Sun TV - Analyst Call Takeaways

We recently met the management of Sun TV. The key takeaways from the meeting are:

Ad revenues: Although the outlook on advertisement revenues is challenging, the company expects to increase ad revenues by increasing inventory utilization (current inventory utilization level is ~50-55%). However it believes that ad rate hikes are unlikely. Sun TV had increased rates by ~10% in Feb, 2008. Broadcast fee rates depend strongly on the ad-spends scenario. FMCG (55%) is the highest contributor of advertisement revenues for Sun TV. The ad mix in terms of Regional:National is ~30:70. This has protected Sun TV as both FMCG and regional advertisers continue to remain buoyant.

DTH subscribers: Sun TV had ~3.3 mn DTH subscribers as of Dec 08. This is expected to increase to 3.8 mn by end of March ‘09. Its ARPU from DTH subscribers is INR 26 per month currently. Company expects significant ramp up in DTH subscribers and revenues in FY10.

Analogue revenues: Sun TV expects to increase it analogue subscription revenues by 15-20% in FY10.

International revenues: The company is receiving overseas revenues from Malaysia, Singapore, Canada, Sri Lanka, and UK. In the US the company is present only in the DTH distribution network, and soon expects to be carried by other digital and analog carriers also. It expects 10-15% incremental revenues from this stream. Currently Sun TV’s forex exposure is only in USD and it has benefitted from the recent appreciation of the currency.

Competition: Kalaignar TV's market share is much below compared to Sun TV (Tamil GEC). However, according to our industry checks Kalaignar TV has been able to boost its presence strongly with programming of comparable quality, which could turn out to be a potential threat for Sun TV. In the presence of these two channels others players have been further marginalized in a market which was already dominated by Sun TV.

Movie production: In the movie production business Sun TV would be closing FY09 with 6 movies, all under INR 50 mn cost of production. Out of these 6 movies, it is currently carrying 5 movies on its balance sheet - under intangibles - which will be written off after 1st broadcast. In FY10 the company plans to invest INR 500 - 700 mn in the business, producing 8-10 movies with an average return expectation of 20-25%.

Radio: In the radio business, the company expects a topline of INR 300 mn and a loss of INR 600 mn in FY09. For FY10, the company expects to reduce net loss to INR 400 – 450 mn on a topline of INR 400 mn. It is also expecting to break-even in FY11. All the stations together will be fully operational for the first time in FY10. It has been constantly cutting down on redundant expenses in the business.

Capex: On broader financial aspects – Sun TV doesn’t expect any significant surprises on the operating costs front. Cap-ex planned for FY10 is ~INR 2.5 bn (INR 1 bn for enhancing its movie library, INR 400 mn for broadcasting business, INR 100 mn for the radio business and INR 1 bn for office premises).