Eye higher ad rates; IPL team to breakeven in FY15: Sun Grp

SL Narayanan, group CFO of Sun Group at expects ad rates to go up after the TRAI directive restricting commercial breaks to 12mins/hour. "There is only so much of minutes that is available as inventory for buyers to transact with sellers," he told CNBC-TV18.

The south-based channel's advertising revenue trends continue to improve in FY14. Ad revenue was supported by good growth from FMCG (50-60 percent of ad pie) and regional advertisers (nearly 30 percent of pie).

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Narayanan says the company on target to achieve its guidance of 25 percent subscription and 12 percent ad revenue growth in FY14. "FY12 ad revenues degrew for Sun TV by about 2.5 percent, while a lot of other listed broadcasting companies degrew by much more than what we did, and which is why when we entered FY13, we were extremely cautious," he says.

On the group's IPL venture, Narayanan says the company is likely to incur a loss of RS 30-40 crore this year, but expects to breakeven next year.

Below is the edited transcript of his interview with CNBC-TV18:

Q: When we spoke to you post your earnings last quarter you said that the company is taking an ad rate hike in six or nine weekday prime time shows and that time you also indicated the possibility of more rate hikes. So is there likelihood that you could see further ad rate hikes and how is the environment looking?

A: We did mention that the increases will get phased out during the year, that intent still stands and with respect to the market I must say that the momentum has been pretty buoyant. It is a very different start to FY14 as compared to where we were at the start of FY13, we were extremely different 12 months ago. The situation is thankfully very different this time around.

Q: Can you put some numbers to it because not all industries are reflecting this spring in the step. Do you think revenues can be 20-30 percent better?

A: With the guidance that we gave at the end of fiscal FY13 we did mention that we were looking to grow advertising revenues by about 12 percent and we did mention that the subscription revenues could grow at a minimum of 25 percent. So these are the two drivers for the revenue engine for Sun TV so both these constituents are looking good.

Q: Can you add colour to your previous statement that the mood is so different now compared to what it was in FY13. Is it largely because of ad sales and response from advertisers that you are saying this?

A: Absolutely. If you recall FY12 advertising revenues de-grew for Sun TV by about 2.5 percent and a lot of other listed broadcasting companies de-grew much more than what we did and which is why when we entered FY13, we were extremely cautious. We said that no more than a single digit growth rate and when FY13 finally ended we grew by 11 percent and that exit rate has only improved as we have gone into the new financial year.

Q: Telecom Regulatory Authority of India (TRAI) has regulated restricting that per hour they can only be 12 minutes of advertising. How will this impact something like Sun TV, will the low volumes on account of that be compensated by higher realizations. Could you walk us through the impact?

A: Absolutely, the way I see this whole thing playing out is, there is only so much of minutes available as inventory for buyers to transact with sellers. So, if there is a cap on the number of minutes per hours, which is mandated by TRAI, the existing restricted minutes are going to become that much valuable because end of the day it is a free market, there are lot of buyers and sellers competing in the market for minutes and there is a huge market there which needs to be targeted by producers of goods and services.

I would say that prices will go up and that said I must also give some colour as to Sun TV’s positioning in this whole game; there are very few channels where we have exposure in excess of 12 minutes and that too during prime time hours, during weekends. So, we do not anticipate much of an impact in terms of tweak to be put through because of a cap on the number of minutes per hour.

Q: Can you delineate for us how your DTH subscription is growing, any numbers, any targets you have set?

A: It will be difficult, especially now since we are approaching the start of a quiet period for June 30 results. We have gone from strength to strength, if you look at the quarterly sequential growth rate which used to average around 2.5 percent up to September that moved up to 5 percent in December and March over December had grown further to 5.6 percent. And that is precisely the reason why I had mentioned that our subscription revenues could grow at a minimum of 25 percent is here because if you annualize 5.6 percent on an average it comes to 23 percent annualized. We think we will grow at a minimum of 25 percent.

Q: Margins for Sun TV have been contracting, at one point of time it used to be above that 80 percent mark and now it slipped to that sub 75 percent. In FY14 per se do you see a case for lower margins?

A: I will give you some indicative numbers. Point number one that you should notice for 24 months we have not increased prices at all. So at a time when we have held prices constant, the slippage of margins has been if anything marginal. Now we are going to be putting through some increases in a phased manner and some of the increases will start effective July 15 in Sun TV. As the year progresses we will see some increases in other channels, other languages as well.

Secondly the mix, the revenue basket is getting switched more in favour of subscription revenues. On subscription revenues there is virtually zero cost. Therefore the leverage on operating profit level is going to be pretty significant. So while we will not tell you a precise number I think margins should improve.

Q: We understand that in the last quarter the company saw a declining viewership share in Andhra Pradesh as well as Kerala. Has the situation changed since then, has it improved?

A: This is something which happens every month and most of these shifts happen because of some specific events like an IPL. So those 54 days the whole country is watching IPL during prime hours so once these events wear-of the ratings come right back up. So we are not very worried about any temporary shifts in viewership patterns.

Q: You had indicated to us that you were expecting losses of about Rs 30-40 crore this year. Does that number change or you stand by that?

A: We are holding to that guidance and next year we will breakeven.

Q: The net cash on your books improved considerably last year almost trebled, anything you can update us on whether that will increase and whether you have any plans with that money in terms of some inorganic moves?

A: No, I do not think there is anything inorganic on the anvil because there is nothing available; everybody is happy running their own little things. In terms of our liquidity position, we will keep at least Rs 350 crore to Rs 400 crore at anytime on the balance sheet because that is more as conservatism and otherwise if you looked at our dividend payment record, its been growing up year after year so the payout ratios will continue to sustain. We are distributing almost 64 percent of our distributable profits and that is almost about Rs 435 crore last year, if you recall my numbers. So, we will follow a very high payout ratio.