Result Update: Sun TV Network Ltd - ACCUMULATE - TP Rs.964 - Kotak

Sun TV Network's 4QFY18 PAT came in 14% ahead of estimates. While the company's performance in the quarter has been strong, leading to a 3%/4% upgrade in our earnings estimates for FY19/20, we retain a cautious stance on valuations, due to deteriorating competitive position of the company in its key geographies. Upgrade to ACCUMULATE (REDUCE earlier) as the stock has declined about 10% since our last update. Our price target is reduced modestly to Rs 964 (Rs 994 ealier).

Key Highlights

Sun TV Network reported strong financials for 4QFY18. Advertising revenues registered 23% y/y growth, helped by stronger adex in the quarter. Domestic cable revenues registered 46.5% y/y growth on the back of stronger monetization in DAS geographies as well as a new deal with Arasu Cable. DTH revenues grew 20% y/y.

Reported EBIT margin was 3.2 ppt ahead of estimates as a result of revenue beat as also lower expenses. Reported PAT came in 14% ahead of our estimates.

Valuation & outlook

We are wary of factoring in high advertising and subscription revenue growth for the company while the company faces competitive pressures. We factor in 13%/9% revenue growth for Sun TV Network, as we believe the company's advertising and subscription revenues are likely to be impacted by the rising competition in Tamil Nadu, when combined with the (already) weakened position of the company's entertainment channels in other South Indian markets.

We value Sun TV Network at 27X FY20E, a four turns discount to Zee Entertainment, and arrive at a price target of Rs 964 (Rs 994 earlier). We upgrade the stock to ACCUMULATE.

Shares of SUN TV NETWORK LTD. was last trading in BSE at Rs.979.5 as compared to the previous close of Rs. 967.3. The total number of shares traded during the day was 100958 in over 1967 trades.

The stock hit an intraday high of Rs. 982.85 and intraday low of 955.2. The net turnover during the day was Rs. 98082012.

Source : Equity Bulls

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