Sun TV shares wilt, but fundamentals shine

Investors were spooked when power changed hands in Tamil Nadu and Dayanidhi Maran, Sun TV founder's brother, was named in a lawsuit related to a telecom probe, but as the dust settles, more are attracted to the battered stock.

Sun TV's shares plunged after the DMK party, seen to be close to Sun TV's founders, lost the Tamil Nadu state elections and the name of Dayanidhi Maran was named in a telecom probe, where he allegedly favoured Malaysia's Maxis Communications in return for investment in his family business.

The Chennai-based Sun TV Network's stock has lost about a fourth of its value in one month.

However, some analysts believe the stock, which trades at a multiple of 14.14 times forward FY11 earnings, to be a good buy because it is cheap and the company has strong fundamentals.

The broadcasting industry, on an average, trades at a multiple of 19.57 times forward earnings.

According to Starmine, 21 analysts have a buy on the stock, four analysts recommend hold, while two advise a sell.

Cheap, long-term buy

"If you are seeing the stock on a two to three years perspective, then it is a good stock to own," KR Choksey analyst Rohit Maheshwari said.

"Tomorrow if Maran is arrested then there will be a negative reaction on the stock, but there is not so much concern that you should leave the stock," Maheshwari said.

Sun TV is still definitely the most attractive stock in the media sector, but if one is looking for a low-risk position, Zee Entertainment Enterprises is also not a bad buy, a Mumbai-based analyst, who did not wish to be named, said.

"It is based on the risk position of the investor. If you are a long-term buyer, you will find the Sun TV stock attractive," he said.

Best to wait and watch

"The business merits are strong but the uncertain external environment can be an issue for investors to take an extremely bullish call right now," IDFC Securities analyst, Nikhil Vora, said.

Recently, the AIADMK government in Tamil Nadu said it wants to provide cable television services at reasonable rates, according to media reports, and Vora sees this move possibly weaken Sun TV's stronghold in the state over the longer term.

"Given the new political environment it's likely that the equations will change," the analyst said, adding the impact may not be a major in terms of numbers, but content providers aligned with Sun TV may drift away gradually, weakening the franchise.

"Most investors understand the fact that there is no hurry to buy into the stock right now, they might as well wait for the overhang to subside," Vora said.

Another local analyst, who did not wish to be named as he is not allowed to talk to the media, concurred.

"I don't think it is advisable to enter the stock, you never know how the advertising revenue will be impacted by all the negative news," he said.

"The best policy would be to wait and watch."