Expect 11-12% subscription revenue growth in FY16: Sun TV

With resolution on cap on minutes, advertisement revenue will see improvement in the current year, says SL Narayanan, Group Chief Financial Officer (CFO), Sun TV. The channel’s main business comes from advertisement, subscriptions and its international segment. In an interview with CNBC-TV18, Narayanan says the subscriptions will be muted in FY16. He expects 11-12 percent subscription growth and core growth of 12 to 15 percent this year. He adds that the digitization phase will begin in January 2016. Sun TV has all investments in place for its radio business, he says. Radio penetration is limited, which limits revenue realisation, he adds. In its ongoing case on security clearances, Narayanan says the company hasn’t received any communication from the I&B Ministry so far. Below is the transcript of SL Narayanan’s interview with Reema Tendulkar & Anuj Singhal on CNBC-TV18.Reema: The double digit growth in your ad revenues was on the back of a low base of last year. Do you see the ad growth sustaining at these levels what can we expect in FY16?A: First quarter ad revenue growth came in at 15.5 percent. So, it is actually quite a rousing start to this financial year. It is very difficult to give any prices guidance as to where it will come off finally when the year ends. However, I must say that all the confusions that were caused because of the cap on the number of minutes and the subsequent litigation all that is now behind us. The base effects have now fully stabilised so from here on we should see fairly good growth ahead.Anuj: What is your target with respect to the subscription revenue because that was a bit muted for last quarter?A: I don’t recall the exact numbers, but there were certain quarter where our cable revenues had grown by almost 40 percent. DTH revenues grew almost close to 20 percent. This current quarter we have not had any fresh upsides because phase three digitisation is now slated for January 1st 2016. Unless, there is some fresh triggers for any upticks we are not going to see any rapid increases in subscription revenues. However, the original core growth of about 10-12 percent that should continue.Reema: We saw your margins expand despite a higher than expected loss from the IPL business what is your EBITDA margin target for FY16?A: We don’t put out any specific targets. Our endeavor will be to maintain the robustness of the legacy business model. You are right, basically the reported numbers are looking less than spectacular because of the IPL losses otherwise the core business which is basically driven by subscription and international revenues and ad revenue growth that is looking pretty good this year.Anuj: Has Red FM’s participation been smooth so far what is the amount you have year mark for these auctions and where has the funding for that coming from? How many stations do you think you will be able to win? A: I don’t think we can say anything at this stage now because the process is almost coming to an end. Suffice it to say that we are fully geared with the investment requirements because both the radio subsidiaries are flush with funds. Having said that, we will also keep a very careful watch on valuations. We are unlikely to bid extremely aggressively amounts because end of the day any business has to return a very viable internal rate of return (IRR). So if the biding becomes very rational and numbers run away we may not be as aggressive as some others.Reema: Has Red FM’s participation been smooth so far because there were lots of regulatory issues reported in the media with respect to the company’s participation?A: In the beginning there were some issue then we appealed to the respective High Court holding jurisdiction over the two companies. We did get those reliefs and after that our participation has been pretty unhindered.Anuj: By when do you expect the radio business to contribute significantly to the companies financials?A: I think it is in a state of evolution because radio has still not reached the kind of maturity it has reached in the west. We still have numbers that are modest because radio penetration is also limited to people who are mobile on the roads and who listen to radio while driving. In terms of viewership and the reach being much smaller than television, which has millions of households watching it every night so the numbers by definition, have to be somewhat muted. However, over time these things can dramatically change. So, when lifestyles evolve and purchasing power goes up and everybody starts riding to work in a car, radio economics can also transform dramatically.Reema: Regulatory hurdles have been a big overhang on your TV business. Could you give us a sense on what is the latest you have gathered from the Information and Broadcasting (I&B) ministry and the Home Ministry with respect to the security clearances for the TV channels? A: Whatever has been reported in the press is for everybody to see. We have not had any official communication from the nodal ministry - the I&B Ministry.