Sun TV is an Indian Tamil Language cable and satellite television channel launched in 1993. It is the flagship channel of the Chennai-based media conglomerate Sun Group’s Sun TV Network and has been one of the widest-reaching entertainment channels in South India. The major operating Channels and regional and includes Tamil, Telegu, Kannada, Malayalam and Bengali languages.
The company’s shares have 52 weeks price band of INR 551-259 and a total market capitalization of INR 189 billion which makes it a Large-Cap company. The shares have a P/E ratio of 15.15 and a dividend yield of 5.18%
Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The categories are as follows.
- Economic Moat
- Business Model and Management
- Growth Ratios
- Profitability Ratios
- Cash Flow Ratios
- Liquidity and Solvency Ratios
- Efficiency Ratios
- Valuation Ratios
- ROE (Du Pont Analysis)
- Future Prospects
(All units are INR Millions except ratios and per share data)
You can get the complete excel model used for this analysis from below:
1.Economic Moat (★ ★ ★ ☆ ☆)
The company operates in the media and entertainment industry where market dominance comes from licencing, distribution, customer base and reach. The SunTV conglomerate has 32+ TV Channels which has a reach to more than 95+ million households in India. Also, the network’s channels can be viewed in 27+ countries including U.S.A, Canada, Europe, Singapore, Malaysia, Srilanka, South Africa, Australia and New Zealand.
The company also operates 48+ FM Radio Stations which has a reach over entire South India. However, the said regional and language niche in the entertainment industry is a shrinking market as the new generation of individuals are more inclined towards western cinema and OTT platforms. This shrinks the current economic moat that the company enjoys. Therefore this category gets 3 stars in Sun TV fundamental analysis.
2. Business Model and Management (★ ★ ★ ★ ☆)
The business model of the company is such that the company currently owns and operates 32 TV channels (24 SD + 8 HD) across Indian languages – Tamil, Telugu, Kannada, Malayalam and Bengali. They will also be launching 7 new HD channels and 3 new SD channels including network’s first channel in the Marathi language. This will mark the entry of the company into North Indian market after Sun Bangla. After this, Sun Group will have a total of 42+ channels in their bouquet.
The company also owns two daily newspapers and five magazines in Tamil language and it is the second-largest circulated Tamil daily in India after Dina Thanthi. The management is also looking forward to the new way of entertainment with Sun NXT. It is a global online audio/video streaming platform owned and operated by Sun TV Network and has more than 4000 movie titles.
Mr Mahesh Kumar is the CEO and Managing Director of the company and Mr Kalanithi Maran is the Executive Chairman. The management has overall shown good track record and does not have any previous instances of principal-agent conflict. Also, they have been able to lead the company on a path of sustainable growth. Therefore this category gets 4 stars in Sun TV fundamental analysis.
3. Growth Ratios (★ ★ ★ ★ ★)
The revenue has shown a growth of 10.92% CAGR over the last 10 years. The operating income and net income has also grown at 10.27% and 14.33% CAGR respectively. This shows improving efficiency and profitability for the company. The working capital is also positive and has shown a linear growth. Capital expenditure has declined over the years which indicates moderate expansion in the near future. Therefore this category gets 5 stars in Sun TV fundamental analysis.
4. Profitability Ratios (★ ★ ★ ★ ☆)
The gross margin has been declining slightly over the years due to increased competition and increased cost of services delivered. The other margins along with return on assets have been stable. Overall the company has seen good profitability over the years which is not likely to improve in the future. Therefore this category gets 4 stars in Sun TV fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ★ ☆)
The net income margin has seen stability over the years and the Cap-Ex as a percentage of sales has declined considerably. The free cash flow as a percentage of net income has been positive and stable over the years. The free and operating cash flow growth has been fluctuating but this is the nature of the business. Overall the company has shown a good cashflow position. Therefore this category gets 4 stars in Sun TV fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ★ ★ ★)
The company does not have any debt in its capital structure therefore the financial leverage and debt to equity ratio has been flat over the years. The profitability margins have been stable over the years hence this is not a significant concern to the solvency of the company. The current and quick ratio has increased over the years and is way above the minimum threshold which shows a good liquidity position. Therefore this category gets 5 stars in Sun TV fundamental analysis.
7. Efficiency Ratios (★ ★ ★ ★ ☆)
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
Overall the business efficiency has seen some changes over the years. The payables period has increased from 140 to 157 days along with the receivables days from 105 days to 135 days. The cash conversion cycle has also seen significant improvement over recent years. Therefore this category gets 4 stars in Sun TV fundamental analysis.
8. Valuation Ratios (★ ★ ★ ☆ ☆)
The company has seen a good increase in user base and medium of content delivery. However, the shares have been trading at lower multiples due to the expected market size shrinkage as the new generation moves away from traditional mediums and regional entertainment. The company is adapting to the OTT revolution in the entertainment industry but any successful increase in valuation multiples is not expected in the near future. Therefore this category gets 3 stars in Sun TV fundamental analysis.
9. ROE 5 way Du Pont Analysis (★ ★ ★ ★ ☆)
The leverage ratio along with asset turnover has almost remained flat over the years. The interest burden ratio has remained at 100% due to no interest-bearing debt in the capital structure of the company. The operating margin has seen a slight improvement and the tax efficiency has been stable. Overall the Return on Equity has declined a little due to lower asset turnover. Therefore this category gets 4 stars in Sun TV fundamental analysis.
10. Future Prospects (★ ★ ★ ★ ☆)
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The media industry has been facing a demand slowdown in advertisements. The onset of the lockdown has led to a severe cut by corporates/government towards the ad spends. This is likely to continue in FY 2021 until the economy is back on track, however, the subscription revenue is likely to remain stable over the period for the company.
- The company’s revenues could potentially decline 15-20% while the subscription revenues may grow in double-digits in FY 2021. This will have a balancing out effect for the company.
- The management has been strict with their collections and hence receivables are not expected to rise significantly. The channels have improved their viewership during the lockdown and are expected to remain strong. Therefore this category gets 4 stars in Sun TV fundamental analysis.
The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.
Overall Fundamental Rating:
SUN TV SHARES (4.0/5)
Therefore it is a 4-star stock
★ ★ ★ ★ ☆
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|Summary of the Analysis|
|Economic Moat||★ ★ ★ ☆ ☆|
|Business & Management||★ ★ ★ ★ ☆|
|Growth Ratios||★ ★ ★ ★ ★|
|Profitability Ratios||★ ★ ★ ★ ☆|
|Cash Flow Ratios||★ ★ ★ ★ ☆|
|Liquidity & Solvency||★ ★ ★ ★ ★|
|Efficiency Ratios||★ ★ ★ ★ ☆|
|Valuation Ratios||★ ★ ★ ☆ ☆|
|ROE (Du Pont Analysis)||★ ★ ★ ★ ☆|
|Future Prospects||★ ★ ★ ★ ☆|
|Overall Fundamental Rating||★ ★ ★ ★ ☆|
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)