Sun TV Network to deploy Rs 1700 cr capex between FY20-22

MUMBAI: Sun TV Network Ltd (STNL) is planning to spend up to Rs 1700 crore between FY20 to FY22 as part of its capex plan. The cash-rich company will fund the capex through internal accruals.

According to an ICRA report, STNL has strong liquidity with zero debt, a sizeable cash balance of Rs. 2,686.5 crore as on 31st March 2019 compared to Rs. 1,896.9 crore in FY18 and fund flow from operations of Rs. 1,882.2 crore in FY2019 (based on abridged financials), aided by its strong accruals and moderate capex undertaken over the last several years.

“Going forward, STNL has capex plans of Rs.1,700.0 crore over FY2020-22, to be funded through internal accruals. The company’s liquidity position is expected to remain strong over the medium term, despite potential revenue impact during periods of economic slowdown,” ICRA said in its report.

ICRA has reaffirmed STNL’s short-term non-fund based facilities worth Rs 12.5 crore. The rating agency stated that the rating reaffirmation draws comfort from STNL’s established presence; strong brand equity of ‘Sun TV’; and the company’s strong financial profile.

The company witnessed strong revenue growth of 27.7% in FY2019 supported by healthy growth in subscription and advertisement revenues, and its margins remained strong at an OPM of 68.9% and NPM of 37.5%, aided by its scale, high bargaining power and nil debt position.

It further stated that the company has had zero debt every year, with sizeable cash and liquid investments of Rs. 2,686.5 crore as on March 31, 2019 (PY: Rs,1,896.9), facilitated by its strong accruals. By virtue of ‘Sun TV’ being one of the top viewership channels and having consistently high television rating points (TRP’s), the company has significant bargaining power over its content providers. This, in turn, has aided in control over telecasted content and facilitated advertisement revenue growth.

The company currently has 32 channels in the four southern languages across various genres and one channel in regional entertainment category in Bangla. Further, the company also plans to increase its presence in the regional general entertainment space with the launch ‘Sun Marathi’ in FY2020.

ICRA noted that STNL’s revenues are susceptible to slowdowns and cascading advertisement spends cuts by corporates akin to other players in the media and entertainment industry. Further, the company has relatively high working capital intensity due to delays in actual payment receipts from advertisement agencies and DTH/cable operators, beyond the credit period offered, it added.

It also stated that the company’s dividends remain high at 40-50% of its profits in the last three years, although lower than the 70-80% of profits paid in the past. However, STNL’s strong liquidity position provides comfort to a large extent. Going forward, while the revenue growth would depend on economic factors, its margins and liquidity position are expected to remain strong.

According to ICRA, STNL derived 40.9% of its standalone revenues during FY2019 from advertisements. Akin to other industry players, STNL’s advertisement revenues are also dependent on the macro-economic environment.

In addition, the rising competitive intensity with an increase in the total number of channels in the mass content and niche segments could also pressurize the company’s advertisement revenues. Nevertheless, Sun TV’s high viewership levels and continuous strive to improve their content offering by rejigging primetime offering through new fiction and non-fiction shows provides comfort to an extent.

Similar to most players in the industry, STNL’s operations are working capital intensive in nature. The delays in actual payment receipts beyond the credit periods offered to advertisement agencies, DTH and cable operators stretch the working capital. Despite the high working capital intensity, the company’s healthy accruals and moderate capex compared to accruals in the last few years, have led to strong cash flows and liquidity.

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