Finally, the Clouds are Lifting for Sun TV
With political risks fading, Sun TV could be in for a re-rating; more analysts turn upbeat on the stock
most critical of all was over Maran’s alleged involvement in the money laundering case, which has been weighing on the stock for four to five years. Since this risk seems to have been addressed — at least for now, as the court ruling may be challenged — the company can secure higher valuation as its core business fundamentals remain intact and were never a cause of concern.
Given these factors, analysts have already expressed their bullishness. According to a Bloomberg compilation of analyst estimates, close to 79% of analysts have turned upbeat on the company’s stock and three brokerages have upgraded their recommendation to ‘buy’ post the announcement of the promoter’s acquittal in the Aircel-Maxis case. Before that, only 68% of analysts were bullish on it.
There are two key factors because of which analysts have become upbeat on the stock. One, Sun TV’s dominant presence in the southern markets. As digitisation drive gains momentum, Sun TV should be the key beneficiary in terms of superior growth in its subscription revenues. The company’s subscription revenue rose 19% in the first half of the current fiscal from a year earlier, driven by cable subscription revenue. It is estimated that close to 62% of homes in South have been digitised. This should boost Sun TV’s subscription revenue in the coming fiscal years. According to an estimate of CLSA, the company’s subscription revenue is expected to grow at a compounded annual rate of 15% over FY17-19.
The other factor helping the stock is its high valuation gap with peer Zee Entertainment. Considering the FY18 estimated earnings, according to ICICI Securities estimates, the stock is trading at a price-to-earnings multiple of 18.2 and Zee at 28.8 (postredeemable preference shares). This amounts to a discount of close to 36%. In the coming quarters, this discount is expected to narrow down in the absence of political risks, as Sun TV undergoes re-rating given its sound business fundamentals.