sun TV’s portfolio throughout 2016 and 2017. However,

envisaging the decline in viewership and the content regime in play, SUNTV has

started rejigging shows and launching fresh shows with focus mostly on sticky fiction

shows (which should sustain healthy ratings). Furthermore, new commission model

should improve content quality and ratings.

12 February 2018

SUN TV Network

Exhibit 16: Sun TV - undisputed leader in viewership in Tamil genre (weekly)

75%

60%

45%

30%

15%

2016

2017

2018

Sun TV

KTV

STAR Vijay

Zee Tamil

Source: BARC, MOSL

Exhibit 17: Number of shows launched on Sun TV

Exhibit 18: Sun TV’s shows dominating Tamil genre (number

of shows, weekly)

Sun TV

Zee Tamil

KTV

STAR Vijay

2016

2017

2018

Source: MOSL, Company



Source: BARC, MOSL

Other genres



In Telugu, Gemini TV has seen healthy rating improvement to 24-25% in the

last couple of months since management has renewed focus on Telugu

content rejig.



Kannada GEC channel, Udaya TV, too has improved ratings from 11-12% to

17-18%, though Udaya Movies ratings remain flat at 14-15%. The only weak

link is the Malayalam genre.



Surya TV and Surya Movies channels’ market share, which was 20-22%, is

seeing pressure, coming down to 16-17% in the last couple of quarters.

The management’s continued focus is to feature higher number of shows in BARC’s

top-5 shows and sustain steady ratings. Apart from Sun TV, other regional channels

also need to see consistent improvement in the top 5 rated shows in BARC ratings.

12 February 2018

SUN TV Network

Exhibit 20: No clear winner in Telegu genre (number of

shows, weekly)

2016

2017

2018

Gemini TV

Zee Telugu

STAR Maa

ETV Telugu

Exhibit 19: Telugu genre fiercely competitive (weekly)

Gemini TV

Zee Telugu

30%

27%

24%

21%

18%

15%

2016

2017

2018

ETV Telugu

STAR Maa

Source: BARC, MOSL

Exhibit 21: Udaya TV stands 3 in Kannada genre viewership

(weekly)

Colors Kannada

Star Suvarna

Zee Kannada

Udaya Movies

Udaya TV

Exhibit 22: Color channel’s shows leading Kannada genre

(number of shows, weekly)

Star Suvarna

Zee Kannada

2016

2017

2018

Udaya Movies

Colors Kannada

40%

30%

20%

10%

2016

2017

2018

Source: BARC, MOSL

Exhibit 23: Surya TV stands 2 in Malayalam genre

viewership (weekly)

Asianet

60%

45%

30%

15%

2016

2017

2018

Exhibit 24: Asianet’s shows prominent in Malayam genre

(number of shows, weekly)

Mazhavil Manorama

Flowers TV

Surya TV

Asianet

Flowers TV

Mazhavil Manorama

Surya TV

2016

2017

2018

Source: BARC, MOSL

Contemplating foray into newer markets

The management indicated that there is no new regional market on the radar,

currently. However, it is evaluating forays in newer markets based on three key

criteria: (1) market size, (2) potential opportunity for a new player, and (3) low

competitive intensity. Marathi and Bangla genres, with market size of ~INR8.5b and

~INR6.5b, respectively, seem lucrative and can be better prospects. We do not build

any material gain/cost impact of new channel launch, as it is not presently on radar

and management may not be too aggressive in terms of ramping up a new channel.

12 February 2018

SUN TV Network

IPL, Movies and Radio to further fuel overall growth

IPL, currently loss-making, to report PBT of INR1.3b in FY19



IPL’s substantially higher TV broadcasting, digital and title sponsor rights v/s previous

value, should lead to almost doubling of SUNTV’s IPL revenue to INR2.8b coupled with

a turnaround in PBT to INR1.3b v/s a loss of about INR210m earlier.

Fresh inventory from the launch of 21 new (Phase III) stations coupled with increasing

penetration of the radio industry bodes well for the radio business. It could turn into a

potential value-unlocking asset.

Movie acquisition should be restricted to INR3.5b in the next 1-2 years.

IPL – a turnaround story

In FY19, SUNTV’s revenue contribution from its Indian Premier League’s (IPL)

franchisee, Sunrise Hyderabad is likely to grow 90% to INR2.75b. Further, stable

costs will lead to PBT of INR1.25b v/s a loss of INR210m.

