Sharekhan has recommended hold rating on Sun TV Network with a target of Rs 425, in its research report dated August 26, 2014.
"Operational and execution constraints have led to the inevitable extension of the DAS timeline. The information and broadcasting ministry has announced that the government has decided to extend the deadline for digitisation by one year where Phase 3 deadline has been extended to December 2015 (from September 2014 earlier) and phase 4 deadline has been extended to December 2016 (from December 2014 earlier). The move was anticipated as many issues pertaining to revenue sharing (between MSOs and LCOs) and gross billings still need to be resolved. Also, the government's thrust on increasing the domestic procurement of set-top boxes was one of the key reasons for the extension. Though clarity on the timeline removes the ambiguity on the DAS deadline, but it will also have an impact on the revenue accretion expected from the subscription business of broadcasters and the subscriber additions of direct-to-home service providers and MSOs."
"In the post-Q1FY2015 results conference call, the management indicated the benefits of the third and fourth phases of the digitisation process would have a full impact on the revenues in FY2017 and the subscription revenues would touch Rs1,500-2,000 crore by then. However, with the extension of the digitisation timeline, we believe revenue accretion will now be shifted to FY2018. Further on the advertisement front, the management expects softness in FY2015 and a gradual improvement in FY2016 which will affect the overall earnings of Sun TV. Though Sun TV is among the prime beneficiaries of the digitisation theme, but on account of a delay in the implementation of phases 3 and 4 of digitisation the revenue accretion process will take longer than expected. We have tweaked our earnings estimates for FY2015 and FY2016 to incorporate the lower than expected subscription revenues. In the last one month, the stock has corrected by 12% and we do not see any major re-rating or earnings trigger for the stock in the medium term. Thus, owing to the extension of the timeline of the digitisation process, soft earnings growth and the overhang of the CBI case on the promoter group, we downgrade Sun TV from Buy to Hold with a revised price target of Rs425,"says Sharekhan research report.
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