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Zee + Dish TV + Sun TV – Coverage by Goldman Sachs

June 18, 2009

According to a report by Goldman Sachs, the media sector is now nearer to the start of a cyclical recovery. Indeed, bottom-up data from India’s largest media spenders indicates the possibility of a sequential pickup of 10%-12% for the second half of FY2010 (ending March 2010) and a return to five-year median industry growth thereafter (which was about 14% over past 5 years).

With the digital subscription market having expanded by 29% over the past three months- with only moderate incremental pressure on ARPUs. Even with stocks under coverage having risen an average 67% over past 3 months, valuations remain close to midcycle.

Zee should expand on the strength of its content pipeline (has kept an average 18% market share over the last year, despite increased competition) and higher quality of its revenues as digitization takes off.

Goldman raises 12-month P/E-based target price to Rs229 from Rs190, as we roll over to FY2011 EPS, but retain our 16X mid-cycle multiple.

Goldman downgraded Sun TV (SUTV.BO) to Neutral, as current valuations price in the structural strength in Sun TV’s business model. Raises 12-month P/E-based target price to Rs264, from Rs216, as we roll over to FY2011 EPS, but retain our 18X mid-cycle multiple.

Downgrade Dish TV to sell as the best is behind us. 12-m DCF-based target price to Rs30, from Rs24.

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