Mohashin E Alam Ansari

S A P M
Securities Analysis and Portfolio Management
Coordinator: Dr. M. Manickaraj
Roll No. R1601028
PGDM (B&FS) 2016-18
NATIONAL INSTITUTE OF BANK MANAGEMENT, PUNE

Sun TV Network Limited CONTENTS

Sun TV Network is a public limited company engaged in the 1. About Sun TV Network Ltd.
business of mass media. It is listed in BSE and NSE. It was
incorporated in the year 1993 with 4.5-hour time sharing with ATN
2. Industry and its Outlook.
network. Today it has become second biggest telecom company in
India. It has 33 TV channels and 45 FM radios stations. It broadcast
channels in four Indian languages. i.e., Tamil, Telugu, Kannada and 3. Financial Analysis.
Malayalam. Its flagship channel is Sun TV. It is known for Tamil
channel that element motion pictures, news, serials and shows for 24 4. Management Analysis.
hours a day. Dinakaran, Tamiz Murasu, Kungumum, Mutharam,
Vannathirai and Kumguma Chimiz are the distributions under its
print media segment. Sun TV Network's channels can be viewed in 5. Assumptions for Projected
27 countries including U.S.A, Canada, Europe, Singapore, Malaysia,
Financial statements.
Srilanka, South Africa, Australia and New Zealand.

6. Projected Profit and Loss

Industry and its Outlook Statement.

The Indian Media and Entertainment sector is in strong
growth phase. This is backed by rising consumer demands and 7. Projected Balance Sheet.
increasing advertising revenues. Over the last decade, digitalization
and availability of internet has become the driving force of this 8. Valuation of company stock
industry. Internet has almost become a mainstream media for
entertainment for most of the people. By 2020, video enabled devices using Free Cash Flow to the
will create lot of opportunities and challenges. In view of such
growth prospects, government has taken some initiatives like Firm (FCFF) model.
digitization of cable distribution sector, 100% FDI limit in cable and
DTH satellite platforms, industry status to the film industry and 9. Valuation of company stock
announcing Digital India program. Radio also continue to hold its
strong run growth with a 15.3 per cent growth in 2015. Major radio using Free Cash Flow to Equity
stations have been operating at high advertising inventory utilization
levels coupled with the high advertiser demand has enabled increase (FCFE)model.
in advertisement rates. This sector is expected to grow at a
Compound Annual Growth Rate (CAGR) of 14.3 %.
10. Conclusion
Sun TVs presence in entertainment, movies, music, news,
kids, action, life and a dominant share in the South India, ensures
sustained viewership and role in this sector. Government initiatives
in digitalization and addressability for cable television would help
Sun TV to become the largest regional television network and to be
one of the major beneficiaries of the recent growth in the DTH space.
Revenue stream from increased DTH subscribe is expected to keep
positive momentum in the years to come.
 KEY DATA Financial Analysis
NSE/BSE Code SUNTV With strong debt free balance sheet the
Sector/ Industry Media and Entertainment
company has reported 5% CAGR in sales.
Face Value Rs. 5
Company grew 15.63 % in FY 14 from FY 13.
Market value 378.00 (on 31st Mar 2016)
From then it is growing steadily above 7%. The
PE 23.86
return on equity is high and above 25%. The
PB 5.79
Sales (5 Yr CAGR) 5% company is giving good return on assets at
23.49%. The company is consistently improving
shareholders value by increasing the earning per
share. Presently EPS is Rs. 15.84. The company
KEY RATIOS is profitable and maintaining its net profit margin
Year 2016 2015 2014 2013 around 35.81% as a percent of net sales. Fixed
ROE % 25.24 23.27 24.27 25.40 asset turnover shows improvement in efficiency
ROA % 23.49 21.42 21.93 22.94 in operations. The reserves and surplus of the
Net Profit % 35.81 32.67 33.51 36.62 company stood at Rs. 3504.86 Cr as against Rs.
Fixed Asset 3205.77 Cr in the previous. The companys
2.46 1.87 1.61 1.46
Turnover
inventory period is very less but it suffers
EPS 15.84 13.47 12.83 12.12
disadvantage of high receivable period.
Sales Growth % 7.28 7.72 15.63 4.11
D/E Ratio 0 0 0 0

