TV equipment sits on the digitization floor. (Photographer: Troy Harvey/Bloomberg)

Falling Market Share Doesn’t Shake Analysts’ Faith In Sun TV

Analysts retain faith in Sun TV Network Ltd. even as rivals chip away at its domination of the regional Tamil market.

Shares of the media company fell close to 20 percent since its last peak on May 16, after its viewership hit lifetime lows amid a dispute with Arasu, the state-run operator of multiple cable and direct-to-home systems. The decline provides a good buying opportunity for investors given the growth fundamentals, according to analysts.

Sun TV continues to be the leader in Tamil markets with an overall 56 percent market share, according to a CLSA report citing BARC India data. But that has dropped from 71 percent last year. Star and Zee gained viewership share during the period, posing a challenge to the leader.

The share of Sun TV’s flagship Tamil general entertainment channel continued to slide: from 44 percent in April to 42.4 percent in May and to 40 percent in June. That compares with 55 percent a year ago.

Sun TV declined to comment citing silent period ahead of earnings, while BloombergQuint’s emailed queries to its rivals remained unanswered.

It’s viewership fell in part because of its dispute with Arasu. The carrier had issued a disconnection notice to Sun TV Network on May 11 for not concluding price negotiations in May. The channel’s analog signal was switched off for 10 days.

The content deal with Arasu for analog subscribers has been resolved now, Citi Research said. Concerns around Sun TV Network’s recent ratings declines, particularly in the key Tamil market earlier in June, appear temporary given Arasu’s action, it said.

The stock has a 71.1 percent ‘Buy’ rating from analysts tracked by Bloomberg; 22.2 percent suggest ‘Hold’ and 3.7 percent recommend ‘Sell’. The consensus target price of Rs 1,088 apiece suggests an upside of 42 percent.

Brokerages including Citi Axis Capital and Antique Stock Broking expect steady advertising revenue and strength in subscription income to sustain. In the near term, the earnings delivery is expected to be healthy, Citi said. All three expect it to gain from a Tamil channel the company plans to launch to target a younger audience. Sun TV also plans to launch Marathi and Bangla channels.

Viewership ratings will remain important, Citi said. Sun TV has lost its share year to date but remains the most relevant broadcaster in any advertisers’ plan in Tamil Nadu, it said.

Yet, analysts cited falling market share and spending on new channels among risks. Loss in viewership due to competition from high-rated shows like Big Boss by Star Vijay remains a concern, Antique Broking said. It’s planned entry into Marathi and Bangla markets will cause “near-term losses”, according to Axis Capital.

Here’s what brokerages had to say about the company:

Citi

  • Maintained ‘Buy’ with a target price of Rs 1,145—an upside of 49 percent.
  • Expect steady advertising revenue in the quarter ended June.
  • Digitisation of services in Tamil Nadu to increase subscription revenues by Rs 400 crore by March 2020, and boost IPL franchise business.
  • Exposure to FMCG advertising spend remains high at 50-60 percent.
  • Seen better ratings in last few weeks despite competitor Star’s reality show Big Boss
  • Launch of a second Tamil channel a near-term trigger.
  • Expect 13 percent and 19 percent annualised growth in revenue and earnings per share in the next two years.

Axis Capital

  • Reiterate ‘Buy’ but lowered price target to Rs 1,200— an upside potential 56 percent.
  • Content deal with Arasu for analog subscribers in place now.
  • Expect ad revenue to rise at 13 percent CAGR in three years to March 2020 on healthy FMCG spends.
  • Subscription revenue to grow at 23 percent CAGR, led by digitisation
  • Launch of a channel focusing younger audience in the quarter ending December.
  • Additional content costs for the channel to be limited as it will use the existing movie inventory.
  • Management targets to enter either Marathi or Bangla language markets in the quarter ending March 2019.

Antique Stock Broking

  • Maintained ‘Buy’ with a target price of Rs 1,200—upside potential 56 percent.
  • Issues with Arasu resolved, viewership numbers are back.
  • Launch of new flanking channel in the quarter ending September to help increase market share and compete with high-rated shows like Big Boss
  • To launch several new shows in the ongoing financial year, including a reality show by September end and two new shows each in Kannada and Telugu
  • New launches to increase content costs by Rs 25-30 crore during the year.
  • Expect to recover costs through higher air time and advertisements.
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