Is this a personal matter that will resolve itself in due time, or should investors be worried?

Family feud ranks low in Sun TV’s list of worries

The issue raised by Dayanidhi Maran dates back more than two decades. According to his legal notice, Kalanithi Maran allegedly acquired a controlling stake in Sun TV following their father Murasoli Maran’s demise in 2003. He had no stake in the media company prior to that.

Dayanidhi has accused Kalanithi of abusing the family’s emotional state at the time to transfer Sun TV shares to his name at sharply discounted prices. He has called for the company’s shareholding to be reverted to its earlier state. That would cut Kalanithi’s estimated ₹18,000 crore (about $2 billion) stake in Sun TV to zero and shift the company’s control to Dayanidhi and their cousin M.K. Stalin (Tamil Nadu’s chief minister) as well as their siblings.

The politically charged family feud caught investors off guard when news reports surfaced on Thursday evening, 20 June. The stock, however, recovered from its intraday low on Friday after Sun TV’s management assured investors that the family feud was not expected to have any bearing on the business.

But in the larger scheme of things, the media business has bigger worries to grapple with. Since Sun TV’s listing in 2006, the midcap stock has appreciated at a compound annual growth rate of just 3.3%, while the broader index delivered a 13.8% annualized return in that period.

Also read | ₹37 crore to take control of Sun TV”>Mint Explainer: How Kalanithi Maran spent ₹37 crore to take control of Sun TV

A legacy in trouble

Sun TV is one of India’s largest media conglomerates. With 37 TV channels in seven languages, DTH (direct-to-home) service, 69 FM radio stations, six magazines, and three daily newspapers, the company’s reach extends to more than 140 million households in India, particularly in southern states.

More than 80% of Sun TV’s business comes from ad revenues and domestic subscriptions. The remaining is attributed to its cricket franchises. The company owns the Indian Premium League’s Sunrisers Hyderabad cricket team as well as Sunrisers Eastern Cape, a team in South Africa’s T20 cricket league.

Between 2005-06 and 2018-19 (FY 2006-19), Sun TV expanded its revenues and profits at a robust CAGR of 20%.

But in recent years, Sun TV has struggled to keep up with competition. Industry consolidation has made matters worse.

Sun TV attempted to expand in north India by operating a Hindi channel through DD Free Dish, but met with lukewarm response. Meanwhile, north-focused media channels such as Zee Entertainment Enterprises Ltd found better acceptance in south India.

Sun TV is also falling behind because of the growing popularity of video streaming platforms or OTT (over-the-top) platforms. Unlike other media houses that focused on securing exclusive OTT rights and creating originals, Sun TV has been rerouting traditional movies and satellite and cable TV serials towards its OTT platform, Sun NXT.

The company’s DTH offering, Sun Direct, has also seen growth stall in a challenging operating environment.

As a result, Sun TV has been reporting stagnant revenues and profits for more than half a decade. Between FY19 and FY25, its standalone revenues have grown at a CAGR of just about 1%, while profits have expanded by less than 3% annually.

The company’s cricket franchises have been performing better than its media business. But for the cricket business to scale to its full potential, and for investor value to be unlocked, the franchises would need to be demerged into a separate listed entity.

Making matters worse, a shift in advertisement spending towards sports channels and news coverage of the 2024 national election affected Sun TV’s ad revenue in FY25.

While the company’s domestic subscription revenue increased slightly from ₹1,710 crore in FY24 to ₹1,725 crore in FY25, it fell short of expectations as price hikes played out slower than anticipated. Its cricket franchise income also dropped, from ₹659 crore in FY24 to ₹642 crore in FY25.

Meanwhile, costs continued to increase as the company tried to keep up with competition. The result: a 6% decline in FY25 revenue to ₹4,015 crore and a sharper 11.5% drop in profit to ₹1,704 crore.

Technical analysis

The Sun TV stock managed to largely keep pace with the midcap index until 2018. But when its fundamentals started disappointing, the counter started going downhill. From an all-time high of more than ₹1,000 per share in early 2018, the stock crashed to ₹266 by 2020. The lower highs and lower lows formed along the way held up as critical levels in subsequent years.

The latest bout of corrections in the stock came after it hit a 52-week high of ₹921 in August 2024. On breaching the ₹777 level, in an echo of the fall seen in 2018 the counter saw a monotonic fall down to around ₹580. This is also the level where the stock found support following the family feud news last week.

If the stock manages to sustain above ₹580 apiece, it is expected to face resistance at the previous high of ₹650. But a sustained breach below ₹580 can keep the counter rangebound between ₹400 and ₹580 per share.

Silver linings

Over the years, Sun TV’s revenues and profits have grown at a CAGR of around 14%. Its stock, however, has lagged behind. Consequently, the counter is available at attractive valuations. Following the 20% correction seen over the past year, Sun TV’s valuation has moderated further. The stock is now trading at barely 14 times its trailing-12-month earnings.

Over the near term, Sun TV’s ad revenues can be expected to improve on a low base, particularly as consumer goods companies ramp up advertising. Its cricketing franchises can also support growth going forward. Factoring in a recovery in growth and a multiple of 18x, Sun TV’s target price has been pegged at ₹865 apiece. This reflects more than a 40% upside from current levels. But any negative surprises on the company’s fundamentals can extend the negative sentiment around the counter.

 

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Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa

Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.