Sun TV rides high on positive signals
Shares of the Kalanithi Maran owned Sun Television Network jumped as much as 6.2 per cent to its highest intraday level since April 2006.
This was after brokerages upgraded their rating on the stock, on digitisation-led improvement in revenue and earning prospects.
The recent trigger is the goahead to the Tamil Nadu government-controlled Arasu Cable TV Corporation to offer digital cable services. This the first time a state government is getting a Digital Addressable System (DAS) licence. Analysts at Edelweiss Securities say it is a positive trigger for Sun TV and other broadcasters, as it will hasten digitisation in a state where Sun has 65 per cent market share. Tamil Nadu has around 16 million households; of these, around seven million are served by Arasu. If some of these customers shift to Direct To-Home (DTH) or other digital cable operators, there could be some increase in subscription revenue for Sun.
Analysts peg a 16 per cent increase in subscription revenue if about half of the Arasu subscribers shift to DTH or other operators. Credit Suisse, which upgraded its rating for Sun, expects the company’s subscription revenue to double over the next three to four years. So, it has increased its target price for the stock (its estimate of where the scrip would reach) to ~1,000, from ~790 earlier. CLSA, too has upgraded the stock on digitisation rollout and due to falling risks on account of legal and political issues of the company’s promoters. A Delhi court had acquitted all the accused in the Aircel-Maxis case, including the Maran brothers · Kalanithi Maran and his brother and former Union minister, Dayanidhi Maran.
The company according to analysts will be a key beneficiary of Phases 3 and 4 of digitisation since it has a strong foothold in the competitive southern market. Sun TV is a leading player with a bouquet of 33 channels across southern states—Tamil Nadu, Karnataka, Andhra Pradesh, Telengana and Kerala. During a recent investor conference, the management said digitisation would be completed during 2017-18. Even if around half of subscribers move to DTH, there will be considerable upside in the subscription revenue. This is now ~900 crore a year and Sun TV estimates it to jump to ~1,800-1,900 crore.
Gains in the Telugu general entertainment genre to the top position (from fourth earlier) in the last 18 months and expectations that Sun TV’s Indian Premium League franchise (Sunrisers Hyderabad) would turn profitable in FY19 have also been perceived favourably by the market. In the coming quarters, how competitive intensity plays out in some of the key southern markets and improvement in advertising revenues (hit after the note ban) are issues the Street will keep an eye on. While there has been positive news flow for the company, its promoters still have some legal hurdles to cross, such as the illegal telephone exchange charge. Though there is a 10 per cent upside from the current share price from the targets the brokerages have set, investors should await more clarity on the legal and political fronts before considering an investment in the stock.