Stock Market

After Amma’s win, Sun TV’s going gets tough: Edelweiss Sec

When DMK was in power, Sun TV ‘s advertising and subscription growth rate was superior as opposed to the last five years when Jayalalithaa’s AIADMK was in office, said Abneesh Roy, Associate Director at Edelweiss Securities.

In the last five years, channels like Start TV, Zee TV and Colors TV have captured major viewership and subscription market share, and Roy maintained that Sun TV will have a tougher time going ahead.

Sun TV’s growth rate, which was once into double-digits, is now below industry standards.

The ad revenue for the channel has fallen to a single-digit, while Zee TV saw a 25 percent ad growth in FY16.

Roy advises the channel to invest more in the content like other channels to expand and strengthen its foothold in the region.  

Below is the verbatim transcript of Abneesh Roy’s interview with CNBC-TV18’s Mangalam Maloo and Reema Tendulkar.

Mangalam: Is there a correlation between who is at power in Tamil Nadu along with the revenue performance of Sun TV and with AIADMK coming back to power in Tamil Nadu is there a case for revision in your estimates for Sun TV?

A: Clearly most of the pre-poll exit polls were saying that Sun TV will win but it has become opposite. If I see when DMK was in power the growth rate of Sun TV in terms of both advertising and subscription were far superior to what we have seen in the past five years when AIADMK has been in power. If you see the Sun TV management maintains it doesn’t really matter which party is in power because what ultimately matters is viewership, how subscription is.

Having said that if you see clearly for the stock it is sentimentally negative. The stock had rallied post the exit polls by 12-13 percent and the entire things has reversed today. Our numbers if you see obviously there is not going to be any change because we were not factoring in DMK-AIADMK because it was post the Q3 we had come out. So, those numbers will not see a cut but clearly for the stock it is sentimentally negative. In the past when growth rate has been far superior when DMK was in power. Clearly content domination and even in terms of subscription Sun TV was really strong. In the past five years we have seen Star, Zee and Colors take market share in quite a few of markets in which Sun TV operates. So, in Karnataka if you see Colors is very strong and then in Andhra Zee has really done well and now Star with MAA acquisition is definitely also in a stronger position and in Tamil Nadu if you see Zee and Star are prepared for the longer haul. So, definitely things will be a bit tougher with this development of today.

Reema: Could you give us the compound annual growth rate (CAGR) growth rates of advertising as well as subscription under the DMK rule for Sun TV as well as under AIADMK just to get a sense of how growth rate have got impacted?

A: In the DMK regime if you see Sun TV both in terms of advertising and subscription was going in strong double digits. While in the last few years if you see Sun TV\’s growth rate has been below industry levels. Last two-three years Sun TV\’s ad growth has been in single digits, while Zee its peer in FY16 saw almost 25 percent ad growth. In Q4 it almost saw 28-29 percent ad growth. Even in the previous year Zee had grown ahead of Sun TV partly definitely because of market share erosion.

What Sun TV now needs to do in the current context is go back and invest more in terms of content. If you see the competition is launching more high-definition (HD) channels etc and then content wise also if you see Zee and Star have much bigger bouquet and much more geographies under control. So, they understand the markets and they bring contents from one market to the other. So, clearly content investment has to be there. Near term market margins could come under pressure if Sun TV but it is very important for Sun TV to go back in terms of content. So, clearly the CAGR in the last five years has been much lower, high single digits versus double digits in the previous regime.

Mangalam: You keep telling that Sun TV has lost some market share and at the same time the ad revenue growth has been minimal. At the same time you said that Zee is also showing good performance. But all of that is in the price. So, Sun TV trades at around 15 times while Zee trades at above 30. So, is there a case for that valuation gaps to narrow or do you think that will be there for a while?

A: In December quarter clearly Sun TV had someone offs because of the floods in Chennai and other parts of Tamil Nadu. So, they reported some low single digit ad growth. I expect in March quarter the ad growth should be better but still it should definitely lag versus the reported growth of Zee. So, what Sun TV rerating can happen from here can be if the ad growth revives to at least double digit the industry is growing at 13-15 percent in terms of ad growth.

Clearly FMCG, telecom, auto, durables, those sectors are reviving and strong FMCG remains an evergreen sector in terms of advertising. So, unless that happens yes, valuation comfort is there but in terms of rerating clearly the ad growth has to revive to double digits. So, that is something which is required. Having said that Sun TV’s viewership because of the new BARC ratings has been very good. So, they would need to really now augment in terms of market share also because that is what will drive in other markets. For example as per new BARC ratings clearly Sun TV is doing well in Tamil Nadu but in rest of the three markets clearly market share is a concern.

Reema: If someone has to play the large media stocks, say it is a choice between Sun TV and Zee. Right now Sun TV is underperforming Zee. In the last six months the chart was showing that Sun TV has underperformed Zee by nearly 15 percent over the last one year. The underperformance is to the tune of about 30 percent. Which one would you recommend picking now?

A: Clearly we continue to like Zee more. Zee is our brave heart pick and it has done extremely well. From almost 135 level it is now close to 430 level in term of brave heart initiation and the current prices. So, we continue to prefer Zee in spite of the premium valuation s because clearly Zee is investing into HD, more genres, expanding into new markets internationally. So, as I said there has to be reason for Sun TV to rerate. So, unless they show double digit ad growth on a sustainable basis from a one year perspective you would continue to prefer Zee in spite of the premium multiples.

Mangalam: Raj TV is another south Indian channel which has been buzzing around. In fact today it has locked in an upper circuit. Any particular reason for that?

A: No particular reason. It is not really a major player in Tamil Nadu market. Having said that if DMK would have come to power maybe things would have been a bit more different because DMK also has its own channel and Sun TV is also very strong there. So, it is not a major player in market. It is a near term move but Sun TV and Star dominate most of the southern markets apart from Zee and Colors. So, Raj TV is a very fringe player in that market.