Sun TV Network Ltd's fourth-quarter profit slumped 24% from a year earlier because of the revival of state-run Arasu Cable Corp. Ltd, a decline in ad revenue and a slump in its movie business.
Profit fell to Rs.159.03 crore in the three months ended 31 March from Rs.208.34 crore a year ago and was in line with the Rs.160.58 crore estimated in a Bloomberg poll of analysts. Income from operations fell 7.3% to Rs.427.07 crore from Rs.460.50 crore, in line with expectations of Rs.426.75 crore.
"Sun's TV ad revenue looks worrying as it saw a 9% decline to Rs.235 crore for the fourth quarter compared to the same quarter in the previous year," said a Mumbai-based analyst tracking the firm who did not want to be named. "Losing market share is also a matter of concern."
There were two key factors that affected the firm's financial performance, said S.L. Narayanan, group chief financial officer, Sun Group. The Arasu launch had resulted in net profit being dented to the tune of about Rs.48 crore (a revenue loss of Rs.77 crore), he said. "Secondly, we did not have the benefit of Enthiran this year."
The success of the movie featuring Rajnikant had resulted in a profit of Rs.24 crore for the firm in fiscal 2011, he said. "Together, therefore, the company had an impact of about Rs.72 crore at the PAT (profit after tax) level."
Sun's woes began soon after J. Jayalalithaa took over as chief minister of Tamil Nadu after winning election last year in May. She revived state-run Arasu Cable in September to break the monopoly of Sumangali Cable Vision (SCV), the cable arm of Sun TV.
The state-operated cable network does not carry Sun channels. The Kalanithi Maran-promoted Sun TV has been in talks with Arasu for the last six months to be included in the offering. "We are hopeful that we would be able to conclude the negotiations shortly but it has taken longer than we anticipated," Narayanan said.
Competition from rivals also chipped away at what was once an unassailable lead. Sun's market share in the Tamil general entertainment channel (GEC) segment dropped to 62% in the quarter from 69% a year earlier. Rival channel Star Vijay benefited, almost doubling its marketshare to 12% from 6.4%. This happened even as the share of Tamil GECs in the overall language GEC landscape fell to 5.84% from 6.64% a year ago, mostly because of long power-cuts, data from television viewership monitoring agency TAM Media Research shows.
The Telecom Regulatory Authority of India (Trai) proposal to limit advertisement time to 12 minutes an hour is expected to further erode ad revenue and squeeze margins, said a recent report by Motilal Oswal Securities Ltd.
Advertising revenue contributes 63% of the total revenue Sun TV earns. Every 1 percentage point change in ad revenue impacts earnings by 0.8 percentage point, said the report.
"Considering the challenging environment in which the broadcast media operated in the last year, our performance on the ad revenues front should be considered better than most other players in this space," Narayanan said.
Sun TV shares have declined 34% in the past year, exceeding the 11.46% fall in the Sensex. On Friday, the shares closed at Rs.251.05, marginally up 0.30%, on BSE. The benchmark Sensex was little changed at 16,217.82 points.
Digitization and the ad time limitation proposal are relatively minor issues faced by the firm. Of greater import will be the telecom case that the Maran brothers are allegedly involved in, said Jagannadham Thunuguntla, head of research at SMC Global Securities Ltd.
The management's calibre will be tested with the prevailing political scenario in Tamil Nadu, he said.
It also needs to be seen whether they will be able to improve their market share in the other southern states, Thununguntla said.
The Enforcement Directorate, which investigates violations of foreign exchange laws, registered a case in February against the Maran brothers in connection with the Aircel-Maxis issue.