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| Summary of Contents SECTOR UPDATE Media and entertainment DAS timeline extended again, ZEEL is our preferred pick Key points - 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 STBs 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 for broadcasters and the subscriber additions of DTH/MSOs.
- For the media stocks under our coverage, the extension of the timeline will have a greater impact on Sun TV's earnings as it operates in some of the key Phase 3 markets in the southern region. The softness in advertisement revenues will further affect the earnings of Sun TV. There will also be some impact on ZEEL's subscriptions revenues; however, given the strong traction in the advertisement revenues, we do not see much impact on the overall earnings of ZEEL. In case of Dish TV (brought under soft coverage through Viewpoint report on June 26, 2014 at Rs58), the development will have an impact on its subscriber additions and earnings.
- Valuation: In view of the extension of the timeline for digitisation, soft earnings growth and the overhang of the CBI case on the promoter group, we downgrade Sun TV from Buy to Hold with a price target of Rs425. We continue to prefer ZEEL, given its strong momentum in the advertisement revenues. Besides, it will also continue to attract investor's interest due to a lack of any quality investment opportunity in the broadcasting space. Thus, we maintain Buy on ZEEL with a price target of Rs367. For Dish TV, we believe the stock could underperform in the near to medium term due to the absence of any investment trigger. Thus, we close the call on Dish TV with a loss of 7% from the recommended price.
STOCK UPDATE Sun TV Network
Recommendation: Hold
Price target: Rs425
Current market price: Rs360 Downgraded to Hold, price target revised to Rs425 Key points - 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.
VIEWPOINT Dish TV India
Current market price: Rs54 Lacks earnings triggers, Book out Key points - 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 (DTH) service providers and MSOs.
- The extension of the timeline of the DAS regime will have a negative impact on the entire DTH industry. The mandatory push from the government to shift to the digital platform has been largely successful in Phase I and Phase II of the digitisation process, notwithstanding some operational head winds. However, most of the benefits from the first and second phases were largely accrued to the MSOs in terms of subscriber additions. Dish TV was betting big on the Phase 3 and Phase 4, and expecting strong incremental addition of subscribers. However, the delay will have an impact on the overall earnings of the company and shift the earnings goalpost by another year or two.
- We had come out with a Viewpoint report on the company on June 26, 2014 at a price of Rs58. The stock had touched a high of Rs63 (an appreciation of 9%) within a week. However, a lack of clarity on the goods and service tax roll-out timeline in the union budget for 2014-15 led to the underperformance of the stock in the last one month. Now, with the extension of the DAS timeline, we do not see any meaningful earnings trigger for the company in the medium term. Thus, we close our call with a loss of 7% from the recommended price.
STOCK UPDATE Shree Cement
Recommendation: Hold
Price target: Rs8,103
Current market price: Rs7,915 Downgraded to Hold after sharp appreciation, price target revised to Rs8,103 Key points - Shree Cement's revenues for Q4FY2014 rose by 14.4% on account of higher cement revenues (cement volume and realisation up 17.4% and 11.2% YoY respectively). The power division continues to lag (power volume and realisation declined by 37.3% and 13.4% YoY respectively).
- However, the company reported a decline of 2.5% in its net profit for Q4FY2014 on account of a lower other income (down 38.8% YoY) and a higher depreciation charge (up 15.5% YoY). The operating performance of the power segment (which reported negative EBIDTA per unit) remains under pressure due to rising costs and lower realisation. However, the performance of the cement segment has improved YoY with the EBIDTA per tonne of the segment improving by 14% YoY to Rs1,185.
- We have marginally revised our earnings estimates for FY2015 and FY2016 upwards to factor in the strong volume growth in Q4 and expectations of a pick-up in demand going forward. Consequently, we have revised our price target upwards to Rs8,103 but in view of the sharp run-up in the stock since our last upgrade note on May 30, 2014 and the limited upside from the current level, we downgrade the stock to Hold. At the current price the stock is trading at 12.2x EV/EBIDTA and PE of 20.8x for FY2016 estimates.
| | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | |
| Regards,
The Sharekhan Research Team |
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