Stock Review: Sun TV Network

 

Short-term investors can book profits at current market price of Sun TV Network, given the big run-up in the stock and absence of immediate growth trigger

   SHORT-TERM investors may exit the stock of Chennai-based largest media and entertainment company Sun TV Network. At present, the company's stock seems overvalued. Its stock has already factored in the good performance it demonstrated in the June 2010 quarter. The stock has appreciated by around 25% to 464 in the past six months. We believe that the stock at this price is a good level to book profits. In the short term, the performance of Rajnikanth-Aishwarya Rai Bacchchan starrer Tamil film Enthiran may impact its stock movements considering the scale and star pull of the film.

BUSINESS:

Sun TV Network is one of the largest television and radio entertainment companies having a singular dominant presence down the South. At present the company has a portfolio of 20 channels across four south Indian languages— Sun TV (Tamil), Gemini TV (Telugu), and Udaya TV (Kannada) and Surya (Malayalam) covering six genres—general entertainment, news, music, films, kids and comedy. The company also has interest in film distribution, direct to home (DTH) and radio business.

   It recently formed a joint venture distribution company with Network 18 called Sun 18 that would distribute 33 channels across cable, DTH, and IPTV among others mediums.

   This distribution arm would help secure company entry in a big into the northern market and going forward it would definitely boosts the company's analogue and DTH revenues. In addition to this, the company since the June 2010 quarter would have all its channels transit from 'free to air' to 'pay' mode.

   This would enhance its topline going forward as Sun Network enjoys high loyalty of subscribers down the South and an increasing base of subscribers on a pan-India basis. In fact, on a year on year basis, the company saw an 84% increase DTH subscription revenues to 68 crore. This shows that the company is able to boost its subscriber base and going forward the high subscriber loyalty factor would continue to drive its topline. Though the Sun 18 project is in its early stages, it would strengthen its presence on a pan-India basis and it would take at least two years to see consistent revenues. Going forward, the company would see sustained flow of revenues from these two things. This augurs well for the company and its long-term investors.

FINANCIALS:

In the June 2010 quarter, the company's net profit jumped by 42% to 170 crore from 119 crore in the same period last year. On a year-on-year basis, the company's net sales grew by 53% to 440 crore in the June 2010 quarter. Buoyant advertising situation and increasing subscription revenues enhanced this growth of 53% in the company's net sales. On a y-o-y basis, of the total sales of 440 crore, advertising revenues grew 50% at 222 crore, broadcasting revenues grew 16% at 35 crore, analogue cable subscription revenues grew 42% at 51 crore, DTH subscription revenues grew 84% at 68 crore and movie distribution revenues grew 118% at 48 crore. Also on the operational front, the company's operating profit grew by 61% on a y-o-y basis to 361 crore.

VALUATION:

The company's stock is, at present, trading at a price-to- earnings ratio of 29 times. The company's stock is yielding earnings per share of 15. Its immediate peer Zee Entertainment Enterprise is trading at a price to earnings ratio of 28 times and its stock is yielding earnings per share of 10.

   Considering its regional dominance with all its channels now in pay mode, zero debt, a good dividend paying record makes Sun TV a long-term bet. However, short-term investors can book profits at current market price considering no immediate trigger for the company.