Kotak Securities has downgraded its rating on Sun TV to â€˜reduce‘ from â€˜add‘ earlier, citing expensive valuations and unsustainable growth in earnings.
Kotak Securities has downgraded its rating on Sun TV to ‘reduce’ from ‘add’ earlier, citing expensive valuations and unsustainable growth in earnings. The brokerage however has raised its fair value assumption of Sun TV to Rs 390 from Rs 360 earlier.
The stock has rallied 90% a low of Rs 220 six months back, to around Rs 420 currently as investors bet on a sharp uptick in earnings growth. Kotak analyst Amit Kumar expects the company to turn in strong numbers for the current quarter and next. Also, he expects subscription revenue momentum in 2HFY13, led by the Arasu deal and DTH platforms, will accelerate and continue in FY2014, led by completion of digitization in Chennai.
"However, with valuations at 24 times FY2013E earnings, the Street is well discounting FY2014(expected)," says the Kotak note.
But Kumar is not so positive on growth in advertising revenues.
"Advertising is constrained by continued network market-share decline. 2HFY13 may still be a strong performance but it will largely be a factor of (1) a low base (advertising decline in 2HFY12) and (2) sharp growth in advertising volumes. However, this sharp jump in advertising volumes (likely decline in realizations) only borrows from the future and would constrain advertising growth in FY2014E-15E," the Kotak note says.