SL Narayanan, Group CFO, Sun Group, says that in the fourth quarter he expects advertisement revenue growth to be below 20 percent. Traditionally, the third quarter has always been better for the company.
He also pointed out that it is too early to highlight the gains the company has made from the second phase of digitisation.
The deadline set by the government for
Cable TV digitisation in 38 cities across 14 states ended on March 31, 2013. These cities are part of the second phase of digitisation programme and the government claims it achieved 67 percent digitisation in these places.
Below is the edited transcript of his interview to CNBC-TV18.Q: One more phase the digitization deadline passed on March 31, what has been the benefit in terms of the additional subscriber gains because some analysts believe that the subscription gains are actually slower than what the street was earlier anticipating?A: Correct, another deadline has passed. At this point of time it would be difficult to give the gains figure due to digitization that happened in five cities out of 38 cities. I think 4 million homes will move from analog to digital. We will have better clarity on conversion rate in next few months.
Q: Do you have a ballpark number in terms of what the subscription revenue gains may be, even a conservative one?A: When we get the numbers from Sun TV distributors, we don't get a break up as to the territory wise additions of subscribers. Our sequential quarter growth on the DTH subscription revenues in December jumped to almost 5 percent from 2 percent in September. In the absence of precise territory wise splits of these numbers, we could only guess that must be driven by Chennai.
In the same fashion we are seeing a similar traction happening in numbers, I can only guess that much of it must be coming because of the imminent deadline on analog signals being switched off in the five cities of Bangalore, Hyderabad, Mysore, Vishakhapatnam and Coimbatore.
Even if there is some delays of two-six months, ultimately this thing will happen so we are very comfortable to give an overall number at the end of phase IV. October 1, 2014 is the phase IV date. We think by middle of 2015, full benefits of digitisation would be flow to the top line and bottom line.
Q: In the third quarter we saw the highest ad growth in the company in the last seven quarters. How has Q4 been in terms of advertising growth? Is it similar to Q3 and are you expecting any improvement or has it just been flat to weakened?A: I don't think we will grow at 20 percent in March and it would not be proper for me to give any numbers when the results are about to be announced. But we will not grow above 20 percent in Q4 but it is a fairly strong growth nevertheless.
Q: Can you give us some idea of how much worse Q4 is?A: For
Sun TV, much of the gains happen in Q3 because of Diwali, Durga Pooja and Christmas. Whereas in Q4 the only upside is Pongal and Sankranti. We have done good number but we will not outperform the 20 percent year-on-year growth.
Q: What about FY14, how are you seeing the advertising growth pan out, is it going to be in the range of close to about 15 percent?A: I approached this issue with a lot of trepidation as nobody knows the future. But I think we are comfortable to put a number of 12-15 percent compounded annual growth rate (CAGR) on advertising revenues over the next three year period. I think the economy will grow at least above 5.5-6 percent and if inflation stabilises around 6-6.5 percent, we are looking at a nominal gross domestic product (GDP) growth of between 13-14 percent. I see no reason why advertising revenues should not grow at least at that rate.
I am confident that Sun TV Network given the kind of leadership position that we have in the four southern states and the four southern states accounts for almost 14 percent of TV homes in India, we will be very relevant for almost all product categories and all large advertisers.
Q: As of now it appears that you have picked up a winner in the Sunrisers Hyderabad. How does the economics or the profit and loss (P&L) work over there? You gave Rs 85 crore a year to Indian Premier League (IPL), what do you make in return at all and is that Rs 85 crore the negative or the cost that will figure in the P&L this year or does it get reduced because of the money you make?A: The way it works is there is kitty, which is collected by the organizers, which is basically Board of Control for Cricket in India (BCCI) and the contributories into that pot include the broadcast sponsor, which is Sony and there are several other sponsors like Pepsi, Vodafone. From this central pool, distributions are made to all the franchise owners. We also do ticket sales at the home matches, Rajiv Gandhi Stadium in Hyderabad and we also sell the space on the jerseys -- the front and back--, helmet, tracks and shoes.
All added together we make three streams of revenues which is basically the distribution from BCCI and the space that we sell on the apparel, gate sales, we pay the committed Rs 85 crore, player fees, travel, hospitality and event management. Earlier, I have indicated a number of Rs 30-core pretax losses for FY14 and a near breakeven by FY15. Sponsorship amount grows with every passing year and the number starts to look better.
Earlier, I also mentioned that the commitment to pay Rs 85 crore falls off at the end of the fifth year and in its plays there is a revenue share of 20 percent from sixth year and then whole thing becomes extremely attractive.
Q: Would it be a negative of Rs 85 crore or more in FY13? You indicated that FY14 is negative Rs 30 crore?A: For us the season did not start in FY13, so there are no financial impacts in FY13.
FY14 will be the first year of our season. Sunrisers’ first debut season and we think we will have about Rs 30 crore in pre-tax losses, which then reduces to almost zero by FY15.
Q: You had factored in the cost of Kumar Sangakkara and Thisara Perera in this?A: Yes, in fact the business plan factored in even a higher number.
