Sun Direct’s FY18 net profit stays flat at Rs 45 cr amid double-digit rev growth

Direct to home (DTH) operator Sun Direct’s net profit for the fiscal ended 31 March 2018 has seen a marginal increase at Rs 45 crore compared to Rs 44 crore in the previous fiscal. The company’s PAT margin has fallen to 3.3% compared to 3.7% in the previous fiscal.

The company’s revenue saw an upswing with a 13.25% jump at Rs 1367 crore compared to Rs 1207 crore in the year ago period.

Sun Direct is among the top five DTH operators in India with a gross subscriber base of 13.92 million and a net subscriber base of 6.99 million as on 31 March 2018.

The DTH operator’s long and short-term bank facilities were recently reaffirmed by rating agency Crisil. Sun Direct’s long-term bank facilities were reassigned ‘Crisil BBB+/Stable’ while the short-term ratings were reassigned ‘Crisil A2’.

Crisil also withdrew its rating on bank facilities of Rs. 1050.89 crore at the company’s request and based on the revised sanctions from banks. The rating action is in line with CRISIL’s policy on withdrawal of ratings on bank facilities.

Sun Direct has a strong presence, with more than 40% market share among DTH operators, in South India. The business strategy remains focused on this region, which contributes around 90% of the total subscriber base. Availability of additional transponder space during fiscal 2018 helped to increase channels being offered, and led to healthy growth in the subscriber base, thereby further improving the market position.

It also stated that sustained improvement in cash accrual has led to a reduction in outstanding debt and hence in better debt protection metrics. The interest coverage and adjusted leverage ratios improved to 5.81 and 2.14 times respectively, in fiscal 2018; from 3.75 times and 1.95 times, respectively, in the previous fiscal.

Crisil also mentioned that promoters have invested Rs 1,088 crore over the five fiscals through 2016, in addition to providing personal guarantees against term loans. Sun Direct is strategically important to the Sun group as it complements its flagship broadcasting business and reinforces its market position as a media conglomerate.

Though promoters have not invested in Sun Direct during fiscal 2018 due to healthy internal accrual, need-based financial support continues to underpin the company’s high financial flexibility.

The company’s key weakness is that the continued net losses until fiscal 2016 have resulted in large accumulated losses. Though there was a profit in fiscal 2017 and fiscal 2018, the net-worth is expected to remain negative over the medium term.

The DTH industry involves large capital expenditure as operators need to incur significant establishment cost (installation service, and software, operation, and customer support) and operating expenses (advertising as well as the cost of acquiring subscribers) to ensure sustained ramp-up in scale. They also face intense competition from other DTH operators and local cable television providers.

Furthermore, there are risks of technological obsolescence, and change in consumer behaviour such as acceptance of over-the-top (OTT) platforms. Further, Sun Direct will remain exposed to increasing competitive intensity in the distribution segment over the medium term.

Chennai-based Sun Direct began operations in December 2007. Sun TV Network promoter Kalanithi Maran’s wife Kavery Kalanithi holds 62% equity in Sun Direct while Kalanithi Maran holds 18%. The remaining 20% is held by South Asia Entertainment Holdings Ltd, Mauritius, an investment arm of All Asia Networks Plc, Malaysia’s leading cross-media group.

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