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Since the announcement of its second quarter results on November 3, Sun TV Network's share price has gained 11 per cent in the market, closing at Rs 289.60 on Tuesday after touching a high of Rs 294.30. The stock, which had tumbled on news of a CBI probe into Mr Dayanidhi Maran's offices and residence, has recovered since then.
The company has reported a 6 per cent year-on-year rise in turnover at Rs 451 crore and 8 per cent growth in net profit at Rs 180 crore despite concerns over the slowdown in ad market and the impact of Arasu Cable services in Tamil Nadu on the its subscription revenue. Though, the company has posted a good overall performance during the quarter, in spite of an adverse macro environment, there remains an overhang of judicial impact, say analysts.
Ad growth
The company reported ad growth of 2 per cent year-on-year against 4 per cent growth in Q1 – which according to analysts is disappointing. However, they say this was due to the overall slowdown in the macro-economic environment leading to lower media spends.
For example, FMCG major Hindustan Uniliver's ad spend as a percentage of sales declined by 200 basis points to 11.8 per cent in Q2. So, with the first half growth now at 3 per cent on a weak macro environment, the full-year ad growth is expected to be in the range of 7 per cent in 2011-12 and 11 per cent in 2012-13 from 15 per cent earlier.
Subscription revenue
Subscription revenues of the company grew 2 per cent during the quarter compared with the corresponding previous year quarter. Cable subscription revenues declined by 13 per cent – impacted by the launch of Arasu Cable services. “In fact, Q2 reflects only one month of operations of Arasu Cable and, pending negotiations, Q3 revenues could see a further drop,” says Bank of America - Merrill Lynch report.
While Sun TV – being the largest regional broadcaster with a strong presence in the four regional markets in the South – it is the market leader in three of the four regional markets and commands a premium pricing over peers. Though it's market share in Tamil Nadu fell after the launch of Arasu, it is still at “a healthy 60 per cent.” This is evident from the fact that the channel's DTH subscription revenue grew 13 per cent year-on-year to Rs 79 crore during the quarter from Rs 70 crore in the comparable previous year quarter.
The company's balance sheet as on September 30 shows certain strains on working capital, says Kotak Securities in its analysis. As per the company, debtors have come in higher on account of longer collection periods for advertisers and DTH operators; and the company shall work to correct the situation in the coming quarters, it adds.
On the other hand, the management clarified that it has already paid off “a significant amount” of debt – leaving only Rs 45 crore debt on the books as of now, says the analysis report.
A new channel
During the quarter, the company released two movies. Besides, it launched a new kids' channel in Malayalam – Kochu TV, which, as per the TAM ratings, has gone on to become the third most-watched channel in Kerala within the first few weeks. The management has also indicated that a few more launches could be expected in the months to come.
Considering all these, while some analysts remain “neutral” on the company's future, some bring it “under review.”
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