Subscription gains for Sun TV in a muted qtr

Company registers a 4.6% (YoY) increase in revenues to Rs 508 crore

With advertising revenues falling, it is the subscription revenues which have held up the operational performance of Sun TV in the December quarter. The Chennai-based company registered a 4.6 per cent year-on-year increase in revenues to Rs 508 crore for the quarter due to a 27 per cent increase each in subscription as well as licensing revenues.

The advertising cap, which reduced the number of minutes from 16-18 minutes per hour a year ago to about 12 now, led to the advertising revenues falling 7.2 per cent over the year-ago quarter. On a sequential basis, however, advertising revenues grew 16.5 per cent on the back of a festival season and rate increases. Advertising revenues form 53 per cent of the total revenues while direct-to-home (DTH) segment contributes 22 per cent.

Ebitda margins at 73 per cent, however, were a disappointment as content costs ballooned by 56 per cent with the company adding a couple of fiction shows in the quarter. This may however change going ahead. The management expects lower content costs and higher subscription revenues (from ongoing digitisation) to boost margins which are expected to move back to 75 per cent in coming quarters.

The Sun TV management expects FY15 to be a better year due to higher rates and content volume. Analysts, too, are bullish on the stock. Surendra Goyal and Aditya Mathur of Citi Research say the company’s dominance in south India remains solid as it remains one of the best digitalisation stories with large headroom for subscription growth. The analysts expect ad revenues to pick up as the issues about lower ad inventory are tackled, and with more focus on expansion of its smaller channels as well. While growth in advertising revenue remains key and political and legal issues are likely to remain, valuations at 16 times for FY15 earnings, according to Citi analysts, are attractive. Most analysts also believe the 40 per cent discount to Zee Entertainment is also not warranted given strong earnings growth and return ratios.

Subscription revenue strong
Subscription revenues were up from the cable as well as DTH segments. While cable revenues were up 45 per cent year-on-year, DTH revenues were up 19.6 per cent. Revenues from international subscriptions, too, were up strongly at 27 per cent year-on-year.

The Sun TV management expects an uptick in DTH revenues in the coming quarters with some agreements coming up for renewal over the next two quarters. Average revenue per user, too, is expected to go up with the quarter witnessing a growth of 3.4 per cent year-on-year.