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ICRA upgrades outlook on Siti Cable
MUMBAI: Rating agency ICRA has upgraded Siti Cable Network’s credit rating due to substantial capital infusion from the promoters and the multi-system operator’s (MSO) improved operating performance .
The rating on Siti Cable’s long-term funds has moved up from ‘BBB+’ to ‘A-‘. The outlook on the rating is ‘stable’.
ICRA has assessed the long-term rating on the Rs 125-crore (Rs 1.25 billion) term loans and the Rs 25-crore (Rs 250 million) long-term, fund-based facilities of Siti Cable.
It has assigned a rating of AA (structured obligation) outstanding on the Rs 50-crore (Rs 500 million) term loan facility of Siti Cable. The outlook on the rating is ‘stable’.
The revision in outlook takes into account the equity infusion of Rs 530 crore (Rs 5.30 billion) from the promoter group in February 2016 and better performance of Siti Cable. This is expected to result in an improvement in the credit profile of the company.
ICRA also notes that being an Essel Group entity, Siti Cable has been benefitting from regular financial support from the promoter group.
While the transition of the Indian cable TV system from analogue to digital is underway, ICRA believes Siti Cable’s execution risks are somewhat mitigated by the extensive experience of its management team in various areas of the television and media industry.
The rating also factors in Siti Cable’s status as one of the largest MSOs in India in terms of cable universe (~12.2 million as of December 2015) and revenues (Rs 905.9 crore in FY15), as well as the high growth potential of digital cable services following the enactment of regulatory framework for digitisation of cable TV systems in India by 31 December 2016.
Says Siti Cable executive director and CEO VD Wadhwa, “We welcome this upgrade in Siti Cable’s credit rating and thank ICRA for re-affirming our growth story. Improvement in profitability, growth in digital subscriber base, continuous focus on operational excellence and promoter’s confidence in sustainable growth of the company have all been the drivers for Siti Cable’s growth. Siti Cable has been at the forefront in offering great value to customers through video and broadband services.”
Siti Cable achieved a financial turnaround for the first time by reporting profit before tax of Rs 56 crore (Rs 560 million) in Q3FY16.
The rating outstanding on the Rs 50-crore term loan facility is based on the strength of the unconditional and irrevocable Debt Service Reserve Account (DSRA) guarantee extended by Zee Entertainment Enterprises LTD (ZEEL) to the lender of this facility.
As per the terms of this guarantee, the guarantor has to provide rolling DSRA support (to the extent of debt obligations falling due over the next quarter) throughout the tenure of the facility.
However, delays in full digitisation cannot be ruled out. ICRA also notes that Siti Cable has been making significant investments in consumer premise equipment towards conversion of analogue subscribers to digital and that it is expected to continue to remain in the investment mode over the near term. The rating agency takes comfort from the regular equity infusion and improving cash accruals of the company, which will limit the company’s borrowings.
The rating is constrained by high competitive intensity in the industry from other MSOs as well as from alternate technology platforms like DTH and IPTV, which may impact Siti Cable’s subscriber acquisition plans and ARPU improvement.
Overall, improvement in profitability and credit metrics on the back of growth in digital subscriber base and corresponding ARPU are the key rating sensitivities.