Press Release Sun Direct TV Private Limited
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Press Release Sun Direct TV Private Limited July 04, 2017 Rating Amount Facilities Rating1 Rating Action (Rs. crore) 926.26 CARE BBB+; Stable Long-term Bank Facilities Reaffirmed [Enhanced from Rs. 369.68 crore] (Triple B Plus; Outlook: Stable) 926.26 Total Facilities (Rs. Nine Hundred and Twenty Six Crore Twenty Six Lakh only) Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The rating assigned to the enhanced bank facilities of Sun Direct TV Private Limited (Sun Direct), factors in the improvement in performance of the company as reflected by the consistently improving ARPU and profitability over the last three years, with the company reporting profits at the net levels during Prov. FY17 (refers to the period from April 01 to March 31). The rating also takes into account the availability of higher transponder capacity, which is likely to provide an impetus to the improvement of ARPU going forward. The rating continues to derive strength from the vast experience of the promoter group in the media industry and support extended by them. The rating, however, remains constrained by elevated financial risk profile of the company on account of the accumulated losses in the past and nearly stagnant net subscriber base with increasing concentration towards South India over the last few years. Going forward, the ability of Sun Direct to successfully leverage on the increased transponder capacity to increase its net subscriber base & improve its market share, increase its average revenue per user in a highly-competitive market would be the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Groups standing in the media industry and well experienced management team The Sun TV group is one of the largest media conglomerates in the country and has presence across various forms of media including television, radio, dailies, weekly magazines and channel distribution. The promoters of the Sun TV group hold 80% stake in Sun Direct while the South Asia Entertainment Holding Ltd (SAEHL) holds the remaining 20% stake. The day to day operations of Sun Direct are managed by well qualified professionals with long experience in the media industry. Part of the ‘Sun’ group and access to exclusive content of Sun TV Network Sun Direct draws strength from its association with the ‘Sun’ brand which has a high recall especially in the south Indian markets. Sun Direct has access to the large movie library in four southern languages. With access to such vast content, Sun Direct has started offering premium exclusive ad free movie channel as part of add-on services in its medium and high end packages. Improved operational performance The total income of the company increased from Rs.1,048.62 crore in FY15 to Rs.1116.61 crore in FY16 backed by increase in subscription income. The company has also reported sustained improvement in ARPU (Average Revenue per User) over the recent years as show below: Period FY13 FY14 FY15 FY16 9MFY17 ARPU (in Rs.) 131 143 153 163 175 The improvement in ARPU has also helped the company improve on profitability parameters and over the last three years losses at the net level have been declining and the company reported a net profit of Rs.32.21 crore during FY17 (Prov.). Increased bandwidth availability with addition of transponders Sun Direct currently uses 4 transponders from ‘GSAT 15’ and 4 transponders from ‘MEASAT 3’. Out of the 8 transponders, 3 transponders from ‘GSAT 15’ were added during FY17. With the addition of the transponders, the company has been able to increase the number of HD channels offered to over 55 from about 15 channels earlier. The ability of the company to leverage on the same and attract additional subscribers, retain its existing customers thereby improving its net 1Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Limited Press Release subscriber base as well as improve its ARPU would be critical to its prospects. Key Rating Weaknesses Stagnant net subscriber base with increasing concentration towards South India The net subscriber base of the company remained stagnant during the past four years ended March, 2016. Though the customer acquisition has been healthy, the company had witnessed high churn in the customer base mainly due to lower number of HD channels offered. Due to the limited band width available, Sun Direct has been focusing its operations primarily in the Southern region with the share of South India in the net subscriber base increasing from about 94% during FY14 to over 97% during FY16. Sun Direct has been able to maintain its market share in south India at about 40%, however, on pan-India basis, the company’s market share declined marginally from 12% to 10% during the above mentioned period. (Source: TRAI) Elevated financial risk profile Though the company started generating cash profits from FY13, it continued to incur losses till FY16. The promoters have been providing financial support to the company by infusing equity in the past. During FY17(Prov.), the company reported a net profit of Rs.32.21 crore and going forward, Sun Direct expects to support the future capex (for purchase of CPE) through internal accruals and external debt with no further dependence on promoter’s contribution. The company plans to incur about Rs. 1,475 crore during FY18 – FY20 to funded by debt of Rs.450 crore. It is also noted that the company is discharged from various legal proceedings initiated against it by Central Bureau of Investigation and Enforcement Directorate. Competition in the Industry and Prospects The DTH industry is highly competitive with the presence of 6 commercial players. Apart from peers, the industry also faces competition from traditional Cable TV operators and other digital technologies. Going forward, the ability of Sun Direct to leverage on the additional HD bandwidth available to reach out to a wider audience especially in the urban segments and improve its subscriber base would be important for its growth prospects. Furthermore, the actual progress of digitisation across the Phase III and Phase IV regions and the ability of Sun Direct to penetrate the newer market in face of increase competition will also be key to its prospects. Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition Financial ratios – Non-Financial Sector Factoring linkages in rating About the Company Sun Direct is a Direct to Home (DTH) operator belonging to the south-India based Sun TV group promoted by Mr Kalanithi Maran. Sun Direct is a joint venture between the Sun group and SAEHL, a 100% subsidiary of Astro All Asia Networks Plc (Astro). Astro is a leading DTH operator in Malaysia and Brunei. Sun Direct started DTH TV services from December 2007, concentrating mainly in south India and expanded its services to the rest of India in September 2008. During FY16, the company reported a net loss of Rs.35.30 crore on a total operating income of Rs.1,116.61 crore as against a net loss of Rs.156.92 crore reported on a total operating income of Rs.1,048.62 crore during FY15. During FY17 (Prov.), the company reported a net profit of Rs.32.21 crore on a total income of Rs.1,211.04 crore Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications. 2 CARE Ratings Limited Press Release Analyst Contact: Name: Mr C Harihara Subramanian Tel: 044-2849 0811 Mobile: +91 97899 98514 Email: [email protected] **For detailed Rationale Report and subscription information, please contact us at www.careratings.com About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. 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