Sun TV rises on chatter of DMK win

Things are looking bright for Sun TV Network, if the exit polls are any indication. Shares of the Chennai-based broadcaster surged around 10 per cent on Tuesday, its new high for the year. The network, which has a dominant presence in southern markets, is promoted by DMK chief M Karunanidhi's grand-nephew Kalanithi Maran.

Tuesday's gains topped a phenomenal rise for the stock over the past two weeks as election fever peaked in Tamil Nadu ahead of Monday's polls. Four out of five exit polls, released on Monday, predicted that DMK-led alliance was likely to win a majority in the new Assembly.

On Tuesday, the shares gained 10 per cent to close at Rs 431.6. On the NSE, the gains were slightly higher at 10.4 per cent at the close of Rs 435 apiece.

The Sun shares have gained 23 per cent on the BSE since the recent lows on May 6. Most of these gains came after May 10, when Karunanidhi told NDTV that he would be the chief minister if his party won.

"M K Stalin himself doesn't want to become the chief minister. He wants DMK president (Karunanidhi) to become the chief minister," 93-year-old Karunanidhi told the channel.

Although the Sun TV management has often maintained it is far removed from the influence of the government in power, the market has a different understanding, said analysts.

Analysts compared Sun TV's double-digit ad growth from FY06 to FY11, when DMK was in power in the state, to single-digit ad growth and lower subscription revenues in the subsequent years under rival AIADMK rule. Sun TV even posted a fall of 2.3 per cent in ad income and decline of 2.2 per cent in domestic subscription in FY12, says Edelweiss Securities.

"If this (DMK win) actually happens, this will be sentimentally positive for Sun TV," said Edelweiss Securities on Tuesday. "The past five years have been tough for Sun TV in Tamil Nadu as subscription revenue growth has been slow and ad growth has been below sector growth," Edelweiss added.

The stock has seen a sub-par performance since the last Assembly elections, when rival AIADMK came to power. Valuations have also taken a hit due to various investigations. "Also, the stock has de-rated (price-earnings (PE ) of 11 times FY18 earnings) in the past few years partly because of 2G-related investigation while Zee trades at a PE of around 28 times FY18," Edelweiss said.

Elara Capital said DMK's electoral victory could help the company get over its bad patch in operations, affected with the rise of state-owned Arasu Cable, which hit the content fee payouts for the channel.

"Peers Jaya TV and Vijay TV were able to buy significant satellite rights of movies, which otherwise would have been bought by Sun TV. A DMK win can also influence the digitisation policy. Our analysis shows digitisation could double domestic cable subscription revenue," Elara said in a report last week.

From Rs 430 in early January, Sun TV shares plunged to a low of Rs 317 on the NSE (National Stock Exchange) in the end of February.