Sun TV Network - Investment Thesis

ChaitanyaC · September 15, 2021, 12:36am

Just like any other product company which manufactures or designs products, I think the focus should be on the programs and content Sun produces and their target audience.

20 years ago there were serials which were watched by lacs of people, thereby giving the channels the chance to get more ads or more revenue per ad, considering the popularity of the respective serials, when people glued to their TVs wanting not to miss what happens next. Is this scenario still true? To some extent it still is because there are still crores of housewives from middle class who watch.

But unlike people who in their 20s watched only TV 20 years ago, present 20 year olds don’t do that, they have other options. So this has changed. But has the present young generation completely discarded the current content that comes on TV or they watch at least some of the content on their choice of gadget where ads come in between?

Occasionally there comes a program which is very successful but that need not come from Sun. How many Sun’s serials or programs are widely popular and what kind of ads come in those programs and which other programs/networks do these companies promote on in the same numbers. There is data available on which sector or which companies spend more or ads, but the question is which network has the bigger share?

Is there any data available for the highest TRP programs on all the networks, as we have subscribers and views for Youtube channels? Does Sun Youtube channels have higher views compared to other networks in all the states it operates in? Do ads come in between in these online videos? On a computer you can block them, can you do the same on a mobile, if not, then there is no difference between watching a program on TV or mobile.

TV being the most popular entertaining medium for the past 25 years in India is the primary source of promotion for many companies. Internet usage may have been rising but the reach of TV is higher along with the psychological influence it has, the repetition part. So no matter what is the level of the content or the kind of programs, there will be ad revenue. I don’t know if it is decreasing with the advent of online promotion or not.

Does Sun give the revenue split of ads on TV, and ads on its Youtube channels? Does Sun Nxt app generate revenue through premium membership or ads? How successful are the radio channels w.r.t bringing in the revenue?

The revenue breakup I think is important. What kind of services Sun is providing through all of its channels and how is this changing?

In essence, I think, the generation which liked any and every type of content because the concept of satellite TV was fascinating to them, is replaced with a new generation which has many options not only with the choice of content, but with also the way they consume the content. The changes technology has brought in has disrupted the ad revenue which was singular.

visanty · December 21, 2021, 8:50am

Advantages I saw when buying

It has high operating margin
Monopoly in Tamilnadu
Good Return on Equity
Continuous Dividend

I sold SunTV shares for a small profit not excluding the dividends in Apr 2020 after holding from 2013.

Reasons for Selling

I moved the capital to other promising stocks which were available in Mar 2020.
Low sales and profit growth over last 10 years.
Television is a sunset industry. OTT is overwhelmed by Hotstar, Netflix and Amazon Prime.
High Promoter Salary.
Failed Spice Jet venture by the promoter.
Lost focus and invested in Cricket Team.

I will be no longer tracking this stock. Thanks VP. I also Thank all who ever contributed ideas.

srini_siva · December 21, 2021, 4:52pm

I was not able to complete my thesis due to lack of time.

Market is assigning a negative terminal value for Sun TV because of advent of OTT and decline in marker share in key market.

But we have to consider the following factors before writing it off.

1)Growth - Sun TV network - Profit Growth is between 5-10% for the last 10 years with a operating margin of 70% & ROCE > 30% even during the toughest of times like Covid.

Assets under belt :

IPL Franchise - They bought it at around 800 cr and now the latest auction shows that Franchises are valued at 7000 cr. Also they get a lifetime asset which throws a terminal growing PAT of 210 cr per year without any additional investment - High barrier to entry

Sun Direct - No. 4 Market share of 17.41 % in overall DTH Market - an ever growing market with high barriers to entry.

Film production and Serial production - They own a huge inventory of quality content in old as well as upcoming film industry. This can be monetised similar to Saregama and TIPS as they own many of the content exclusively.

Sun NXT - Fast growing subscription without any additional investment, Taking content from above asset.

TV and FM - Whatever be the advent of Digital marketing and OTT platform, they are the only way of mass advertisement for Brands.

Favorable political conditions:

They have a favourable political condition for next four years where they have grown faster historically and production pipeline is also shows a high growth phase for next 4 years.

Cons:

Lethargy of Promoters to invest in Future themes like OTT Productions, Web series.
Risk of Political disturbances
Subscription Pricing risk because TRAI regulations.

I was working on a historical data of segment wise growth and relationship of GDP growth and advertisement growth (1.5-2 times) historically, Correlation between high growth and favourable political conditions. Unfortunetly still not able to complete.

Disclosure:

Invested as a turnaround bet.

Dovetail · February 17, 2022, 12:17pm

Riya19 · April 10, 2022, 4:53pm

Very well summarised.

Pavandeep_Singh · June 16, 2022, 2:00pm

Do you think that there will be a hot in revenue due to the lack of funding in the start-up ecosystem? Most of their advertisers in the past year have been crypto companies and other such fintech startups that might not have the best access to capital for the next year or two years.