In the recent auction, BCCI sold telecast and digital rights of IPL at INR163b to Star

India for the five-year period, 2018-22. Additionally, title rights were sold to Vivo for

INR22b for the same period. Star has acquired combined telecast and digital rights

at 3x the total amount paid by Sony Pictures (for 10-year telecast rights) and Star

India (for 3-year digital rights) in the earlier auction. Vivo re-acquired the title rights

at 4.6x the amount paid earlier. SUNTV should get cumulative revenue of INR10.4b

over the next five years, an average of INR2.1b per year, adjusting for the change in

BCCI franchisee sharing ratio from 54% to 45%. Including ticket sales and local

sponsorships of INR600m-700m, overall IPL revenues should shoot up to INR2.7b-

2.8b (8% of revenue) compared to about INR1.5b (6% of revenue) in FY17/18.

Besides, the associate title sponsor and other sponsorship revenues should further

add to profitability.

Exhibit 25: IPL revenue to double (INR b)

IPL revenues (INR b)

2.7

2.8

1.5

1.0

1.4

FY15

FY16

FY17

FY18E

FY19E

FY20E

Source: MOSL, Company

12 February 2018

SUN TV Network

Exhibit 26: IPL revenue reconciliation (INR m)

Sold to

TV Broadcast rights

Digital rights

Title rights

Total rights value

Ticketing sales and others

Sun's IPL revenue

Sony Pictures

Star India

PepsiCo/Vivo

Upto 2017

Tenure of SUNTV's share

Sale Value

rights

(@ 54%)

82,000

554

3,000

4,000

89,000

675

835

1,510

Sold to

Star India

Vivo

2018 - 2022

Tenure of SUNTV's share

Sale Value

rights

(@ 45%)

1,63,475

21,990

1,85,465

1,839

247

2,086

650

2,736

Source: MOSL, Company

The two key costs – license fee to BCCI and player cost – are likely to remain stable.

The license fee post the completion of 10 years in 2017 should move from a fixed

fee of INR850m to 20% of revenue (that is, INR550m). The player cost, which was

INR600m in FY18, may go up by ~20% considering the recent player auction. SUNTV

could generate a PBT of INR1.25b in FY19 against a loss of INR210m in FY17.

Radio - Potential value unlocking

Through its two subsidiaries, Kal Radio (97.78% holding, 18 FM stations) and South

Asia FM (59.44%, 23 stations), SUNTV holds 68 stations, operating under the Suryan

brand in South India and Red FM in the rest of India. Of these, 21 were acquired in

Phase III auctions that happened in the last two years while 47 have been operating

for over 10 years. SUNTV remains the 4

largest player in the radio industry, with

revenue of INR2b and PAT of INR721m in FY17. It has 10% market share.

With fresh inventory from the recent launch of 21 new stations, the radio business

should grow revenue/EBITDA at a healthy 15%/25% CAGR over the next three years.

Currently, the two listed radio peers – ENIL (holding brands, Radio Mirchi, Ishq FM

and Radio Love) and Music Broadcast (holding brand name, Radio City) trade at a

healthy EV/EBITDA of 12-15x (FY20E) and P/E of 22-25x (FY20E). Ascribing similar

valuations, SUNTV’s radio business should get a valuation of INR29b or INR74/share,

8% of its CMP. The management is optimistic about listing the radio company in the

future, which should allow it to unlock value.

Exhibit 27: Strong growth expected, with addition of new

licenses

Radio (INR b)

Phase lI

Share of total ad spend (%)

Phase lIl

Exhibit 28: Radio to grow at 16% CAGR over CY16-21 (%)

CAGR (2011-16)

CAGR (2016-21P)

37.9%

30.8%

16.1%

14.5%

Phase

1.5

2.0

4.2 4.2 4.3 4.4

3.8 3.8 3.6 3.8 3.8 3.9 4.0

47.8

14.4%

11.6%

8.0%

11.9%

8.0%

1.0

22.7

0.6 0.9 6.0 7.4 8.4 8.3 10.0 11.5 12.7 14.6 17.2 19.8

Radio

Source: FICCI-KPMG 2017, MOSL

7.6%

OOH

Digital

Advertising

Source: FICCI-KPMG 2017, MOSL

12 February 2018

SUN TV Network

Exhibit 29: Radio business FY17 performance

(INR m)

