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Help Arasu issue overhangs SUN TV
Sun TV Network reported lower analog cable revenue, in line with our expectation, due to lack of a deal with Arasu Cable. However, the management has clearly indicated that discussions with Arasu are in the last lap and a deal would be inked in soon.

The ad slowdown continued and revenues declined by 9% y-o-y while ad and broadcast (combined) declined by 5% y-o-y in Q4FY12. Jump in other expenditure and cost of revenue led to a 216 bps decline in Ebitda margin. The overhang of the Arasu issue on the stock persists hence we maintain the stock under review

Sun TV’s revenue fell ~7% y-o-y to R4,27 crore in Q4FY12, largely in line with our expectation. The fall was led by ~45% y-o-y decline in analog cable revenue due to lack of a deal with Arasu Cable and ~9% fall in ad revenue. With the analog cable revenue already under severe stress, the management is hopeful that digitisation will drive the subscription revenue growth.

Overseas operations have improved in Q4FY12 with the company recording ~29.4% y-o-y jump in revenues. PAT declined ~23.7% y-o-y primarily due to a 57.5% jump in depreciation and amortisation costs.

The ad revenue situation continues to be a concern for Sun TV. The company is adopting a wait and watch policy about the latest Trai regulations, which mainly restrict ad duration. According to Sun TV, the contraction in viewership ratings is temporary and it will continue to spend on content.

Even though the ad scenario remains a concern in the near term, we believe that Sun TV has the wherewithal to improve its ad revenue performance with a slight improvement in the economy. We continue to like Sun TV’s near monopolistic market standing and presence in high growth regional markets. However, we will keep a close watch on the regulatory action by the Tamil Nadu government. We continue to wait for clarity on these matters before reviewing our recommendation.

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