Confident of achieving double-digit growth in H2: Sun TV

SL Narayanan, Group CFO, Sun Group, says that the subscription revenues are good and there has been tangible evidence of increased sales of DTH connections on the ground and now the company is in much better shape. In December 2011, no revenue was contributed from the Tamil Nadu analog ecosystem. But in this quarter we will see revenue between Rs 7.5-8 crore.

Below is the edited transcript of his interview to CNBC-TV18. Q: How do you see subscription revenue growth in the second half of the year, in the first half at least in the past six quarters, they have range from low single digits to at times even negative, the second half there are some people who expect a double digit growth, are their hopes fructifying?
A: Basically, we have seen complete reversal of stocks because digitization was still a distant thing but in the last few weeks we have seen with great satisfaction the progress on the ground.
It is more heartening to see that the government is extremely committed to the implementation date for the phase II, which is April 1. Sun TV has some large markets on footprints like Hyderabad, Bangalore and Vizag. The subscription revenues are good and there has been tangible evidence of increased sales of DTH connections on the ground. The company is in much better shape now.
On the cable side, we had signed the deal with Arasu, which is the analog system in Tamil Nadu. So we will see the first full quarter of revenues coming in from that set of subscribers. In December 2011, no revenue was contributed from the Tamil Nadu analog ecosystem. But in this quarter we will see revenue between Rs 7.5-8 crore. Q: Overall, what might be the subscription revenue growth you think in the second half, year-on-year comparison?
A: Between direct-to-home (DTH) and cable, we are growing at about 8-9 percent and we will do even better in this quarter. Q: How is the ad revenue looking at this point in time especially for Sun TV and do you expect to come back to those growth rates that you were clocking possibly in FY10-FY11?
A: Ad revenue is looking better. We had been consistently guiding to a low single digit growth in the first half, we are now confident that we will see double digit growth in the second quarter. Q: Will you be able to push up therefore ad rates?
A: No, at this time we are still coming out of a very difficult situation. Right now we are seeing some early signs of growth. We don't have any plan to increase tariffs but towards the start of the next financial year, we could see some opportunities for growth. Q: Can you quantify when the last time ad rate hike was taken was?
A: We did not increase ad rates for the whole of FY12 but before that we had some increases. FY12 was an extremely difficult year not only for the media industry but across the board. Interest rates were high; there were difficult situation in telecom and auto business.
Interest rate sensitive like auto and real estate was down. FMCG sector cut down their spending and 55 percent of our revenue comes from the FMCG universe. So we took bidding in FY12 because of a variety of reasons so we did not increase rates that year. About nine months gone into the current financial year, I do not think we will increase rates before the start of next financial year. Q: Many analysts were quite surprised with the move with regards to the IPL diversification. Can you explain the rationale behind the diversification into cricket considering the past that we have seen in terms of finances have not been great for the IPL franchises, do you think that for a company such as Sun TV which has had a very clean balance sheet as of now, it would put some amount of added stress going forward and might not be taken that keenly by investors?
A:  Our diversification in to IPL will not in any way disturb the strength of our balance sheet because the way the cash flows are planned out for IPL, whatever we keep spending, keeps coming back in terms of distribution from the central sponsorship rights. So we do not think there will be any major investment into the IPL business barring some lost funding in the first year which is not going to be more than 50 paisa per share.
We will see a breakeven in the beginning of second year. We have not bid extraordinarily high sum of money. Our bid amount was about 50 percent of the amounts that were bid in the previous rounds. So we are very conservative for putting out our bid amounts and we also think that given the kind of distribution possibilities out of the central pool which Board of Control for Cricket in India (BCCI) controls, there will be very minimal exposure, more like a working capital funding.
We will start making money from third year onwards. The title sponsorship rights have now gone for a substantially higher sum for the second half of the IPL tenure. Those upsides have not even been factored into our business plan projections.
_PAGEBREAK_ Q: The cash outflow has been factored in as Rs 30 crore in FY14 and Rs 10 crore in FY15, is that a fair estimate?
A: Yes, Rs 30 crore will be the outside cash loss in FY14, which on an after tax basis is not more than 50 paisa per share and in the second year, we will almost have a breakeven. With couple of crore as losses and from the third year onwards it will start making money. Q: What is the game plan with regards to SpiceJet? Now that we are seeing the promoters increasing their stake in the company itself, how the margins and revenues might pan out especially now that there is one competition less in the space?
A: This is a very tricky business. I would say the playing conditions have become a lot better. There is more pricing discipline. Nobody is running after market share the way they used to, the industry is definitely in better shape but it is still early days, many issues needs to be contend especially very high taxes on fuel.
We are probably one of the most heavily taxed countries in the world when it comes to aviation turbine fuel (ATF) and it needs to moderate before aviation industry starts making some tangible profits. At this time, we are still making wafer-thin profits, it has to improve to a level where this industry is seen as attractive enough for overseas investors to come and invest. At this time, people are still waiting and watching. Q: Your yields per passenger calculated at Rs 4,000, is that how the second half is panning out or do you think even this could be trimmed as you get into some bit of undercutting as well you have not been able to make use of the fact that you could get imported fuel and that could trim away the tax part?
A: Yes, import of fuel involves much logistics and coordination. Volatility in the price of fuel kept our enthusiasm at bay to go for crude. It moved from USD 115 per barrel to USD 90 per barrel and again it saw a reversal.
There are lots of handicaps at the ground level to get the fuel onboard and ferry it invert to other airports, so it did not progressed but otherwise the logic still remains very strong because of the tax arbitrage but one day we will start doing it. Yields have become a lot better than what we saw in Q2. Q: What exactly would be the fund requirements of SpiceJet going forward. There were talks dated back to around 2012 that Etihad was interested in SpiceJet vis-à-vis Jet and Kingfisher Airlines (KFA) which we are hearing about more aggressively now, has Etihad approached your company and in case they did approach, would you be open for a deal and if not Etihad, would it be some other Gulf carrier?
A: Certainly there has been an interest in SpiceJet because they have a good network with connecting almost 42 stations in the country now. They have a fairly good market share. So I have always maintained that this would be an extremely attractive investment candidate for somebody who has global ambitions in the aviation industry..
We have always maintained that we are open to getting somebody to co-invest with the promoter group but the devil lies in the detail as usual because we will have to look at what structures and how much and what pricing and all that. At this time, we do not have anything which is concrete enough to be shared with the market. Q: What is usually the big road block, is it pricing?
A: No, it is not just pricing, there are several other issues as well because some are very keen on certain levels of controls. Some others would like to play a passive role. So, each one is a case by itself.
Currently, we are not in a hurry. We are also not in any state of desperation because the industry is in a much better state than what it was around March 2012. We have also recapitalized the company and there are comfortable levels of liquidity now in the company after recent infusion. We will not rush into any deal. We will do what is good for all stakeholders and till then we are still waiting and watching.