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Sun TV has recovered partially and was trading 4.3% higher at Rs 290.60 on the National Stock Exchange (NSE) at 14:10 hours on Tuesday, a day after the stock tanked 22% on reports that the Ministry of Home Affairs (MHA) refused to give security clearance to its 33 television channels. The company had, however, denied having received any such communication.
The stock opened at Rs 275 on the NSE and touched a high of Rs 296.7 in intra-day deals on Tuesday. As many as 38,51,679 shares had been traded till 14:10 hours.
Analysts say it is unlikely that the licences will be cancelled and suggest traders who have appetite for risk can accumulate the stock at the current levels. CLICK HERE FOR THE REPORT
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“While our interaction with the management indicates that SUNTV’s channels have renewals upcoming only in 2021-2023, we note that potential cancellation of its broadcasting licenses would lead to SUNTV channels going off-air. We believe potential cancellation of SUNTV licenses is a low probability event, especially given its dominant share in the Tamil market,” says Shobhit Khare of Motilal Oswal Research in a co-authored report with Jay Gandhi on the company.
“However, if such an extreme event were to unfold, SUNTV would be exposed to significant financial and business continuity risks. While we are not changing our estimates currently, we note that the diversion of management focus due to escalating regulatory uncertainty would be impacting the business. We continue to model 17% EPS CAGR over FY15-17, based on 10% ad & broadcast revenue CAGR and 14% domestic subscription revenue CAGR. SUNTV currently trades at 12.8x FY16E EPS and 10.8x FY17E EPS – a sharp discount to its historical average P/E of ~24x,” they add.
Ritwil Rai, an analyst tracking the company at Kotak Securities, however, believes that regulatory issues shall significantly impact management bandwidth, and affect the company's terms with value chain partners (higher deployment of capital).
"We cut our target valuation to 15X FY16E PER, or Rs 321 (Rs 405 earlier) and we downgrade the stock to SELL (ACCUMULATE earlier)," he says.
