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

The Economic Times - - Smart -

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.

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