Maran exit: Sun TV proves its detractors wrong

The reports about Dayanidhi Maran’s exit from the Union Cabinet on Thursday dealt a big blow to the Sun TV share prices, which immediately tanked. Reports suggest that the CBI had told the Supreme Court that it had enough evidence to prove that Dayanidhi Maran,brother of the owner of the company, misused his office in 2006 to force Aircel promoter to sell his stake to an industrialist close to the Maran family.

Also, there are allegations of a linkage between licences issued to Aircel during Dayanidhi’s tenure as communications minister and equity investment in Sun group-owned Sun Direct TV by the Malaysia-based Astro All Asia Networks. In early 2007, Astro All Asia Networks announced that it was picking up a 20 percent stake in Sun Direct for $166 million.

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[caption id=“attachment_38015” align=“alignleft” width=“380” caption=“The stock slide was momentary as after the initial dip from Rs 320 to Rs 305, the stock has moved higher to the Rs 326 level. Screen grab from ibnlive.com”]  [/caption]

The stock slide was momentary as after the initial dip from Rs 320 to Rs 305, the stock has moved higher to the Rs 326 level. In a report on the company after the initial fall in share price in June 2011 when the Maran family was dragged to the controversy, Motilal Oswal came out with a ‘Buy’ report suggesting that Sun TV has a robust business model and it can withstand political/regulatory headwinds.

Sun TV has a high market share and infrastructure which has acted as a high entry barrier across markets. There was news of nationalisation of the cable network in Tamil Nadu. However, implementation due to under-declaration is an issue. Furthermore, cable network is not a state subject. Sun TV’s business model of sharing revenue with content providers has helped the company maintain the quality of its programme and high viewership.

Sun TV has a well diversified business with 50-60 percent of the revenue coming from non-Tamil markets. Around half of its revenue is from the non-GEC (general entertainment channel) space.

The current dilemma involving Dayanidhi Maran is unlikely to effect the strong business of Sun TV, irrespective of the outcome. However, sentiments can affect the share price.

Regarding the Astro-Sun deal, Motilal Oswal mentions that the deal valuations were in line with the DTH valuations prevailing at the time of the deal. Also, there is no shareholding of Dayanidhi Maran in the Sun Group, thus maintaining an arm’s length distance.

Dips in share price, if at all, can offer a good buying opportunity.