Ad revenue growth in FY17 trigger for Sun TV

It has been muted for past three quarters; however, Q1 results in line with expectations

The Sun TV Network scrip slipped four per cent this week after its advertising growth in the June quarter fell 2.7 per cent over a year to Rs 315 crore, due to a decline in ratings in non-Tamil markets.

There has been pressure on ad revenue growth over the past couple of quarters, with the March quarter recording a 5.6 per cent fall, while the December quarter saw a growth of 3.9 per cent. Despite the strong showing in the first two quarters of FY16, which saw ad revenue growth of 15 per cent each, the metric for FY16 was at 6.6 per cent. Analysts have, thus, cut their advertising growth estimates by 200 basis points (bps) for FY17 to nine per cent.

Despite the disappointment on the advertising front, the company’s results were in line with estimates, as cable subscription revenue grew 37 per cent over a year to Rs 74 crore and DTH (direct-to-home) revenue were up 16 per cent to Rs 158 crore, led by Phase-III digitisation, over the year ago-period. However, the company expects growth in the cable segment to be in low to mid teens in FY17.

With Sun Risers Hyderabad winning the Indian Premier League (IPL) cricket tournament, revenue in the June quarter from the IPL segment grew to Rs 144 crore, compared with Rs 96.5 crore a year ago. However, the IPL segment loss stood at Rs 31.8 crore, against Rs 56.5 crore a year ago.

Going ahead, participating teams will have to pay a fixed licence fee of Rs 85 crore for one more season, as from FY19, it will convert to a revenue-sharing arrangement pegged at 20 per cent of revenue. Emkay analysts say the IPL segment will earn profit before tax from FY19, while quantum will depend on the fee sharing by the broadcasters in new contract.

On advertising, the company could see an improvement in the second half of FY17, on the back of higher focus on fiction and non-fiction content and commission-based content model. The company has implemented these strategies and launched 20 new programmes in the June quarter. Rating improvement in Telugu and Malayalam markets and price rise in Tamil market are crucial and should aid in ad revenue growth.

At the current price, the stock is trading at about 18 times its FY17 estimates. While there could be an uptick in ad revenue growth, investors should await for clear growth trends before taking an exposure to the stock, which has gained 30 per cent over three months.