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Tata Sky less dependent on equity infusion due to capex moderation and healthy cash accruals

MUMBAI: Tata Sky’s dependence on equity infusion from the promoters has reduced significantly with capital expenditure intensity moderating, cash accruals improving and the company turning profitable at the net level.

The direct-to-home (DTH) company’s capex is likely to be in the region of Rs 1,300 crore per annum from FY17 onwards. Between the financial years 2014 and 2016, capex incurred was over Rs 1,600 crore per annum on an average.

Tata Sky, a joint venture between Tata Sons and Rupert Murdoch-controlled 21st Century Fox, has completed one-time migration to MPEG-4 technology by replacing over six million set-top boxes (STBs) between fiscals 2014 and 2016. Capex intensity is likely to moderate due to this.

As of 31 March 2016, Tata Sky migrated all the MPEG-2 boxes into MPEG-4. In FY15, the DTH operator had converted nearly 1.3 million MPEG-2 boxes into MPEG-4 so as to release additional capacity and offer more channels to its subscribers.

Tata Sky has seen healthy subscriber addition over the years while the focus has been on high average revenue per user (ARPU) and maintenance of low churn rate. It also has the largest high-definition (HD) subscriber base. All these trends have helped in the company’s cash accrual position.

As reported earlier by, Tata Sky turned around in the fiscal ended 31 March 2016, posting a net profit of Rs 80.08 crore on a higher revenue base. Total revenue climbed 20% to Rs 4,490.96 crore in FY16 compared to Rs 3,739.04 crore a year ago. Revenue from operations grew to Rs 4,471.83 crore from Rs 3,723.04 crore. Operating margin was at 26.7% in FY16.

Tata Sky had incurred large losses until fiscal 2015. In FY15, the company had reported a net loss of Rs 267.27 crore.

Cash accrual is expected to remain healthy at over Rs 1,000 crore. While adding subscribers, Tata Sky has been able to increase its ARPU.

India’s six private DTH companies have a net subscriber base of 63.61 million, as of 31 March 2017. Dish TV has a 25% share of net subscribers compared to Tata Sky’s 23%. Airtel Digital TV’s share is at 21%, Videocon d2h at 20%, Sun Direct at 9% and Reliance Digital TV at 2%.

Tata Sky and Airtel Digital TV are reportedly in exploratory talks for a merger. This is part of a broader discussion between the Tata Group and Bharti Enterprises to evaluate an alliance that would also involve their telecom, overseas cable and enterprise services.

21st Century Fox is also said to be in talks with the Tata group to up its stake in Tata Sky. While Tata group owns 60.2% stake in the DTH firm,  21st Century Fox effectively holds 29.8% stake and the remaining 10% is with Temasek Holdings.

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