KEY PROFESSIONALS Management Analysis

Executive Chairman Kalanithi Maran
Executive Director & CEO Kavery Kalanithi Kalanithi Maran belongs to strong
Director S. Selvam political background. He did his schooling at Don
Independent Director J. Ravindran Bosco, Egmore, Chennai. He then went to Loyola
M.K. Harinarayanan College. He finally did his MBA from University
Nicholas Martin Paul of Scranton. He started his career with Sumangli
R. Ravivenkatesh Publication, then entered into monthly magazine.
He then introduced Sun TV and got great success
in it. He is both educated and experienced person to handle media and entertainment industry.
He married Kaveri. She holds the designation of Executive Director and CEO of the company. She
holds a Bachelor of Arts degree from University of Madras. She is actively engaged in the business and is
responsible for daily operations. She delegates the content mix for airing on the channels. She also handles
the customers feedback section. Her dedication towards philanthropic activities is the reason that she is a
part of the on board trustees of SUN foundation.
S. Selvam has vast experience in media industry and produced about 40 films in South Indian
Regional languages and scripted number of regional films. He worked with Udaya TV Private Limited.
He is a Graduate in Arts from Madras University.
J Ravindran is an advocate by profession. He practices in Madras High Court. He serves as director
and independent director to many other firms beside Sun TV. Harinarayan is a developer of residential
layouts in the western part of Chennai and owns and operates Service Apartments to cater to the present
influx of entertainment, communication and IT industries. At Sun TV he is an independent director.
Nicholas Martin Paul holds a Bachelor's Degree in History from University of Madras. He serves as a
Director at Sun TV Network Limited, Splendid Fine Foods Private Limited, Tan Business Ventures Private
Limited and Tan Retail Ventures Private Limited. He served as an Independent & Non-Executive Director
of SpiceJet Limited from November 15, 2010 to September 21, 2015. Ravivenkatesh has done graduation
from University of Madras. He is independent director of Sun TV.
Assumptions for projected financial statements
1. Assumptions for profit and loss statement
In last 10 years the company has grown by 23.09% CAGR. However, in the recent 5 years the company
has shown nominal growth of 5 %. The growth is then increased in previous two years. Also the media and
entertainment sector is expected to grow at a CAGR of 14.3 % by 2020. In view company growth and industry
growth, it is assumed that the company will grow its sale by 10% y-o-y from 2017 to 2021, and from then
sales will achieve stable growth rate of 8%. Change in the stock and raw material consumed for this company
is zero and hence assumed to be zero for further years. Power, fuel and employee cost are taken as average of
ratio of sales. Depreciation rate is calculated based on written down value method and depreciation for further
years are arrived at from this rate. Other particulars containing expenses and incomes are taken five-year
average percent of sales.

ASSUMPTIONS FOR PROFIT & LOSS ACCOUNT

Will grow at 10% and then achieve
Net Sales 10.00%
stable growth of 8%
Increase/Decrease in Stock 2016 Level 0.00
Raw Material Consumed 2016 Level 0.00
Power & Fuel Cost 5 Year Average % to sales 1.15%
Employee Cost 5 Year Average % to sales 4.46%
Depreciation 5 Year Average WDV 40.37%
Other Manufacturing Expenses 5 Year Average % to sales 11.72%
General and Administration Expenses 5 Year Average % to sales 9.50%
Selling and Distribution Expenses 5 Year Average % to sales 0.40%
Miscellaneous Expenses 5 Year Average % to sales 1.42%
Interest (% of other current & noncurrent liabilities) 5 Year Average 4.74%
Other Income 5 Year Average % to sales 4.08%
Exceptional Income / Expenses 5 Year Average % to sales 0.14%
Provision for Tax 5 Year Average % to sales 17.18%

2. Assumptions for balance sheet

As the company is debt free, it is assumed to remain debt free in coming years. It is also assumed
that the company will not raise funds by fresh issue of equity capital. Differed tax asset or liabilities will be
netted in next five years. Other noncurrent and current liabilities are considered to be same as previous year.
Net block of the assets is arrived at by fixed asset turnover ratio for the year 2016. Investments, other current
and non-current assets are assumed to be same as per the year 2016 for further years. Inventories and debtors
are calculated based on holding periods. The assumptions are shown below.

