Press Release Sun Direct TV Private Limited March 23, 2021 Ratings Amount Facilities/Instruments Ratings Rating Action (Rs. crore) Revised from CARE A-; CARE A; Stable (i)Long-term Bank Facilities 75.00 Stable (Single A Minus; (Single A; Outlook: Stable ) Outlook: Stable) (ii)Long-term Bank - - Withdrawn Facilities 75.00 Total Bank Facilities (Rs. Seventy-Five crore only) Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The revision in rating assigned to the bank facilities of Sun Direct TV Private Limited (SDPL) factors in the significant increase in scale of operations during FY20 (refers to the period April 1 to March 31) and 9MFY21, (refers to the period April 1 to December 31) aided by growth in both activation and subscription income. The rating also takes note of the virtually nil external bank debt in the current year with the bank debt being replaced by non-convertible debentures from the promoter. The rating continues to derive strength from vast experience of the promoters in the media industry with established presence in South India and SDPL’s comfortable debt coverage indicators. The rating, however is constrained by the accumulated losses in the past and competition faced from its peers and other alternative technology platforms. The ratings assigned to the facilities as indicated in (ii) above have been withdrawn as the said facilities stand closed and there is no outstanding against the same. Rating Sensitivities Positive Factors: Sustained improvement in profitability marked by PBILDT margins in the upwards of 35%. Sustained improvement in free operating cash flows. Negative Factors: Any adverse regulatory change may impact the operations of the company Any change in the support extended by the promoters and group companies Detailed description of the key rating drivers Key Rating Strengths Group’s strong 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 flagship company ‘Sun TV Network Ltd’ (Sun Network), operates 32 regional language channels and is one of the largest television networks in India. Sun Network also operates FM radio stations and has presence in the print media through its publications in Tamil and is also into movie production and distribution business through Sun Pictures. The promoters of the Sun TV group hold 80% stake in SDPL while the South Asia Entertainment Holdings Limited (SAEHL) holds the remaining 20% stake. The day-to-day operations of SDPL are managed by well qualified professionals with long experience in the media industry. Sharp growth in subscriber base The gross subscriber base has increased from 111 lakhs in FY16 to 201 lakh as on March 31,2020 and further to 222 lakh as on December 31, 2020. While FY20, saw a sharp increase in additions of 38 lakh subscribers, 9MFY21 saw a tempering as the availability of set top boxes and the lockdown related logistical issues limited expansion. While the company has seen good additions, churn remains a concern. Net subscriber base increased from 48 lakh as on March 31, 2016 to 119 lakh as on December 31, 2020. Sustained improvement in scale of operations with established presence in Southern India The scale of operations of the company has witnessed a sustained growth. FY20 turnover, considered prior to netting of content cost, marks a 42% growth from the FY19 turnover. The 9MFY21 indicates a further growth from this level. The FY20 financials captures the turnover at Rs. 1523 Crs in compliance with the TRAI regulations viz. NTO 1, basis which the content cost is a pass through between the broadcaster and consumer and hence is netted off from the total turnover as per the new regime accounting. The same practice i.e. of netting off the content cost from the turnover is expected to be followed in the upcoming years. The PBILDT and PAT margins have improved steadily y-o-y. Also, the profitability as per the 9MFY21 both in terms of PBDIT and 1 CARE Ratings Limited Press Release the PAT margin has recorded a significant improvement. SDPL has been focusing its operations primarily in the Southern region with the share of South India in the subscriber base high at around 91% in FY20. However, as a part of expansion, SDPL has launched its service in states like West Bengal, Odisha and Maharashtra. Key Rating Weaknesses Elevated financial risk profile The business generated losses at PBIDT level till FY11 and cash losses till FY12. The promoters have been continuously providing financial support to the company by infusing equity in the past to fund the operations and also for purchase of STBs. From FY13, the company has started reporting