Why Sun TV Shares Are Up 50% in 8 Sessions

File photo: Kalanithi Maran

Sun TV’s first quarter results, announced on Friday, got a thumbs-up from the Street; the company reported a 19 per cent increase in net profit at Rs 197 crore, aided by strong advertising revenue growth. Income from operations increased by 9 per cent to Rs 691 crore. Sun TV’s advertising revenue increased by 16 per cent to Rs 324 crore.

The company is likely to witness a surge in advertising revenue because of the upcoming festive season, Sun TV said.

Analysts say the bigger trigger for the stock is Delhi High Court’s last week decision, allowing the firm to participate in the ongoing auctions for FM radio licences. Sun TV had moved the court after the government earlier denied the company a security clearance necessary to participate in the auctions. Sun TV runs the popular Red FM channel.

“Sun TV has a strong franchise in south India. The moment that they got a reprieve from the High Court, it was very clear that the entire game is going to change for Sun TV,” said TS Harihar, chief executive and founder of HRBV Client Solutions.

Speaking on the Delhi High Court verdict, the group’s chief financial officer SL Narayanan said, “Even assuming but not admitting that the major shareholder is guilty, the proceedings should start and end with him and there is no warrant for the underlying business to be shut down. There are minority shareholders, there are customers…”

Stock Talk

Sun TV shares have remained under strong pressure this year over uncertainty about security clearances to its 33 channels. Despite recent gains, Sun TV shares are down 15 per cent from their 52-week highs of Rs 459. Broadcasters such as Sun TV need a security clearance every 10 years in order to continue their operations.

Domestic brokerage SBICap Securities in a note said that the stock trades at 14.3-12.1 times its estimated FY16/FY17 earnings. “We believe sustaining advertising growth momentum and getting a clean chit on legal cases would drive in a re-rating,” the brokerage added. SBICap Securities has a buy rating on thE stock with target price of Rs 440.

According to Mr Harihar, upsides in Sun TV shares is likely to remain capped after the recent rally.

As of 12:08 p.m., Sun TV shares traded 13 per cent higher at Rs 382 as compared to a 0.40 per cent gain in Nifty.