Sun TV’s ratings in key markets like Andhra Pradesh and Karnataka appear to be stabilising after showing a downward trend towards the end of the last financial year. That’s probably why in a difficult environment, the broadcaster has managed to grow advertising revenues by 8 per cent year-on-year in the June 2009 quarter despite having been impacted by the IPL cricket tournament.
Revenues at Rs 288 crore, higher by 29 per cent year-on-year, were boosted by better subscription revenues, up 71 per cent, on a low base. Sequentially, though, subscription revenues were up just 4 per cent even though direct-to-home (DTH) revenues grew 17 per cent because cable revenues fell. Sun now has a fairly large base of 4.8 million DTH subscribers.
While the operating profit grew at 33 per cent, the profit after tax was up just 17 per cent. That’s because the quarter saw higher depreciation costs with costs of films released being amortised and also because of film rights acquired for the broadcasting business.
Sun Pictures has got off to a great start with some medium and small-budget films that have been hits at the box office, though its other business, FM radio — it now runs 42 FM stations — is yet to make money. While a part of the business (Kal Radio) is expected to break even this year, South Asia FM could continue to be in the red for some more time.
Sun TV is in an enviable position in the fast-growing southern market, being the market leader in three out of four states. As a result, it is also better positioned than rival broadcasters to cash in on the growing DTH subscriptions. However, while the economy is no doubt on the mend, the advertising market could take a while to pick up and therefore revenues could be muted this year.
Also, though Sun is the market leader in both Kannada and Telegu markets, they remain highly competitive. Analysts are concerned that the company is investing in the radio business, which could create limited value, and also point out that as it makes bigger films, the risks can only increase. They’re also apprehensive the broadcaster may venture into the Hindi general entertainment space via an acquisition. At Rs 271, the stock trades at just over 23 times estimated 2009-10 consolidated earnings and is not cheap.