cash profits and net profits from FY17. Apart from the equity infusion/ group company loans, company had also availed external bank borrowings for the purchase of STBs. In the 9MFY21, company has fully closed the bank borrowings out of funds availed as NCDs from the promoter effectively making the company bank borrowing free. However, the overhang of the past losses remains and company continued to report a negative networth as on March 31, 2020. Competition in the Industry and Prospects The DTH industry is highly competitive with the presence of three other commercial players, traditional Cable TV operators and other digital technologies. Going forward, the proliferation of Over-The-Top (OTT) platforms due to availability of internet access at cheaper rates and growing penetration of smartphone and Smart TV segment is also expected to add competitive pressure in the industry. While the OTT platforms recorded rapid growth and also announced major investments into producing their own content, sustenance this steep increase in the revenue remains to be seen. Despite a surge in subscriber base SDPL remains a distant fourth in terms of subscriber base amongst the competing players, partly attributed to the south focused strategy of the company in the past. Going forward, the company is expected to focus on all the markets and continued growth in subscriber base ad higher APRUs would be key to its prospects. Revenue and Profitability susceptible to regulatory changes The company’s profitability and pricing power is susceptible to regulatory changes. TRAI had implemented NTO 1.0 from April 1, 2019. TRAI had proposed the implementation of NTO 2.0 but the same has been withheld for implementation currently by the Bombay High Court. NTO has helped the company since it has aided customers to switch from the Cable to DTH platform and has created a level playing field among the cable/DTH operators as well. Liquidity analysis- Strong In the past, the entire cost towards procurement of fixed assets (Customer Premise Equipment, CPE) was funded by term loans and promoter funds. The company also enjoys a credit period of upto 1 year from CPE suppliers towards these capital additions. In terms of day-to-day operations, SDPL operates on a cash and carry basis for its receivables while it enjoys long credit period for its contents resulting in a negative operating cycle over the years. The company has closed its fund based limits with banks. The FY20 Gross Cash Accrual has improved significantly to Rs. 519 Crs (PY: 358 Crs) as against the total term debt as on March 31, 2020 at Rs. 365 Crs. Analytical approach Standalone Applicable Criteria Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings CARE’s Policy on Default Recognition Liquidity Analysis for Non-Financial Sector Financial ratios – Non-Financial Sector About the Company Sun Direct TV Private Limited (SDPL) is a Direct to Home (DTH) operator is promoted by Mr Kalanithi Maran. Mr Kalanithi Maran and his wife Ms Kavery Kalanithi together hold 80% stake in SDPL. South Asia Entertainment Holdings Ltd (SAEHL), a 100% subsidiary of Astro All Asia Networks Ltd. (Astro), holds the remaining 20% stake. Astro is a leading DTH operator in Malaysia. SDPL started DTH TV services from December 2007, concentrating mainly in South India and expanded its services to the rest of India in September 2008. Brief Financials (Rs. crore) FY19 (A) FY20 (A) Total operating income 1601.66 1523.54 PBILDT 410.34 591.61 PAT 10.22 67.48 Overall gearing (times) -ve -ve Interest coverage (times) 7.24 8.04 A: Audited 2 CARE Ratings Limited Press Release Note: FY20 turnover is in compliance with the New Tariff Order-1, basis which the content cost is netted off from the total turnover in the financials. Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3 Complexity level of various instruments rated for this company: Annexure 4 Annexure-1: Details of Instruments/Facilities Size of the Name of the Date of Coupon Maturity Rating assigned along Issue Instrument Issuance Rate Date with Rating Outlook (Rs. crore) Fund-based-Long Term - - - 0.00 Withdrawn Non-fund-based - LT-BG/LC - - - 75.00 CARE A; Stable Annexure-2: Rating History of last three years Current Ratings Rating history Date(s) Date(s) Date(s) Name of the Type Rating & & & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Date(s) & Rating(s) assigned in No. Outstanding Facilities assigned assigned assigned 2017-2018 (Rs. crore) in 2020- in 2019- in 2018- 2021 2020 2019 1)CARE 1)CARE 1)CARE A-; BBB+; BBB+; 1)CARE BBB+; Positive (23-Mar-18) Fund-based-Long 1.