Mounting bad news takes a toll on Sun TV’s stock, but analysts say company’s fundamentals still remain strong
In the past two months, Sun TV has gone through one of its most turbulent periods since inception. Its stock price has see-sawed wildly, largely due to the twin blows of a new Jayalalitha government in Tamil Nadu, as well as the political travails of Dayanidhi Maran who was a former minister for telecommunications and who recently resigned as Union Minister for Textiles. Dayanidhi, who is Sun TV founder Kalanithi Maran’s brother, quit his post on Thursday from the Cabinet as the CBI began to look into allegations of his involvement in the 2G scam.
From a 52-week high of Rs 577, Sun’s stock plummeted to a one-year low of Rs 272 on June 2, 2011—a drop of 53%. On July 7, it had recovered slightly to trade at Rs 320.25.
Kalanithi Maran is part of one of the most powerful political and business dynasties in the South. He is the son of Late Murasoli Maran, who was a former Union Cabinet Minister twice -- from 1989 to 1990 and then again from 1996 to 1998.
Kalanithi is also the grand nephew of the DMK Supremo and former Chief Minister of Tamil Nadu M. Karunanidhi, who stepped down in May after his party and its key ally, the Congress, got a drubbing in the Assembly election by bagging just 34 seats out of 234.
Sun’s radiance has been dimmed by the anticipated quizzing of Kalanithi’s brother Dayanidhi by the CBI in the agency’s investigations into the 2G scam. C. Sivasankaran, the promoter of Aircel, a major telcom company in the south, has apparently told the CBI that licenses for 2G spectrum to Aircel was purposely delayed when Dayanidhi was the telecom minister, forcing Sivasankaran to sell the firm to Maxis Group, a Malaysian company.
Within three months of the sale of Aircel to Maxis, Maxis assumed a 20 per cent equity stake in Sun Direct, a Maran family-owned business. Maxis apparently invested Rs 599.01 crore between December 2007 and 2009. Besides, a Maxis Group company Astro also made investment of Rs 111.28 crore in South Asia FM, another Maran Group-owned company, says the Centre for Public Interest Litigation.
“The Network and Kalanithi do not have any relationship whatsoever to any of these happenings and Dayanidhi does not own any shares either in Sun TV or in Sun Direct TV Pvt Ltd” responded Sun TV in a statement to the Bombay Stock Exchange . “We reiterate that our business continues as usual and will not be hampered in any way”, said R Ravi, company secretary and compliance officer, Sun TV.
The Maran family woes don’t end there. A cross section of employees representing the state-owned Bharat Sanchar Nigam Ltd (BSNL) in Tamil Nadu had also asked for Dayanidhi's resignation in connection with a report, which stated that the Minister had allocated 323 BSNL connections to his brother Kalanithi’s Sun TV when Maran was the Telecom Minister. The BSNL Union has stated that “this has created a loss to the tune of Rs 440 crore” to the company. The Minister has denied these charges.
Kalanithi’s cable distribution empire, SCV, has also taken a hit. SCV is a multi service operator, has partnered with almost all the leading national and international channels and also fields 20 or so of its own ones. SCV has been accused by cable operators in the state for acting like a monopoly. A month or so ago, cable operators in Chennai went on a day-long strike and demanded the quick revival of the defunct state-owned Arasu Cables. The cable operators also alleged that they were threatened by the Maran brothers.
| KALANITHI MARAN |
| * Born in 1964. Schooling and college at Chennai. MBA, University of Scranton (US). |
| * Started monthly video (VHS) news magazine called Poomaalai, in 1990 at the age of 26 which was circulated among the Tamils in India and abroad. |
| * Worked for Kunkumam, a weekly Tamil Magazine in the late 1980s, which he acquired at later stage. |
| * Founded SunTV on April 14, 1993 with an investment of Rs 20 lakh. |
| * Highest paid Employee in India. |
| * Bought 37.75 % in low-cost carrier Spice Jet Airlines for around Rs 750 crore in individual capacity in June 2010 |
| SUN NETWORK – CORPORATE PROFILE |
| * Amongst Asia's most profitable media corporations and the largest TV network. |
| * Sun Network operates 24 hour television channels in Tamil, Telugu, Malayalam, Kannada and Bengali languages. |
| * Sun Group consists of 20 Television Channels, DTH, 45 FM Radio Stations, 2 Daily Newspapers, 4 Weekly Magazines & an Airline. |
| * Channels aired in USA, Canada, Europe, Middle East, Singapore, Malaysia, Sri Lanka, South Africa, Australia and New Zealand |
One of Jayalalitha's first moves, after becoming chief minister on May 16 th , was to nationalise the cable distribution business and revive Arasu, and last week, appointed a Managing Director and Chairman. On June 10 th , she also went so far as to allege that the Karunanidhi's family members, including the Marans and Durai Maran Azhagiri, have collectively earned around Rs 20,000 crore over the last five years.
