Sun TV sets, Raj TV rises on surprise TN poll outcome

Liquor shares end mixed despite DMK's defeat

Shares of Sun TV Network took a pounding after the incumbent All India Anna Dravida Munnetra Kazhagam (AIADMK) swept the polls in Tamil Nadu.

Sun TV is owned by Kalanithi Maran, who is politically active and a grandnephew of Dravida Munnetra Kazhagam (DMK) president M Karunanidhi. Its slide was the biggest in 10 months, of 13.2 per cent to Rs 370.9.

On the other hand, the  shares of another Chennai-based company and Sun's rival, Raj Television Network, hit the exchange's upper ceiling of 20 per cent.

The outcome didn’t have a big impact on the shares of liquor companies.  Shares of United Breweries ended 0.6 per cent higher, while United Spirits and Radico Khaitan fell 3.7 per cent and two per cent, respectively. Shares of most spirit companies had declined this week, after the exit poll had suggested a DMK victory in the state polls. A complete ban on alcohol consumption was part of its election manifesto.

Shares of Sun TV had rallied sharply over the past week, on anticipation of a DMK victory. “The winning party of the upcoming Tamil Nadu elections has the potential to swing the financial fortunes of Sun TV Network. While an AIADMK win is already priced into the current stock price, a DMK win has the potential to catapult the stock to Rs 529, a 50 per cent upside from current levels,” Elara Capital analyst Aashish Upganlawar had said in a note on May 12.

In the past five years of AIADMK rule, the advertising growth rate for Sun TV was below the sectoral average. During the DMK rule of DMK in 2006-2011, Sun had seen robust ad growth.

Analysts believe Raj TV, although not connected with any of the political parties, could eat into more of Sun's market share. Zee TV and Star TV are also expected to increase their subscription and viewership at the expense of Sun, they say. In the past five years of AIADMK rule, shares of Raj TV have soared five-fold. Sun TV, on the other hand, has seen its share price decline by seven per cent during the period.

Sun TV shares trade at a discount to rivals such as Zee. Analysts say this situation might continue, due to overhangs such as Central Bureau of Investigation probes against the promoters, slower ad revenue growth and lack of regime change.

“The company has maintained its leadership position in TN despite the change in regime in 2011. The weakness in ad revenue growth is due to loss of viewership share in non-Tamil markets. Competition in these markets remains elevated,” said IIFL analysts Bijal Shah and Urvil Bhatt in a note on Wednesday.