Sun TV plans listing and public offer

Sun TV group is planning to tap the capital market. It has filed a draft prospectus with SEBI, giving us some very interesting information not easily available to public in the past.

Sun TV group is controlled near 100% by Kalanidhi Maran. At this stage, out of the total shares issued 62,000,155, Kalanidhi Maran holds 61,999,969.

Only three months back (November 2005), DMK chief Karunanidhi's wife Dayalu sold her stake to Kalanidhi Maran. The Hindu reported quoting Karunanidhi as saying:

My wife was holding 20 per cent shares in Sun TV, Kungumam, a Tamil weekly, and other magazines. She has, very amicably, relinquished her shares and received the proceeds.

However, the draft prospectus files shows that Dayalu Ammal had a holding of only 5.75% ie., 115,000 shares out of a total of 2,000,000 shares issued at that time.

On October 28, 2005 Dayalu Ammal has sold her shares at Rs. 3,173.04 per share to Kalanidhi Maran, resulting in total proceeds amounting to Rs. 36.5 crores approximately.

It might have been a friendly settlement, but a poor one nevertheless. In the proposed IPO, Sun TV is expecting to offload 10% hoping to raise between 660 - 800 crores. With no material change happening to the company in the intervening period (last 4 months), Dayalu Ammal's 5.75% should have been worth much more - at least 250-300 crores.

In fact, by using some available data and several faulty assumptions (since that was all that I had access to), I valued Dayalu Ammal's stake as close to Rs. 600 crores.

A careful perusal of the IPO draft prospectus shows the following:

1. Sun TV group controls the channels in Tamil and Malayalam 100%
2. Both the Kannada and Telugu channels are joint ventures. Udaya TV (Kannada) is owned 66.67% by Kalanidhi Maran directly (that is not through Sun TV group which is going IPO) and the rest owned by two individuals S.Selvam and S.Selvi. Gemini TV (Telugu) is owned or controlled 50% by Kalanidhi Maran (directly and through another investment vehicle), while the rest 50% is controlled by K.Bharathi, Indira Anand, A.Sai Siva Jyoti and others. As such, the revenues of these language channels do not come into Sun TV Limited's balance sheet.
3. The company Sun TV Limited going for IPO currently owns 100% Kal Radio and South Asia FM which together have won several FM licenses and are also currently operating 4 channels in South India.
4. The magazine Kungumam and newspapers Dinakaran and Thamizh Murasu do not come into Sun TV Ltd. and as such their revenues and profits do not appear in the balance sheet of Sun TV Limited.
5. The cable distribution business - SCV - is also not part of Sun TV Limited.

This brings the estimated revenue of Sun TV group down considerably. The 2004-05 financial year revenues were Rs. 301.1 crores and net profit after taxes Rs. 76.8 crores. I had guessed the combined profits of the group (including the Kannada, Telugu TV operations and newspaper, magazine operations and cable distribution operation) at Rs. 150 crores in my earlier post on this subject. I would still be closer to the mark if all these companies were combined into a single entity in the balance sheet.

It may be possible that Sun TV Limited will go for consolidating the various companies in which Kalanidhi Maran has significant stakeholdings after listing Sun TV Limited.

Another observation from the IPO prospectus. He pays his senior executives very little - at least on paper. All the senior managers in Sun TV seem to be getting not more than Rs. 8.4 lakhs per annum! There is no stock option, no sweat equity and no bonus component. What does he then offer them to retain them in his company?