IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends “Add” Sun TV Networks .
According to IIFL Institutional Equities report, Sun TV Network’s (Sun) 2QFY13 Ebitda of Rs3.2bn (-10% YoY; +2% QoQ) and 4% YoY ad revenue growth were in line. PAT (Rs1.5bn; -16% YoY, -8% QoQ) missed our estimate by 7% on higher amortisation cost.
The management indicated that ad spend outlook has improved and it expects double-digit growth in 2H compared with 5% in 1H. We are building in ~13% growth in ad revenue for 2H.
The recently acquired Hyderabad IPL franchise is expected to break even in three years. In its first year (FY14), the company expects to contain losses within Rs300m (3% of FY14ii profit).
Sun’s stock price significantly underperformed as investors feared that adverse change in political regime would negatively impact its business. However, it has retained its dominating position in the key Tamil market, which underlines the inherent strength of its content strategy, IIFL report stated.
At PER of 15.7x FY14ii, Sun’s shares trade at ~30% discount to Zee. We expect valuation discount to peers to narrow. The improvement in ad spend outlook provides the much needed trigger. ADD, the brokerage added.
The report was published by IIFL’s Institutional Equities Research desk.
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