Stock Market Result Update on SUN TV Network for 2QFY2012

Stock Market Result Update on SUN TV Network for 2QFY2012 with an Neutral recommendation.

SUN TV (STNL) reported a muted performance for 2QFY2012. We have marginally tweaked our revenue and earnings estimates due to slowdown witnessed in ad revenue growth. Although we have a positive outlook on the company’s business, we remain Neutral on the stock due to uncertainties surmounting the company.

Key highlights of the quarter: For 2QFY2012, STNL posted muted top-line growth of 6.2% yoy (down 0.6% qoq). The company’s earnings recorded modest growth of 7.6% yoy (down 4.0% qoq). Apart from ad income, subscription income from analogue and broadcast fee, all revenue streams delivered double-digit growth on a yoy basis. During the quarter, STNL released two movies. On the operating front, the company’s margin expanded by 275bp yoy due to reduction in other expenditure and staff costs during the quarter.

Outlook and valuation: We expect STNL to post a CAGR of 14.3%, 8.7% and 8.1% over FY2011–13E in its advertisement revenue, EBIT and earnings, respectively. We believe the recent not-in-favor incidents still are an overhang on the company’s stock. Accordingly, we believe the stock price would remain
range-bound. Nevertheless, we remain positive on the company’s business, considering its vast dominance in markets in which it is present. At the CMP, the stock is trading at 12.6x FY2013E (below its median of 23x). We maintain our Neutral stance on the stock.