Ayshi · June 17, 2022, 4:22am

Ayshi · August 12, 2022, 11:54am

Positive results announced for Q1FY23. The company has been rewarded a license to operate a team in Cricket South Africa’s T20 league. However, Advertisement revenues only increased by 6 crore to 343 crore, on a QoQ basis.

srini_siva · August 12, 2022, 4:36pm

Interesting result indeed:

Quarterly revenue - 1219 cr

Out of which,

a) Ipl revenue - 243 cr (90% from Telecast rights revenue pool sharing - 10% - Others - Sponsorship, Ticket sales, etc.,)

b) Advertisement revenue - 343 cr ( For selling ad space in their tv shows, FM, Printed media) (90% - Advertisement slot selling, 10% - Broadcasting revenue)

c) Remaining revenue - 633 cr includes

Subscription revenue (Include Cable subscription - 50% And DTH Revenue - 50%) (Could be 400 cr - last qtr is 408 cr)
Movie revenue ( Beast was a high budget movie in Q1 - Whose revenue could be 200 cr as a guess based on my scuttlebutts ),
Other digital revenue ( YouTube, Streaming platforms, etc., Which if we consider same as Tips could be 33 cr)

They still operate at a healthy operating margin at 63% ( Average being 65%: maybe because of subdued profit from Beast movie)

Trend in Revenue:

a) Next year the IPL revenue would be 550 cr and the out of additional 300 cr ; 250 cr would be directly contributing to the bottomline. (15% increase in Annual Eps and cashflow without any additional investment)

b) Advertisement revenue is Flattish and I expect it to be flattish for next 2 years. 1400 odd cr (55% FMCG, eCommerce - 10%, others - Pharma, retail, auto - 35%). Keything to note here is whether FMCG Ad spending decreases because of Digital advertising. So far, precovid levels are being maintained.

c) Other revenue - Subscription revenue was projected to grow at 10% from a base of 1600 cr this year due to conversion of analog to digital media and its group company Sundirect has almost 20% market share in DTH Business.

Sun pictures - Movies might generate 400 cr; revenue and Other digital revenues 100 cr;

Company intends to give 50% dividend yield based on previous communications. Announced 5 INR q1 dividend which will translate to intended Annual dividend of 20 INR.

Key risk :
1)Decline in Market share in key markets from 55% to 40%
2)Continuous ignorance to make New age content to gain traction for SunNXT App which already has a healthy penetration rate (2.5 cr subscribers)
3)Quality of management at Sunrisers Hyderabad, Content produced (Movies and Programmes) are continuously disappointing while they are still hugely profitable.

Disclaimer: Invested as a turnaround bet. No transaction in last 6 months.

praveengowdadm · May 23, 2023, 7:00pm

GT and LSG paid 6000 and 7000 crore to buy IPL teams. but now, Tiger Global is valuing RR at 650mn(5386 crore). SRH may also get valued around the same.

So we will be paying 12000 crore for Cable, Sun Nxt and Movie distribution business. Considering all this information, I feel stock valuation is not cheap.

ANKIT_TALREJA · May 24, 2023, 4:46am

Everyone is talking about threat from OTT but I feel the threat is exaggerated.
Reason being cost. Consider this
You need unlimited high speed internet plus OTT memberships for streaming. Jio fibre plans with bundled OTT start from ₹ 999 plus GST per month which is ₹ 1179 pm. On the other hand, you can easily get a Tata sky connection for ₹ 300-400 per month which is 1/3 of OTT cost. And dont forget DD Free Dish which offers FTA channels free of cost. Also keep in mind occasional internet shutdowns which keep on happening in different parts of country every now and then due to law and order problems.
So, I feel most of the people who will completely discard TV in favour of OTT will be corporate employees who get reimbursed for broadband connections. Majority will stick to TV and will occasionally stream online through mobile internet.

newbie_007 · May 24, 2023, 10:54am

I am on two minds regarding this stock. To divest completely or hold on to the remaining shares? The reason I want to divest is that even though OTT competition might or might not affect the company, I am not sure if their traditional business will keep growing like it used to.
On the other hand, their Sunrisers Hyderabad IPL team might be worth more than it is today considering the latest auction results. Also, they could make money from movie production but then where is the moat in that? What happened to their previous moat? Has it deteriorated with the rise of the OTT platforms? I am afraid it’s likely that they will never have the kind of competitive advantage they did before.

sambandham82 · June 17, 2023, 5:57am

@praveengowdadm
With 4000+ Cr net cash on book, a 8000 Cr enterprise value for a company that generates EBITDA of 2400 Cr, trades at 3.3XEV/EBITDA. Inspite of political background, the Mgmt has been ethical in sharing profit with minority shareholders for the past 15 yrs consistently.

I think 7X EV/EBITDA is nominal valuation and 26000Cr mkt cap looks fair value.

Can you please elaborate on why you feel the stock is not cheap ?

praveengowdadm · June 17, 2023, 10:13am

Thank you for sharing your view.I agree with the numbers you shared, stock is fairly valued.

I was interested in this company because of IPL team. After new team purchased at 7000 crore, I was expecting two time champion team to command more value than LSG. based on RR valuation, I feel SRH is also valued around 5000 crore.

Avin · December 7, 2023, 4:29am

So IPL team ( I cannot say what valuation for the same)
dominant viewership in regional tv.
consolidation in media and very few so dominant regional players.
crossed pre pandemic bottomline in FY 2023.
ROCE consistently very high since many years

looks fit case as a consistent compounder of earnings through high ROCE.

Receivables have gone high in past years, although being a media company should not be a big problem but reduction in the same will further increase ROCE numbers.

this trades cheap definitely.