Particulars

SUNTV's Stake (%)

Revenues

EBITDA

EBITDA margin (%)

PAT

No. of shares (m)

EPS (INR)

Kal Radio

97.78

895

322

36.0

229

South Asia FM

59.44

1,090

321

29.4

492

1,985

643

32.4

721

394

1.8

Source: MOSL, Company

Combined

Exhibit 30: Radio business valuation

Particulars

EPS (INR)

P/E multiple (x)

Value/share (INR)

FY20E

3.6

Comments



Assuming 25% CAGR on the back of 15% revenue growth, and

margin improvement



Ascribing 25% discount to average ENIL and MBL target P/E on

FY20E



Source: MOSL, Company

Movie investment to remain low

The southern market is a high movie content market, where movies contribute 15-

20% of the GEC content compared to 7% for HSP. SUNTV has a library of ~11,000

movie titles, by far the largest among its peers. The management has indicated that

it has now scaled down movie acquisition, thanks to other broadcasters chasing

movie rights to build their southern movie libraries. We expect stable movie

acquisition cost of INR3.5b for FY18/19.

Exhibit 31: Tamil genre has the highest share of feature film content

Share of feature film content (%)

Source: BARC, MOSL

12 February 2018

SUN TV Network

EBITDA to witness healthy 18% CAGR over FY18-20…

…led by high subscription growth and shift to commission model



Despite the structural reforms of demonetization and GST implementation, SUNTV

managed to register 5% YoY revenue and EBITDA growth in 1HFY18 on standalone

basis. EBITDA margin stood at ~65%. Waning of the impact of these reforms should

only drive revenue higher.

We believe, (a) the shift to commission model, (b) digitization-led APRU increase, and

revenue/EBITDA – expect 16%/18% CAGR over FY18-20.

Revenue growth of 16%, led by steady ad and subscription growth

We expect overall standalone revenue to grow at 16% CAGR over FY18-20 on the

back of (a) 14% CAGR in ad revenue, with the shift from PP to commission model, (b)

16% CAGR in subscription revenue, driven by digitization in Tamil Nadu, and (c) IPL

revenue CAGR of 41%, led by BCCI’s renewal of telecast/digital rights and title

sponsor. We believe multiple levers of growth should allow the company to grow

ahead of the 8% revenue CAGR over FY12-17.

High subscription revenue growth coupled with shift to commission model

to be EBITDA-accretive

Overall content cost should rise over the next two years, as the management has

indicated that it will be gradually moving to commission model in Tamil Nadu. The

content cost will be expensed out (earlier provided in the form of ad inventory).

However, limited undercutting and better ad pricing compared to content providers

should allow SUNTV to generate higher EBITDA. Further, higher subscription

revenue growth, which will be a flow through to EBITDA, and incrementally higher

EBITDA of INR1.25b from IPL (compared to loss in FY17) should drive overall

profitability. We expect 18% CAGR in standalone EBITDA over FY18-20. However,

despite the jump in EBITDA, margins might expand 170bp over FY18-20 to 69.9%.

This is largely on account of higher subscription growth offsetting the impact of

content cost, which will get expensed out in the commission model.

Exhibit 32: Revenue and margins to regain momentum

79.7

75.8

69.8

72.0

70.8

67.9

25.6

68.2

69.6

69.9

Total Revenue (INR b)

EBITDA margin (%)

17.6

18.2

21.0

22.4

24.0

28.4

33.6

38.5

Source: MOSL, Company

12 February 2018

SUN TV Network

Exhibit 33: Ad revenue to grow at 14% CAGR over FY18-20

Ad and broadcast revenue (INR b)

-1

11.1

11.9

-4

11.9

12.5

13.2

12.7

13.9

15.8

18.1

YoY growth (%)

Exhibit 34: Subscription revenue to grow at 16% CAGR over

FY18-20

Total Subscribtion revenue (INR b)

5.8

YoY growth (%)

6.2

7.7

8.8

9.6

11.2

12.9

14.9

17.3

Source: MOSL, Company

Exhibit 35: Subscription revenue mix (%)

Domestic revenue

International revenue

Exhibit 36: Domestic subscription revenue to witness strong

growth

Cable revenue (INR b)

DTH revenue (INR b)

Domestic Subscription revenue growth YoY (%)

