Sun TV shines on IPL fee change, digitisation; party time ahead?

Sun TV’s IPL franchise has completed 10 years this year, which qualifies it to alter the franchise fee structure from a fixed rate to 20 per cent of revenues. NSEBSESun TVLoading data…

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    ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIESEdelweissLoading data…

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        ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIES NEW DELHI: Sunrisers Hyderabad ended up a distant third in the 2017 version of IPL, India’s domestic cricket league, this April. But its owner Sun TV emerged a clear winner in business growth and share price appreciation.

        The icing on the cake for the company came in the form of digitisation of cable TV distribution with the state government of Tamil Nadu, Sun TV’s home turf, distributing set top boxes free.

        Several domestic brokerages since turned bullish on the company’s business prospects. In the runup to the bidding for five-year media rights in IPL, the Sun TV stock rose 20 per cent in a week after having risen just 3 per cent in last one quarter. Star India bagged the right for a staggering Rs 16,347 crore.

        IPL has completed 10 years this year and now the franchise fee structure will be altered from a fixed rate to 20 per cent of revenues.

        Brokerage Edelweiss Securities is not sure if IPL will be profitable for Star India, but expects Sun TV to be a clear winner as higher media and sponsorship rights would bolster its revenues.

        “Sun TV paid fixed franchise fee of Rs 85.5 crore earlier, which will change to 20 per cent of revenue now. Assuming similar revenue trends (pari passu), that is Rs 150 crore per year, the franchise cost will come down to Rs 30 crore. Thus, Sun TV will see Rs 50 crore increase in Ebitda,” the brokerage said.

        ICICIdirect.com estimates the typical share for an average team at Rs 65-70 crore per annum. From 2018 onwards, BCCL will share 45 per cent of revenues with franchisees.

        “We estimate the average annual franchisee share at Rs 180 crore from FY19E, resulting in incremental revenues of Rs 110 crore per annum. Consequently, we expect Sun TV to post IPL revenues – share from revenues, sponsorship, ticket sales, prize money – of Rs 250 crore, and Ebitda of Rs 110 crore in FY19E against earlier estimates of Rs 30 crore,” it said.

        Bigger kicker

        Sun TV is also expected to see gains in core business. Media reports suggest the company’s viewership share fell below 50 per cent for the first time in a decade, but analysts say this is a temporary trend.

        In an August note, Centrum Broking was modelling 12 per cent ad growth for FY18 and said the recent rating drop in the Tamil market was temporary in nature, and was because of one reality show.

        “We expect operating margins to trend upwards on the back of double-digit ad growth and strong subscription revenues due to digitisation,” it said.

        Some analysts project Sun TV’s analog revenue at Rs 4 per month per subscriber, which is one-tenth of DTH revenue (Rs 40) and thus digitalisation offers huge upside potential over the long term.

        State-run Arasu Cable, which has been granted provisional DAS licence, has started distributing set-top boxes in the state and it now has 70 lakh subscribers on its network.

        “Digitisation would lead to monetisation of 17 million analog homes. The management expects exponential upside from digitisation. Hence, we raise our subscription revenue estimates for FY19 to Rs 1,348.9 crore (19.4 per cent CAGR in FY17-19E) from an earlier estimate of Rs 1,266.9 crore, partially factoring in some digitisation benefits from FY19E onwards,” ICICIdirect.com said.

        Edelweiss Securities has a target of Rs 1,051 on the stock. ICICIdirect sees the stock at Rs 830. Centrum Broking expects the stock to hit Rs 840 and has a neutral to positive view on the stock.

        The stock traded at Rs 840.45 in Wednesday’s trade.

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