Dark clouds hover over Sun

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.

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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 per cent.

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.

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Sun's radiance has been dimmed by the anticipated quizzing of Kalanithi's brother Dayanidhi by the Central Bureau of Investigation 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 (Rs 5.99 billion) between December 2007 and 2009.

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Besides, a Maxis Group company Astro made investment of Rs 111.28 crore (Rs 1.11 billion) 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 iterate 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 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.

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The BSNL Union has stated that 'this has created a loss to the tune of Rs 440 crore (Rs  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.

One of Jayalalitha's first moves, after becoming chief minister on May 16, was to nationalise the cable distribution business and revive Arasu, and last week, appointed a managing director and chairman.

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On June 10, 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 (Rs 200 billion) 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 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.

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Sun Pictures was floated in 2008 and till 2011 the company has distributed 16 movies.

Amid 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.

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"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.'

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.