Another piece of dismal news for Sun has been the arrest of one of his closest allies, Sun Pictures Chief Executive Officer (CEO) Hansraj Saxena. Saxena was arrested after a complaint lodged by a film producer who stated that Saxena allegedly cheated him of over Rs 82.53 lakh.
Sun Pictures, an arm of Kalanithi-owned Sun Network, was responsible for the production and distribution of the Rajini starrer ‘Endhiran’ last year which was made for a whopping Rs 132 crore. Sun Pictures was floated in 2008 and till 2011 the company has distributed 16 movies.
Amidst all of this, media baron Kalanithi, who sits squarely in the eye of the storm surrounding Sun, has remained elusive, electing not to speak with the media till date. Emails and phone calls to him remain unanswered.
However, word on the street is that Sun isn’t going to disappear over the horizon anytime soon. Despite these rough headwinds, they seem upbeat about the company and its ability to bounce back. “The company has a robust business model and we believe that it can withstand political/regulatory headwinds. While there have been investor concerns in the past related to directors' remuneration and likely negative clash flows in the group companies, core business reslience has historically remained strong despite these issues”, says Motilal Oswal. Moreover, earnings trajectory for the company remains unimpacted by the cable nationalisation by the Tamil Nadu government and other steps being considered by AIADMK, says the company.Goldman Sachs says that “Sun TV’s valuations are attractive, but we believe the overhang led by increased political uncertainty may overshadow fundamentals in the near term.”
| THE SUN SAGA |
| * In 2007, Differences emerge between Maran brothers and grand Uncle, M Karunanidhi Family, after a survey in Maran-run daily, Dinakaran gave low popularity ratings to M K Azhagiri and high ones to M K Stalin. Karunanidhi decides to launch his own channel, Kalaignar TV |
| * Then, Karunanidhi also announces launch of Arasu Cable Corpration, to break monopoly of SCV, a Maran-promoted firm. Dayanidhi Maran resigns as Minister for Telecom |
| * In 2008, Sun Direct, a joint venture between Kalanithi Maran Family and Astro group launched. Kalanithi launches film production/distribution division Sun Pictures |
| * In 2009, Patch up between Maran brothers and Karunanidhi family. Dayanidhi Maran becomes Union Minister for Textiles |
| * Hathaway, the only rival for Maran-run SCV stops operation in Chennai |
| * MAY 2011: DMK looses to AIADMK |
| * May 16 J Jayalalitha takes over as Chief Minister of TN. Promises to revive Arasu |
| * June 2: Reports of Dayanidhi Maran allegedly allocating 323 BSNL lines illegally to Sun TV. May have caused BSNL a loss of Rs 440 crore |
| * June 6: CBI records Sivasankaran's statement, alleging that Maran made him sell stake in Aircel to Maxis when he was Telecom Minister. Three months later, Maxis invested in Sun Direct |
| * June 7: Cable Operators sit on a day-long hunger strike against Sun TV |
| * July 3: Sun Pictures CEO, Hansraj Saxena arrested on complaint of cheating and coercion |
| * July 6: CBI intends to quiz Maran in 2G scam, looks into allegations that he forced Sivasankaran to sell stake in Aircel to Maxis |
| * July 7: Dayanidhi Maran quits the cabinet in face of mounting pressures |
If these analysts are to be believed, after taking a few knocks in the short haul, Sun will continue to rise for the foreseeable future.
