Sun TV zooms 25% on Maran acquittal in Aircel-Maxis case

Sun TV shares zoomed about 25 percent to Rs 686 per share in early trade today.This price spike came on the back of news that ex-telecom minister Dayanidhi Maran, his brother Kalanithi Maran and the latter's wife Kaveri Kalanithi, were discharged by a special court on Thursday on charges of bribery and money laundering in the Aircel-Maxis deal.Read more: Maran Brothers, others acquitted in Aircel-Maxis case

The price rise can be explained by the fact that the case was a key overhang on the Sun TV stock, Abneesh Roy of Edelweiss Securities told CNBC-TV18.
Fundamentally, he said the company had strong headwinds in the form of increasing market share in non-Tamil markets like Andhra Pradesh and Karnataka.Sun TV is Edelweiss's top pick due to the court verdict and recovery in its market share.Despite the share rally, Sun TV continues to trade at about 27 times forward earnings versus 42 times for Zee.

Had it not been for demonetisation, there would have been a recovery in the company's advertisement revenue for Q3FY17, which is likely to see an uptick in the first quarter of FY18, Roy said.Below is the verbatim transcript of Abneesh Roy's interview to Latha Venkatesh & Anuj Singhal on CNBC-TV18. Latha: Are you buying Sun TV Network stocks on the news. Do you expect it to rise much? A: Yes, it should go up because this was a key overhang and the stock is available at around 17-18 times FY18 versus Zee Entertainment Enterprises at 31 times. However, fundamentally also Sun TV's market share in its core market, if you see in Tamil Nadu, they never really had a problem and they remain a dominant player there. The issue was largely in Andhra Pradesh and Karnataka. In Andhra the share has improved versus a year back. They are consistent in the top with either number one or two. The struggle continues in Karnataka; Colors is doing well, I think that is still work in progress. We see things improve in Malayalam on a low base. So my sense is that if demonetisation would not have happened in this quarter, so in December quarter we would have seen recovery for Sun TV's ad growth. The results come out on February 10 but demonetisation will make the numbers look weak but post demonetisation, in Q1 of FY18 the growth should come back to double digits. Anuj: The stock will open at lifetime high. Is the risk reward still favourable and would you prefer it over Zee Entertainment? A: Yes, based on this event and based on recovery and market share definitely it will be among our top picks. Of course we need to watch out what happens on the CBI, our say is that they will study the ruling and go to the next court, if warranted but we need to see on that. However, my sense is that that the current court ruling is also important because this was a special team constructed by the CBI to delegate on this case. So from a medium-term perspective this stock is looking good. It will be among our top picks. So yes, the stock has rallied but that was also because the market share improvement had started and now they have gone back to the drawing table, they are investing in the fiction content versus the earlier model wherein they used to give the inventory to the content guy. Now they are shifting to the way how Zee and Star operate. I think that is a right model in a competitive market. The risk has to be taken by the broadcaster. Earlier the content guy was taking the risk for quality etc, now I expect the shows to improve.