Bank of America resumes coverage on Sun TV Network with a Buy’ rating and a target price of Rs 480. The target price is based on 24x FY12E in line with 2-year earnings CAGR. The `Buy’ rating takes into account:
(1) strong earnings CAGR of 24% during FY10E-12E driven by faster growth in advertising spends in regional markets and strong growth in subscription revenues,
(2) Sun TV’s leadership position in the south Indian market, making it more resilient to an economic downturn versus peers and
(3) premium valuations are sustainable given higher margins and return ratios.
With Sun TV offering a bouquet of 20 channels and occupying the top slot in terms of market share in three - Tamil Nadu, Karnataka and Andhra Pradesh - of the four regions, it remains the prime choice for media planners. Given its leadership position and premium pricing, its revenue stream is more resilient to a downturn in the macro economy than peers. The stock is trading at a premium of 15% to peers such as ZEE, and is sustainable given superior margins and return ratios. We forecast strong 24% earnings CAGR during FY10-12E.
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