Tata Sky slips into red with Rs 234 cr net loss in FY20
The DTH platform's operating income in FY20 stood at Rs 4691 crore. In the previous fiscal, the operating income was Rs 6113 crore
Direct to home (DTH) operator Tata Sky has reported a net loss of Rs 234 crore for the fiscal ended 31st March 2020 compared to a net profit of Rs 364 crore in the previous fiscal. According to a Crisil report, the company's PAT margin stood at -5% in FY20 compared to 5.9% a year ago.
The DTH platform's operating income in FY20 stood at Rs 4691 crore. In the previous fiscal, the operating income was Rs 6113 crore. Crisil clarified that the revenue for FY20 is lower than in the previous fiscal due to netting off of broadcaster payout since the content cost is a pass-through under NTO 1.0, and hence will not be comparable to FY19.
Tata Sky refused to comment on the Crisil credit report.
It is pertinent to note that Tata Sky had the highest market share in the pay DTH market during the April to June quarter. The DTH operator's market share stood at 32.09% compared to Dish TV's market share of 28.67%. Bharti Telemedia and Sun Direct had 23.83% and 15.41% market share respectively. The total pay DTH subscriber base during the quarter stood at 70.58 million.
Crisil has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities of Tata Sky.
The rating reaffirmation factors in Tata Sky's healthy business risk profile and strong market position, driven by strong subscriber addition in fiscal 2020 post-implementation of the new tariff order (NTO 1.0) by the Telecom Regulatory Authority of India (TRAI).
The credit rating report further stated that the subscriber base is expected to continue to grow in fiscal 2021 as social distancing norms and prolonged work-from-home practices amid the Covid-19 pandemic are likely to keep people indoors.
Therefore, Crisil expects the DTH broadcasting industry to buck the economic downturn and log revenue growth of 400-600 basis points in fiscal 2021.
However, it noted that DTH operators have implemented NTO 2.0 from March 2020, which caps network capacity fees (NCF) charged from subscribers and discounts NCF for multi-TV subscribers. This could impact the average revenue per user (ARPU) of DTH operators, including Tata Sky, in fiscal 2021 and will be a key monitorable.
Tata Sky, the report added, has altered its earlier plan of substantial investment in the broadband business. As a result, the adjusted net debt to earnings before interest, tax, depreciation, and amortisation (Ebitda) ratio should remain below 1.5 times over the medium term. Any deviation will be a rating sensitivity factor. However, entry into the broadband segment will keep Tata Sky exposed to project risks until the project stabilises and subscribers ramp up.
The ratings continue to reflect Tata Sky's robust market position and operating margin in the DTH business, healthy financial risk profile, and strong support from its parent, Tata Sons Ltd (Tata Sons; 'CRISIL AAA/FAAA/Stable/CRISIL A1+') during any exigency. The strengths are partially offset by exposure to risks inherent in the DTH industry, such as the evolving regulatory landscape and viewership patterns, and project risks in the broadband segment.
For arriving at the ratings, Crisil has combined the business and financial risk profiles of Tata Sky and its subsidiaries, Tata Sky Broadband Pvt Ltd (TSBB) and Active Digital Services Pvt Ltd (ADSL), because of their strategic importance and significant operational integration.
It has also factored in support from the parent, Tata Sons. Crisil believes Tata Sky will, during any exigency, receive distress support from Tata Sons for timely servicing of debt, considering its strategic importance to the parent. Tata Sky also receives operational and managerial support from the parent.
Strong market position and operating margin in the DTH business
Tata Sky is a leader in the DTH industry, in terms of revenue and subscribers. According to Crisil, its market position has strengthened with the implementation of NTO 1.0, resulting in a sharp addition of subscribers, and is supported by the largest high-definition subscriber base in the industry.
"High subscriber addition and improvement in ARPU resulted in healthy operating profit growth of around 20% in fiscal 2020. While revenue may be impacted by the implementation of NTO 2.0 in fiscal 2021, its impact on operating profit should be negligible and will be monitorable. Ebitda margin is likely to remain healthy over 30% over the medium term," the report stated.
Furthermore, the financial risk profile has improved significantly over the past five fiscals because of a reduction in debt (net of cash) and a consistent increase in cash accrual. Interest coverage and net cash accrual to adjusted debt ratio improved to around 6 times and over 1 time, respectively, in fiscal 2020 from 3.3 times and 0.2 times, respectively, five years ago.
The company plans to invest in the broadband segment gradually, such that adjusted net debt to Ebitda ratio remains under 1.5 times - any deviation will be a rating sensitivity factor. Capital payables have been included in adjusted debt as the liability has characteristics similar to external debt. The financial risk profile, however, is constrained by negative net worth, which is likely to improve over the medium term.
Tata Sky has received regular and timely funds from its parent to support CAPEX in the past. Improved cash accrual since fiscal 2016 lowered dependence on equity infusion (there has been no equity infusion since fiscal 2016 because of improved accrual). Tata Sons views Tata Sky as a strategic subsidiary, and has articulated strong support to, and will maintain a majority stake, in the latter. Tata Sky will continue to benefit from its association with the Tata brand and its management control will remain with Tata Sons.
Tata Sky has strong liquidity, driven by healthy cash accrual, cash and equivalent of Rs 135 crore, and unutilised bank lines of over Rs 1,500 crore as of August 31, 2020. Internal accrual, cash and equivalent, and unutilised bank lines will be sufficient to meet debt obligation and working capital requirement over the medium term. The company has sufficient headroom to raise debt to meet the CAPEX and investment requirements of subsidiaries. Moreover, Tata Sons will provide support in case of exigencies.
Tata Sky commenced operations in 2004 as an 80:20 joint venture between Tata Sons and Network Digital Distribution Services FZ-LLC (NDDS). DTH operations commenced in August 2006. In fiscal 2008, Baytree Investments (Mauritius) Pte Ltd (Bay Tree), an affiliate of Temasek Capital (Pvt) Ltd acquired 10% of Tata Sky's equity shares.
In fiscal 2010, TS Investments Ltd (TSIL) acquired a 20% equity stake in Tata Sky. In fiscal 2013, Tata Opportunities Fund, through Omega FII Investments Pte Ltd (Omega), and Tata Capital Ltd acquired an equity stake in Tata Sky.
Tata Sons, NDDS, TSIL, Baytree, Omega, and Tata Capital Ltd presently hold 41.49%, 20.0%, 20%, 10%, 7.8%, and 0.71%, respectively, of Tata Sky's equity share capital.
Founded in 2016, TSBB is a wholly-owned subsidiary of Tata Sky. Headquartered in Mumbai, the company's services are available in 17 cities and towns. It plans to build fibre to the home (FTTH) broadband infrastructure in India.
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