Friday, November 11, 2005

Sun TV settlement

The Sun TV group is a privately held group. It runs close to 15 cable television channels across Tamil, Telugu, Kannada and Malayalam, has a presence in several countries in the world where Tamils are present and garners almost 70% of the television ad revenue in the Tamil Nadu market. It also owns and runs a Tamil weekly magazine Kungumam which has, in the last one year, increased its circulation phenomenally through giving away freebies. This group has recently bought Dinakaran newspaper group, running two Tamil daily newspapers - Dinakaran, the morning broadsheet and Tamil Murasu, the evening tabloid. The group also controls SCV, a cable TV distribution company in Tamil Nadu. In the nascent radio market Sun TV group owns Suryan FM in 4 towns in Tamil Nadu.

The channel is predominantly owned by Kalanidhi Maran, son of Murasoli Maran, who has been a Union Cabinet Minister last in the Vajpayee Government. The current Union Minister for Telecommunication and IT Dayanidhi Maran, who is the younger brother of Kalanidhi Maran also owns stakes in this group. The exact percentage is not known. The DMK leader Karunanidhi was thought to have stakes in this group, but the details were unknown. But a recent settlement announced two days back indicates that Karunanidhi's wife Dayalu Ammal has relinquished her 20% stake in the group. The valuation at which she relinquished her shares was not indicated.

Dayalu Ammal has donated Rs. 10 crores from the proceeds to her husband Karunanidhi and of this he is setting up a trust called 'Kalaignar Karunanidhi Charitable Trust' with an amount of Rs. 5 crores. The interest from this amount will be "spent for the development of Tamil language and [to render] financial assistance for medical treatment, marriages and educational pursuits to the poor and weaker sections", and that "the aid would not be confined to Tamils. Anyone who deserves would be given help."

I am more intersted in the valuations of the Sun TV group. Since the group derives the bulk of its income from television, the only comparable listed entity in India is Zee Telefilms. Zee has a larger footprint across India, but its revenues are seriously affected by competition as Zee is not number 1 in the Hindi market. Murdoch's Star and Sony make life difficult for Zee. Though Sun's footprint is currently restricted to South India, it is a reigning number 1 is all the southern markets. Zee dabbles in film production. Sun doesn't. In the end, I do think both companies are comparable at least in terms of P/E ratio. If any, Sun's P/E should be marginally higher.

Zee's current market capitalisation is Rs. 6,200 crores. (41,25,05,012 outstanding shares, share price as of today Rs. 150.55).

Taking its 2004-05 figures, Zee's annual revenue was Rs. 1,360 crores. Profit Rs. 310 crores. Market cap on 31st March 2005 was lower at Rs. 5,730 crores. EPS Rs. 7.6, P/E = 18.3.

Zee's profits have dropped this year compared to the previous year whereas the stock price has gone up a bit. So a P/E of 20 can be taken as of now. We can safely assume the same ratio for Sun TV group.

Now, what is Sun TV group's turnover and profit? The available data is for FY '03 when Sun TV group reported a turnover of Rs. 224.43 crores. The industry estimates for Sun TV group's television revenue from 7 of its top channels is Rs. 546 crores, with Sun TV (Tamil) revenue alone at Rs. 211 crores.

Taking into account the recently acquired newspaper business, magazine business and the Cable MSO business, Sun Group's total revenues could easily be of the order of Rs. 700 crores. While the radio business may be a money sink for now, the profit margins could easily be more than that of Zee, so let us take a 28% (as opposed to Zee's 22%) profit margin.

So hazarding a guess there, Sun Group's profits would be Rs. 150 crores. Hence its valuation should be at the least Rs. 3,000 crores. A listing of Sun TV group will probably command a far better valuation than this. It has a steadily increasing profits (as opposed to Zee), and is a number 1 in the southern markets and has massive growth opportunities. There is no competition in sight.

Even at Rs. 3,000 crores, the 20% stake of Dayalu Ammal must be worth Rs. 600 crores. What was the actual settlement at, if all she had gifted to her husband was Rs. 10 crores?

1 comment:

  1. Badri... I really like the way you have went through the entire process... I agree with you...these guys earn a lottttttttttttt.... the fun part is every now and then they blame JJ by yelling she has looted 65 Crores in her last term as CM...