INSUBCONTINENT EXCLUSIVE:
JM Financial has a buy call on Sun TV Network with a target price of Rs 975.
The current market price of Sun TV Network is Rs 800.20.
Time
period given by the brokerage is one year when Sun TV Network price can reach the defined target
View of the brokerage on the company:Sun delivered EBITDA as well as PAT beat of 10 per cent in 1QFY19, thanks to significantly higher IPL
EBITDA; the company also announced capping of FY19 promoter compensation at the FY18 level [Rs 1.76bn]
We raise our DCF-based target price to Rs 975 (Sep-19) from Rs 875 (Jun-19), and upgrade our stock rating to BUY from Hold
The Rs 100/share increase in our TP is driven by: (1) higher value of IPL cricket franchise [adds Rs 30]; (2) reduction in promoter
compensation [+45]; and (3) DCF-rollover to Sep-19 from Jun-19 [+28]
We raise our FY19E EPS by 6.4 per cent to Rs 38.1 and now forecast EPS growth of 32 per cent for FY19, followed by c.17 per cent CAGR over
At Rs 779, stock trades a 1-yr forward P/E of 19.2x compared to trailing six-year average of 19.6x; at our 975 DCF value in Sep-19, Sun
would trade at forward P/E of 20.2x
Initial losses from launch of new GECs (Bangla, Marathi, second Telugu) and repositioning of Sun Life (Tamil) may shave-off 4-5 per cent (Rs
2/share) from our FY20 EPS forecast, but need not dilute DCF value materially, given potential for higher ad revenue growth
Downside risks are: (1) faster erosion in viewership of flagship Tamil GEC; and (2) promoter compensation getting reinstated to previous
lower domestic subscription revenue [DSR] and higher movie amortisation cost [MAC], 1Q adjusted EBITDA was c.10 per cent higher, as IPL
EBITDA of Rs 2.0bn came in well above our 1.1bn forecast
broadcast fee) were up 16 per cent yoy and came in c.1 per cent higher
Excluding one-time bonus of Rs 130mn (paid to long-serving employees), core EBITDA was 4.4 per cent lower
1Q PAT was Rs 4.1bn (EPS: Rs 10.4) and Sun declared interim DPS of Rs 5.0 (48 per cent payout)
1Q cash balance was 22bn.
IPL franchise significantly more valuable than previous estimates: Sun delivered IPL revenues of Rs 3.9bn and
We forecast an 8-10 per cent decline in IPL EBITDA in FY20, followed by steady 6-7 per cent growth thereafter
Our IPL forecasts throws up a Sep-19 NPV of Rs 23.3bn, which adds Rs 59/share to our 975 TP, as against Jun-19 valuation of Rs 10.8bn
Thus, we model comp to grow at the average of CPI rate (5 per cent assumed) and sales growth rate, which yields a 6.3 per cent CAGR post
Reversion to older formula would knock off Rs 45 from our TP.