ASSUMPTIONS FOR BALANCE SHEET

Liabilities
Paid up capital 2016 level 290.44
Share Warrants & Outstandings 2016 level 0.00
Long-Term Borrowings Average DE Ratio 0.00
Deferred Tax Assets / Liabilities Will be netted in next 5 years
Other Long Term Liabilities 2016 level 6.18
Trade Payables Average Holding Period 0.00
Provisions 2016 level 14.81
Other Current Liabilities 2016 level 173.80
 Assets
Net Block 2016 Fixed Assets Ratio 2.46
Investments 2016 level 591.89
Other Non-Current Assets 2016 level 32.11
Inventories Average Holding Period 0.28
Sundry Debtors Average Holding Period 102.82
Cash and Bank Balancing Amount
Other Current Assets 2016 level 362.26
Loans and Advances 2016 level 274.93
Miscellaneous Expenses not written off 2016 level 0.00

Projected profit and loss statement

2017 2018 2019 2020 2021 2022

Net Sales 2826.76 3109.43 3420.38 3762.41 4138.66 4535.97
EXPENDITURE :
Increase/Decrease in Stock 0.00 0.00 0.00 0.00 0.00 0.00
Raw Material Consumed 0.00 0.00 0.00 0.00 0.00 0.00
Power & Fuel Cost 32.41 35.66 39.22 43.14 47.46 52.01
Employee Cost 126.18 138.80 152.68 167.95 184.74 202.48
Depreciation 367.11 464.11 510.53 561.58 617.74 679.51
Other Manufacturing Expenses 331.30 364.42 400.87 440.95 485.05 531.61
Cost of Goods Sold 857.00 1002.99 1103.29 1213.62 1334.99 1465.62
Gross Profit 1969.76 2106.44 2317.08 2548.79 2803.67 3070.35
General and Administration Expenses 268.58 295.44 324.99 357.48 393.23 430.98
Selling and Distribution Expenses 11.39 12.52 13.78 15.16 16.67 18.27
Miscellaneous Expenses 40.00 44.00 48.40 53.24 58.56 64.19
Total Expenditure 1176.97 1354.96 1490.46 1639.50 1803.45 1979.05
Operating Profit 1649.79 1754.47 1929.92 2122.91 2335.20 2556.91
Interest 8.53 8.53 8.53 8.53 8.53 8.53
Other Income 115.28 126.81 139.49 153.44 168.78 184.98
Profit Before Taxation & Exceptional
1756.54 1872.75 2060.88 2267.82 2495.45 2733.37
Items
Exceptional Income / Expenses 3.95 4.35 4.78 5.26 5.79 6.34
Profit Before Tax 1760.49 1877.10 2065.66 2273.08 2501.24 2739.71
Provision for Tax 302.47 322.50 354.90 390.54 429.74 470.71
Profit After Tax 1458.02 1554.60 1710.76 1882.55 2071.51 2269.00

