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Company Review: Sun TV Network
Sun TV Network’s (Sun TV’s) Q4FY09 results were in line with our expectations. Revenue for the quarter reported a healthy growth of 12% y-o-y to Rs2,759 million.

This was contributed by a 6% y-o-y increase in the advertisement revenues and Rs180 million from the movie segment. However, the real fillip came from the DTH-based revenues which stood at ~Rs360 million for the quarter.

Operating profit margins are not strictly comparable as Q4FY08 included a one-time charge of Rs310 million. Also, the company has reclassified its cost of movie amortisation, now to be clubbed along with depreciation and amortisation.

This resulted in the company reporting an operating profit margin of 81.8% for the quarter. Accordingly, the net profit for the quarter grew by 24.7% y-o-y to Rs1,140 million.

In Q4FY09, Sun TV had 4.4 million DTH-based subscribers, as compared to 3.3 million in Q3FY09. For FY09, total DTH-based subscription revenues for the company stood at Rs840 million.

The company expects its DTH subscriber base to touch 6.25 million by the end of FY10, resulting in doubling of DTH-based subscription revenues to ~Rs1.5bn in FY10.

Fund Infusion

South Asia Multimedia Technologies (SAMT), which currently owns 6.98% in South Asia FM (SAFM), is mulling to hike its stake to 20% in the subsidiary company of Sun TV. With this transaction, Sun TV’s stake in the subsidiary is likely to drop to 60% from 65% held currently.

The transaction will result in a fund infusion to the extent of Rs0.75-Rs1 billion, effectively valuing Sun’s stake in the subsidiary at Rs3,456 million (at the lower band of the estimated fund raising amount).

SAFM’s per share value contribution to Sun TV’s stock price comes to Rs7 per share. Sun TV’s other subsidiary Kal Radio is expected to see an EBITDA breakeven in FY10. Sun TV has guided its share of losses in the overall radio business at Rs400-450mn for FY10.

Outlook and Valuation

Sun TV’s core business stands firm despite the industry-wide slowdown. The company has guided for 12-15% growth in the ad revenues for FY10.

However, the same has a potential upside with an up-tick in the utilisation of newly launched channels and a possible ad rate hike in H2FY10.

Steady growth in DTH-based subscription revenues and ability to deliver on new business as per guidance (movie business RoI of 15% in FY09) lends us further comfort.

With cash on book of Rs3.3 billion and price to earnings trading at 21.4x FY10E and 17.9x FY11E, we maintain our ACCUMULATE rating on the stock.

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