Moneycontrol
Apr 20, 2017 02:17 PM IST | Source: Moneycontrol.com

Here's why analysts see 18-20% upside in Sun TV Network

Granting of provisional digital licence to Arasu cable to set the ball rolling for digitisation in Tamil Nadu, which could aid the company's financials going forward.

 
 
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Investors bet positively on Sun TV Network's stock on Thursday after analysts were upbeat on the stock on digitisation prospects going forward. The scrip soared over 6 percent intraday Thursday on the BSE.

Analysts tracking the stock highlighted the positive developments around Arasu Cable, which will set the ball rolling for digitisation in the state.

For the uninitiated, the Ministry of Information and Broadcasting granted a provisional digital licence to the government-backed Arasu Cable to operate as a multi-system operator. This is on the condition that it will switch off analogue signals in the state within three months and ensure effective implementation of digitisation.

This move was cheered by analysts, who also saw significant upside potential for the company in terms of subscription revenues.

Moneycontrol takes a look at what analysts are talking about the stock and the outlook.

CLSA | Upgrade to Buy

The analyst firm upgraded the stock to a buy rating with an increased target price of Rs 1,015, an upside of 20 percent. “We raise our Sun TV subscription revenues by 5-18 percent, driving 3-10 percent upgrade to FY18-19CL earnings estimates,” the brokerage house said in its report.

So far, Arasu had been holding back digitisation implementation and switching off of analogue signals despite March 31, 2017 deadline. As such Sun TV is a dominant broadcaster in the state, but its subscription revenue growth so far has been led by digitisation in Karnataka and Kerala.

Credit Suisse | Upgrade to Outperform

Credit Suisse too upgraded the stock to outperform with a target price of Rs 1,000, an upside potential of 18 percent. Analysts at the firm believe that the company is now entering a period of strong earnings growth on the back of multiple drivers.

(i) The provisional digital licence to Arasu Cable will be able to aid digitisation in the state, it said. “Whilst the process will happen gradually over next few years; a full digitisation of TN and other southern states can lead to a doubling of subscription income over the next 3-4 years,” it said in its report.

(ii) The company also owns a franchise in the Indian Premier League (IPL). With a reduction in licence fees and a possible rise in revenues due to re-auctioning of TV rights, IPL operation could swing from Rs 30 crore loss to Rs 80 crore profit in FY19.

(iii) Sun improved the ratings to become number one in the Telugu market and plans a content overhaul for Kannada. Higher ratings will improve its advertising growth.

IDFC Securities | Maintains Outperform

The brokerage house retained an outperform rating on the stock with a target price of Rs 851.

Based on the assumption that Arasu will start paying a higher amount to Sun TV post the digitisation, it could add another 8 percent to its FY19 earnings per share estimates. This would take the total upside to 16 percent and could potentially lead to re-rating, it said.

“It is now possible that other state governments might also apply for an MSO licence and this could potentially lead to disruption in existing subscription revenue stream for other broadcasters in other states,” the report from IDFC Securities added.
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