-1

17 17

Source: MOSL, Company

Exhibit 37: PAT to grow at 24% CAGR over FY18-20

PAT (INR b)

-2

-10

6.9

6.8

7.2

7.4

8.7

9.8

10.9

14.1

16.7

YoY growth (%)

Exhibit 38: Dividend payout to revive

DPS (INR)

Dividend Pay-out (%)

9.5

11.3

15.5

10.0

17.0

21.0

25.0

Source: MOSL, Company

12 February 2018

SUN TV Network

Valuation and view

Maintain Buy with a revised target price of INR1,225



With growth revival in the next 2-3 years driving standalone EPS CAGR of 24%, RoE of

33%, and steady FCF generation, the stock should continue to offer healthy upside.

We value SUNTV at 30x December 2019E EPS (~15% discount to ZEEL), arriving at a TP

of INR1,225.

SUNTV currently trades at ~19% discount to ZEEL. Despite being a regional player, this

valuation gap should reduce, as SUNTV is likely to grow at a steady pace.

Coming out from the phase of low growth

In the last five years, SUNTV was impacted by four factors: (a) high base of FY10 due

to revenue from the movie, Robot, which lead to weak growth even after fair

performance in FY11-12, (b) the TRAI directive to reduce advertising time to 12

minutes/hour in FY12 hurt SUNTV the most, as the PP-led content structure kept the

ad inventory of the producer constant, putting higher pressure on SUNTV’s ad

inventory, (c) floods in Tamil Nadu in FY15 impacted the economy and the ad

market, and (d) major regulatory changes like demonetization and GST in the last

one-two years, which impacted the ad market. We now expect revenue-led earnings

growth over the next 2-3 years.

Exhibit 39: SUNTV: PE band chart 1 year forward (x)

P/E (x)

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

35.0

32.1

26.7

25.0

20.0

15.1

9.7

5.0

Exhibit 40: Valuation based on Dec-19 EPS

Valuation

Dec-19 EPS

PE multiple (x)

Target Price (INR)

CMP (INR)

Upside (%)

INR

1,225

984

25%

Source: MOSL, Company

Source: Bloomberg, MOSL

SUNTV trading at ~19% discount to ZEEL

In 1HFY18, SUNTV grew faster (5% YoY) than ZEEL, which reported 4% de-growth.

On the EBIT front too, SUNTV outperformed ZEEL. This is despite the structural

reforms of demonetization and GST. Yet, SUNTV trades at 27x one-year forward

earnings, ~19% discount to ZEEL (trading at 33x). With growth levers in place, we

expect 24% CAGR in SUNTV’s EPS over FY17, driving RoE of 33% and steady FCF

generation. Thus, despite SUNTV being a regional player, we believe the valuation

gap vis-à-vis ZEEL should reduce. We value SUNTV at 30x December 2019E EPS

(~15% discount to ZEEL), arriving at a TP of INR1,225.

12 February 2018

SUN TV Network

Exhibit 41: FCF yield to touch new high

FCF (INR b)

FCF yield (%)

1.6

4.3

7.3

7.0

8.8

9.2

10.1

12.7

14.9

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: MOSL, Company

Exhibit 42: RoE and RoCE to reach 33% by FY20

ROE (%)

ROCE (%)

ROIC (%)

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: MOSL, Company

Exhibit 43: ZEEL v/s SUNTV revenue growth comparison (%)

-2

-10

ZEEL

SUNTV

Exhibit 44: ZEEL v/s SUNTV EBIT margins (%)

ZEEL

SUNTV

Source: MOSL, Company

12 February 2018

SUN TV Network

Financials and Valuation

Standalone - Income Statement

Y/E March

Total Income from Operations

Change (%)

Production Costs

Employees Cost

Other Expenses

Total Expenditure

% of Sales

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT bef. EO Exp.

EO Items

PBT after EO Exp.

