Expect ad revenue growth to be strong at over 11%: Sun TV

Below is verbatim transcript of the interview:

Q: You have seen a very strong advertisement revenue growth this time around, about 11.5 percent. Just take us through whether this trend can continue in the second half of the year as well?

A: This trend will stabilise because in the last few weeks there have been a lot of announcements from the government which seem to be taking the economy on to a higher growth trajectory.

Since most of our revenues are linked to the fortunes of consumption based industries, if the GDP growth goes beyond 6.5 percent for FY16 as forecasted by a lot of knowledgeable people, there will be a huge jump in the prospects for spending which in turn will inevitably rub off on Sun TV. Therefore, we are very optimistic on growth going forward.

Q: We understand from the analysts that the yields were lower even if the volume of revenue was higher?

A: It is also something which was done with a lot of thought and a lot of deliberation because in the last several quarters we have seen a lot of ups and downs with the TRAI mandated caps on advertising.

Since we also have this model whereby we have most of the content which is created by contract producers and we share some of the air time with them, the tweaks that we applied were perhaps not perfect to start with. Therefore, there has been a bit of promotional cross selling and bundling which will wear off as we stabilise our own pricing strategies.

At the net level we were less. We had an extraordinary income of about Rs 20 crore on interest received from tax authorities. This was because of the matter relating to the amortisation of the satellite display cost. That matter was ruled in favour of Sun TV last year and therefore, on taxes that were deposited under protest we received those interest payments. Therefore, if you remove that Rs 20 crore at an operating level it doesn’t look that bad.Q: Why was your depreciation and amortisation so high? Is this a policy change, should we see it wearing off in coming quarters?

A: No as and when we show the movie for the first time on the channel, whatever we paid for acquiring those satellite distribution cost gets charged off in full. This is something which is unique to Sun TV because we don’t amortise it over a period of time. Therefore, there is a little lumpiness as a result of that policy because the quarter in which we have several blockbusters getting shown for the first time it goes up and subsequent quarters it comes down.

But we have guided certain number over a four quarter period for the current fiscal and as we get into the next year with the revisions that will come up, this will get washed out. This is because if you were to look at over a ten year period, what we bought 10 years ago was about Rs 1 crore and it would have taken a huge hit first time it came because rates were also lower.

Rates do go up over time due to inflation and since these assets are held in perpetuity on exclusive basis, the earnings that they produce in the future more than compensate for the high cost and the high debits that we take early on.

Q: What kind of targets do you have for the subscription growth in the second half of the year and specifically from the cable TV business which was a little muted this time in terms of subscription but what could the revenues be in the second half?

A: I am not too sure if we can give a number with precision because of the uncertainties on phase III and phase IV. We get mixed signals because there were some reports which seem to suggest that it was getting pushed beyond next year and then subsequent report said that the ministry is indeed looking at April 2015 date.

The next trigger would come when phase III and phase IV gets implemented. It is in everybody’s interest that it gets implemented quickly because this is going to benefit all stake holders. If that happens and we also clear the decks for Chennai and Coimbatore, we could see an appreciable increase in subscription revenues.