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Sun TV Network Equity Research

HomeCompanySun TV Network Equity Research

Date of Research – 22 January 2016

Price – Rs. 352.35

About the Company

Sun TV Network Limited (“Sun TV” or the “Company“) is engaged in producing and broadcasting satellite television and radio software programming in the regional languages of South India. The Company operates satellite television channels across four languages of Tamil, Telugu, Kannada and Malayalam. The Company got its current name Sun TV Network Limited after the merger of Gemini and Udaya channels on the 24th of April 2007.

The Company operates 32 TV channels reaching more than 95 million households in India. In addition, Sun TV network’s channels are viewed in 27 countries including U.S.A, Canada, Europe, Singapore, Malaysia, Srilanka, South Africa, Australia and New Zealand. The Company’s flagship channel Sun TV and other major satellite channels of the Company are Surya TV, Gemini TV and Udaya TV.

The Company is also into the business of FM Radio broadcasting at Chennai, Coimbatore and Tirunelveli. In October 2012, the Company bought the Hyderabad franchise of the Indian Premier League (IPL).

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 1,923.00 2,223.62 2,395.38 2,569.78  2,645.72
Expenses 513.86 713.91 718.14 795.59  875.88  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 1,409.14 1,509.71 1,677.24 1,774.19  1,769.84
Depreciation 441.73 478.28 615.31 504.94  400.45  
Finance Costs 4.88 4.61 2.29 2.20  1.03  
Other income 72.21 86.61 98.91 110.63  153.80
PBT 1,034.74 1,113.43 1,158.55 1,377.68  1,522.16
Tax 330.59 368.21 375.96 475.49  520.25
Extraordinary Items (17.97)
PAT (before Minority Interest and share of Associates) 704.15 745.22 782.59 920.16  1,001.91
Profit/ (loss) attributable to Minority Interest 2.46 8.81 14.08 17.41  – 
Share of profit / (loss) of Associates (7.87) (11.60) (13.53) (10.63)  (28.75)
Consolidated Profit / (Loss) for the year 709.56 748.01 782.04 913.38  1,030.66

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 73.28 67.89 70.02 69.04  66.89
Net Profit Margin Ratio 36.62 33.51 32.67 35.81  37.87

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 197.04 197.04 197.04 197.04 197.04 
Preference shares issued by subsidiary 93.40 93.40 93.40 93.40 93.40
Reserves & Surplus 2,314.92 2,588.39 2,898.39 3,151.10 3,329.30 
Net worth (shareholders funds) 2,511.96 2,878.83 3,188.83 3,441.54 3,619.74 
Minority Interest 29.32 31.78 40.59 54.67 175.56 
Current liabilities 227.49 294.47 303.86 221.90 270.35 
Other long term liabilities and provisions 10.5 6.09 4.33 4.32 6.18 
Deferred Tax Liabilities 33.78 28.44 25.97 22.59 18.81
Total Liabilities 2,906.45 3,239.61 3,563.58 3,745.02 4,090.64 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 1,249.35 1,379.70 1,375.06 1,181.04 909.46 
Noncurrent Investments 192.60 200.47 212.07 225.60 336.23 
Current assets 970.34 1,257.39 1,718.77 2,003.53 2,630.07 
Long term advances and other noncurrent assets 494.16 402.05 257.68 334.85 213.64 
Deferred tax assets 1.24
Total assets 2,906.45 3,239.61 3,563.58 3,745.02 4,090.64 

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 56.53 48.41 46.75 47.97 46.75
ROE / RONW 28.75 24.65 23.46 22.72 25.42 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 1,923.00 2,223.62 2,395.38 2,569.78  2,645.72 
Growth (%) 4.11 % 15.63 % 7.72 % 7.28 %  2.96 % 
PAT (Rs. Cr.) 704.15 745.22 782.59 920.16  1,001.91  
Growth (%) 3.12 % 5.83 % 4.62 % 17.58 %  8.88 % 
Earnings Per Share – Basic (Rs. ) 18.01 18.98 19.84 23.18  26.15 
Earning Per Share – Diluted (Rs. ) 18.01 18.98 19.84 23.18  26.15 
Price to Earnings 21.74 21.91 21.42 16.23  30.73 

Dividend History

The Company has maintained an average dividend yield of 2.40 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Sun tv’s average current ratio over the last 5 financial years has been 5.21 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Sun tv’s is operating with a zero level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Sun tv’s average interest coverage ratio over the last 5 financial years has been 458.59 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Sun Tv reported a promoter holding of 75.00 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 19.25 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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