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Why stake sale of Sunrisers Hyderabad makes sense for Sun TV

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Why stake sale of Sunrisers Hyderabad makes sense for Sun TV

The Sun TV Network is open to hiving off or selling its stake in Indian Premier League (IPL) cricket team Sunrisers Hyderabad. While speaking to analysts,  S.L. Narayanan, the Group’s Chief Financial Officer said that he is open to hiving off or even selling stake in the T20 team, however the decision will have to be taken by the board of directors. He further said it looked feasible that the franchise would break even in three years but it has not.

Although Narayanan blamed external factors for the franchise’s performance and cited that it was also because of some matches being played overseas during the general elections, some media reports suggest that Sun TV has not been able to monetise local sponsorships for its IPL team and had overestimated the revenue.

The team was brought by Sun TV Network for Rs.425 crore, which amounts to Rs.85 crore every year for five years. Currently, while the network earned revenue of Rs.96.55 crore from the team, the operating costs amounted to Rs.153.16 crore. This amounted to the network incurring a loss of Rs.56.6 crore on the team. The loss had even increased by Rs.13.2 crore since the previous year which was at Rs.43.4 crore in the June ending quarter.

The reason for this decision is also reflected in the June ended quarter results of Sun TV Network released recently which showed higher growth of the network excluding IPL revenues. While excluding IPL results, the network saw a double-digit growth of 14%, including the IPL team the revenues had only grown by 9%. Excluding the revenue from the IPL franchise team Sunrisers Hyderabad, it had grown to Rs 594.54 crore against Rs 520.17 crore in Q1FY2015, while including the IPL team the total income from operations in Q1FY2016 grew to Rs.691.09 crore from Rs.633.58 crore in Q1FY2015 and Rs.548.58 crore in Q4FY2015.       

K.Vijay Kumar, MD of Sun TV was reported to have expected the team to increase by three times in value in five years at the time of buying it. However, the network has not been able to monetise the team which may be due to internal as well as external reasons. 

Kalanithi Maran, Sun TV Network promoter and his associate company Kal Airways sold its entire 58% stake in Spice Jet to the earlier promoter Ajay Singh. The Sun TV Networks has also been in trouble with the government departments like the Ministry of Home Affairs and Ministry of Information & Broadcast recently due to some of the actions taken by the promoter. However, these decisions are still lie pending in the court. While the network has managed to gain relief from the court on the issue of participating in Phase III radio actions, it remains to be seen what the courts stand will be on the matters of renewal of the TV license will be.     

However, a hiving off or stake sale of Sunrisers Hyderabad looks to be a move likely to be made with the unprofitability of the franchise even after three seasons.

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