Total Tax

Tax Rate (%)

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

FY12

17,574

-8.6

1,006

1,641

920

3,567

20.3

14,007

79.7

4,430

9,577

742

10,263

3,317

32.3

6,946

-10.0

39.5

FY13

18,176

3.4

1,552

1,771

1,085

4,407

24.2

13,769

75.8

4,132

9,637

550

10,139

-2

10,138

3,306

32.6

6,832

6,833

-1.6

37.6

FY14

20,968

15.4

1,851

1,925

2,557

6,334

30.2

14,634

69.8

4,533

10,100

792

10,847

3,678

33.9

7,170

4.9

34.2

FY15

22,431

7.0

1,692

2,037

2,558

6,288

28.0

16,143

72.0

5,878

10,265

879

11,114

3,746

33.7

7,369

2.8

32.9

FY16

23,952

6.8

1,815

2,359

2,818

6,992

29.2

16,961

70.8

4,850

12,110

1,075

13,164

180

13,344

4,646

34.8

8,698

8,581

16.4

35.8

FY17

25,582

6.8

2,165

2,563

3,485

8,213

32.1

17,370

67.9

3,911

13,458

1,456

14,903

5,109

34.3

9,794

14.1

38.3

FY18E

28,402

11.0

2,955

2,909

3,164

9,028

31.8

19,374

68.2

4,163

15,210

1,394

16,599

5,669

34.2

10,930

11.6

38.5

(INR Million)

FY19E

33,643

18.5

3,606

3,200

3,409

10,214

30.4

23,428

69.6

4,052

19,377

2,105

21,477

7,363

34.3

14,114

29.1

42.0

FY20E

38,454

14.3

4,399

3,519

3,645

11,563

30.1

26,891

69.9

4,109

22,782

2,707

25,484

8,737

34.3

16,747

18.7

43.6

Standalone - Balance Sheet

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Total Loans

Deferred Tax Liabilities

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Total Investments

Curr. Assets, Loans & Adv.

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Account Payables

Other Current Liabilities

Provisions

Net Current Assets

Appl. of Funds

E: MOSL Estimates

FY12

1,970

24,482

26,452

382

26,834

22,664

18,051

4,614

6,030

4,775

13,512

4,649

2,898

5,962

2,097

296

1,437

364

11,415

26,834

FY13

1,970

26,958

28,929

284

29,213

28,445

22,250

6,195

6,036

4,678

15,110

5,353

3,885

5,867

2,806

296

1,556

954

12,304

29,213

FY14

1,970

29,748

31,718

260

31,978

33,240

20,820

12,420

6,767

15,596

5,706

5,620

4,264

2,808

318

1,388

1,102

12,787

31,978

FY15

1,970

31,827

33,797

221

34,018

38,306

27,563

10,743

6,936

18,224

6,835

6,904

4,480

1,890

375

1,448

16,334

34,018

FY16

1,970

33,206

35,176

219

35,396

15,418

7,089

8,330

8,508

20,980

7,329

7,877

5,763

2,428

383

1,906

139

18,552

35,396

FY17

1,970

38,247

40,218

556

40,773

19,203

8,183

11,021

14,540

17,924

7,238

7,385

3,292

2,726

497

2,034

195

15,198

40,773

FY18E

1,970

41,440

43,410

556

43,966

20,703

12,346

8,357

14,540

23,914

7,698

11,183

5,022

2,861

488

2,187

185

21,054

43,966

(INR Million)

FY19E

1,970

45,995

47,965

556

48,521

22,203

16,398

5,805

14,540

31,549

9,147

16,440

5,949

3,388

578

2,590

220

28,161

48,521

FY20E

1,970

51,363

53,333

556

53,889

23,703

20,507

3,196

14,540

40,011

10,493

22,702

6,799

3,873

661

2,961

251

36,138

53,889

12 February 2018

SUN TV Network

Financials and Valuation

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

FCF per share

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Inventory (Days)

Debtor (Days)

Creditor (Days)

Leverage Ratio (x)

