SUN TV Network: Revenue growth set to take off; Digitization gains accruing, finally
(SUNTV IN, Mkt Cap USD6.1b, CMP INR984, TP INR1225, 25% Upside, Buy)
- 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.