Sun TV looks at a bright future

Gains from IPL and digitisation in tier-III, -IV cities to be much higher

The stock of Sun TV gained 16 per cent in two trading sessions on expectations of a faster turnaround in Indian Premier League (IPL) segment performance in FY19, especially after STAR India’s record IPL media rights deal, and growth in revenues from digitisation in Tamil Nadu.

STAR India on Monday won media rights for the IPL for a period of five years on a bid of Rs 16,347 crore. 

A record bid will help Sun TV, owner of the Sunrisers Hyderabad team, as revenues from media rights and sponsorships are shared between the IPL and its franchisees.

The share of franchisees is currently pegged at 50 per cent. CLSA in a recent report had indicated incremental profit of Rs 31 crore for Sun TV, if the media rights were sold for a total of Rs 12,500 crore. Given that the final bid was 30 per cent higher than this estimate, analysts expect the net profit number from the IPL segment to be much higher in FY19. In addition to the revenue upside, what will help the company is reduction in franchisee fees to 20 per cent of their revenues, instead of the fixed-fee model earlier.

Since FY14, when Sun TV took over the franchise, revenues have ranged between Rs 92 crore and Rs 151 crore, while costs have been in the range of Rs 142-175 crore, resulting in a loss for the company. Most analysts had pegged the FY19 revenues from the IPL to be in the range of Rs 160-180 crore.

Given the higher bid and falling costs, revenues could top Rs 250 crore, while net profit could be in the range of Rs 90-100 crore, if CLSA’s estimates prior to the auction are anything to go by. The brokerage had estimated a revenue of Rs 210 crore and a profit of Rs 83 crore on a winning bid of Rs 12,500 crore. 

The bigger trigger for the stock is expected to come from digitisation in Tamil Nadu. Analysts at Edelweiss say the extensive reach of Sun TV in Phase-III and -IV areas is a key long-term positive with digitisation in Chennai and Coimbatore giving it a bigger boost. For example, Sun earns Rs 3.5 from subscribers of Arasu Cable Network, while ARPU (average revenue per user) per month from digital cable distributors is Rs 25 and Rs 42 from DTH players. 

The stock, which had re-rated after a special court acquitted its promoters in the Aircel-Maxis case, could see some upgrades both on account of the record IPL bid as well as digitisation gains.