Current Ratio

Net Debt/Equity

FY12

17.6

28.9

67.1

9.5

62.3

FY13

17.3

27.8

73.4

9.5

63.3

FY14

18.2

29.7

80.5

9.5

60.3

FY15

18.7

33.6

85.8

11.3

69.5

52.6

29.3

11.5

16.7

23.2

1.2

17.8

22.5

22.6

34.2

0.6

0.7

111

9.6

-0.4

FY16

21.8

34.1

89.3

15.5

84.3

45.2

28.9

11.0

15.8

22.3

1.6

22.4

24.9

40.3

1.6

0.7

112

8.6

-0.5

FY17

24.9

34.8

102.1

10.0

46.5

39.6

28.3

9.6

14.6

21.5

1.0

23.5

26.0

46.7

1.3

0.6

103

6.6

-0.5

FY18E

27.7

38.3

110.2

17.0

70.8

35.5

25.7

8.9

13.0

19.1

1.7

25.7

26.1

54.0

1.4

0.6

8.4

-0.6

FY19E

35.8

46.1

121.7

21.0

67.7

27.5

21.4

8.1

10.8

15.5

2.2

32.3

30.9

71.2

1.5

0.7

9.3

-0.6

FY20E

42.5

52.9

135.3

25.0

67.9

23.2

18.6

7.3

9.3

13.3

2.6

37.9

33.1

87.7

1.6

0.7

100

10.3

-0.7

1.0

4.0

27.6

27.8

57.5

0.8

0.7

6.4

-0.3

1.0

11.0

24.7

24.8

46.8

0.6

107

5.4

-0.3

1.0

18.5

23.6

23.7

39.0

0.6

0.7

5.6

-0.4

Standalone - Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Depreciation

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

Others

CF from Operating incl EO

(Inc)/Dec in FA

Free Cash Flow

(Pur)/Sale of Investments

Others

CF from Investments

Issue of Shares

Inc/(Dec) in Debt

Interest Paid

Dividend Paid

Others

CF from Fin. Activity

Inc/Dec of Cash

Opening Balance

Closing Balance

FY12

10,263

4,430

-3,939

-1,697

9,108

-432

8,676

-7,096

1,580

636

615

-5,845

-51

-5,725

-5,777

-2,945

5,843

2,898

FY13

10,139

4,132

-4,062

-1,738

8,515

-157

8,358

-4,029

4,329

443

-3,549

-43

-3,779

-3,822

987

2,898

3,885

FY14

10,847

4,533

-2,810

-588

12,025

-440

11,585

-4,295

7,290

-2,088

841

-5,542

-43

-4,265

-4,308

1,735

3,885

5,620

FY15

11,120

5,878

-3,761

-1,174

12,080

-673

11,407

-4,375

7,033

-169

768

-3,775

-18

-6,331

-6,348

1,284

5,620

6,904

FY16

13,163

4,850

-4,550

-260

13,225

-665

12,560

-3,713

8,847

213

-715

-4,214

-20

-7,352

-7,372

973

6,904

7,877

FY17

14,904

3,911

-4,877

-14

13,934

-1,027

12,907

-3,658

9,249

-4,774

-214

-8,646

-10

-4,743

-4,753

-492

7,877

7,385

FY18E

16,599

4,163

-5,669

-2,058

13,041

-1,394

11,647

-1,500

10,147

1,394

-106

-5

-7,738

-7,743

3,798

7,385

11,183

FY19E

21,477

4,052

-7,363

-1,849

16,321

-2,105

14,216

-1,500

12,716

2,105

605

-5

-9,559

-9,564

5,258

11,183

16,440

(INR Million)

FY20E

25,484

4,109

-8,737

-1,715

19,147

-2,707

16,439

-1,500

14,939

2,707

1,207

-5

-11,379

-11,384

6,262

16,440

22,703

12 February 2018

Explanation of Investment Rating

Investment Rating

BUY

SELL

NEUTRAL

UNDER REVIEW

NOT RATED

Expected return (over 12-month)

>=15%

< - 10%

> - 10 % to 15%

Rating may undergo a change

We have forward looking estimates for the stock but we refrain from assigning recommendation

SUN TV Network

*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services,

Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed public company, the details in respect of

which are available on

www.motilaloswal.com.

MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited

(BSE), Metropolitan Stock Exchange Of India Ltd. (MSE) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) & National Securities Depository Limited (NSDL) and is member of Association of

Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are available on the website at

http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf

Regulatory Enquiries against Motilal Oswal Securities Limited by SEBI:

SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold inquiry and

adjudge violation of SEBI Regulations; MOSL requested SEBI to provide all documents, records, investigation report relied upon by SEBI which were referred in Show Cause Notice. The matter is closed and MOSL had to pay Rs. 2

lakhs towards penalty for misplacement of original POA of client.

MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have beneficial ownership of 1% or more securities in the subject company at

the end of the month immediately preceding the date of publication of the Research Report.

MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act

as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial

instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.;

however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though there

might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

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those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy,

completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the

views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval.

MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform

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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm

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Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MSE); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100.

Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth

management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real

Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products

12 February 2018