Values are in INR Crore

Projected balance sheet

2017 2018 2019 2020 2021 2022

LIABILITY
Paid up capital 290.44 290.44 290.44 290.44 290.44 290.44
Share Warrants & Outstandings 0.00 0.00 0.00 0.00 0.00 0.00
Total Reserves 4962.88 6517.48 8228.24 10110.79 12182.30 14451.30
Shareholder's Funds 5253.32 6807.92 8518.68 10401.23 12472.74 14741.74
Long-Term Borrowings 0.00 0.00 0.00 0.00 0.00 0.00
Deferred Tax Assets / Liabilities 17.57 14.06 10.54 7.03 3.51 0.00
Other Long Term Liabilities 6.18 6.18 6.18 6.18 6.18 6.18
Total Non-Current Liabilities 23.75 20.24 16.72 13.21 9.69 6.18
Current Liabilities 188.61 188.61 188.61 188.61 188.61 188.61
Trade Payables 0.00 0.00 0.00 0.00 0.00 0.00
Short Term Borrowings 0.00 0.00 0.00 0.00 0.00 0.00
Provisions 14.81 14.81 14.81 14.81 14.81 14.81
Other Current Liabilities 173.80 173.80 173.80 173.80 173.80 173.80
Total Liabilities 5465.68 7016.77 8724.01 10603.05 12671.04 14936.53
ASSETS
Net Block 1149.78 1264.75 1391.23 1530.35 1683.39 1844.99
Investments 591.89 591.89 591.89 591.89 591.89 591.89
Other Non-Current Assets 32.11 32.11 32.11 32.11 32.11 32.11
Total Non-Current Assets 1773.78 1888.75 2015.23 2154.35 2307.39 2468.99
Current Assets Loans & Advances 3691.91 5128.01 6708.79 8448.70 10363.65 12467.54
Inventories 0.67 0.78 0.86 0.95 1.04 1.14
Sundry Debtors 796.28 875.90 963.50 1059.84 1165.83 1277.75
Cash and Bank 2257.77 3614.14 5107.24 6750.71 8559.59 10551.46
Other Current Assets 362.26 362.26 362.26 362.26 362.26 362.26
Loans and Advances 274.93 274.93 274.93 274.93 274.93 274.93
Miscellaneous Expenses not written off 0.00 0.00 0.00 0.00 0.00 0.00
Total Assets 5465.68 7016.77 8724.01 10603.05 12671.04 14936.53

Values in INR Crore

Valuation of company stock using Free Cash Flow to the Firm and Equity (FCFF &
FCFE) model
Beta of the company is obtained by doing a regress between company share price return and BSE Sensex
index returns. The beta is calculated for the financial year 2016-16. This beta is used to determine cost of
equity using capital asset pricing model. The market risk premium is 8% and the risk free rate is 7%. The
company is debt free, but still it pays a nominal amount of interest. The interest rate is calculated based on
other liabilities assuming a part of it is interest bearing. Cost of debt adjusted for tax is then arrived at from
the cost of debt. The weighted average cost of capital is then calculated form cost of debt and equity. This is
why there is nominal difference between cost of debt and cost of equity. The valuation of stock using FCFF
and FCFE model is given below. The market value of the company is close to the value predicted by the
analysis and there are good growth prospects of this company in future. Keeping this in view, I recommend
buy for this share.

FCFF MODEL FCFE MODEL

Year FCFF PV of FCFF FCFE PV of FCFE
2017 1073 919.91 2017 1168.41 1001.69
2018 1258.3 924.83 2018 1363.58 1002.19
2019 1384.2 872.18 2019 1500.32 945.343
2020 1522.6 822.49 2020 1650.69 891.673
2021 1674.9 775.64 2021 1816.09 841.035
2022 1844 734.17 2022 1999.08 795.916
2023 2022.8 694.35 2023 2192.45 752.591
2024 2210.8 656.15 2024 2395.71 711.031
2025 2407.5 619.55 2025 2608.19 671.203
2026 2612 584.51 2026 2830.71 633.45
Steady State 2820.9 9121.3 Steady State 3057.16 9885.05
Total 16725 Total 18131.2
Add: Investments (2016) 591.89 Add: Investments (2016) 591.89
Add: Cash (2016) 1093.1 Add: Cash (2016) 1093.06
Total 18410 Total 19816.1
Less: Debt (2016) 0 Value per share 341.14
Total 18410
Value per share 316.93

Disclaimer
Mohashin E Alam Ansari is a student of National Institute of Bank Management
Pursuing Post Graduate Diploma in Management in Banking and Financial Services. The
preparation of this report is a part of assignment of Security Analysis and Portfolio
Management subject. The analysis is based on secondary data obtained from Ace Equity
and views presented are the students personal views. Investors should keep in mind their
risk appetite before making any investment decisions.

Date: 1st Aug 2017