CARE upgrades Dish TV’s short-term credit ratings to A3+
MUMBAI: In a major boost for direct to home (DTH) operator Dish TV India Limited (DTIL), CARE Ratings has upgraded its short-term credit ratings worth Rs 850 crore to A3+ from A1. The company’s credit ratings have been revised from credit watch with negative implications.
According to CARE, the revision in the ratings assigned to the bank facilities of DTIL and removal of the credit watch factor in the removal of support of Essel Group built into the ratings due to the weakened financial flexibility at the Essel Group level. Stress in the infrastructure segment and the elevated leverage with the promoter and holding companies constrains the Essel group’s ability to support the group entities when required.
It further stated that significant decline in the market capitalisation of the listed entities of the Essel group over the last one year and the high level of pledge of the promoter holding in these companies has further reduced the financial flexibility of the group. As on March 31, 2019, amongst the total promoter holding of 57.99% in DTIL, 94.60% has been pledged.
Although the Essel group has been in the process of monetising its infrastructure business, as also selling up a stake in the flagship business i.e. Zee Entertainment Enterprises Limited (ZEEL) so as to improve the liquidity position of the group, the progress on the same has been slow, CARE noted.
CARE said that the ratings assigned to bank facilities of DTIL continue to factor in its high debt-funded capital investments, currency risk associated with procurement of Consumer Premise Equipment’s (CPEs) and the increasing competition faced both from peers and allied technology platforms.
Furthermore, the ratings also take into account the moderate liquidity position of the company, and the substantial provision made by DTIL (consolidated) towards license fee costs, which upon materialisation would necessitate incremental debt funding and highly regulated DTH industry. The ratings also factor in the meagre gross addition to the subscriber base and the quarter-on-quarter (q-o-q) decline in the average revenue per user (ARPU) in FY19.
The ratings, however, continue to derive strength from DTIL’s leadership position in the Direct-to-Home (DTH) industry with a net subscriber base of 23.7 million translating to a market share of about 37% as on March 31, 2019. Post-integration of the business operations of Videocon d2h limited with DTIL, the synergy benefits are reflected in the improvement in the market share, subscription revenue, and the profitability margins.
The ability of the company to maintain its market leadership position amidst the change in tariff regulations by TRAI and the increasing competition both from peers and allied technology platforms, and amicably settle the long ongoing dispute towards license fees, without any increase in its debt levels would be the key rating sensitivity.
DTIL has developed a strong distribution network of ~4,000 distributors and over 400,000 dealers that span across 9,450 towns in the country. Post the merger of Vd2h into DTIL, DTIL continues to be a market leader with net subscriber base of 23.7 million translating to 37% market share amongst the DTH players as on March 31, 2019. The merged company has been continuously adding to its subscriber base with addition of 0.1 million in Q4FY19 and 0.7 million in FY19; whereas ARPU has declined to 184 in Q4FY19 from 201 in Q4FY18.
Post the merger of Vd2h into DTIL wherein uniform rates were charged at pan India level, during FY19, DTIL witnessed growth of 39% in the subscription revenue from DTH subscribers (Rs. 3677.22 crore in FY19 from Rs. 2638.45 crore in FY18). Post-merger, DTIL’s subscriber base has a fair mix of urban, semi-urban and rural subscribers [65 (rural): 35 (urban)] as compared to [75 (rural): 25 (urban)] previously.
FY19 being the first full year of operations of the merged entity, the company has posted growth in overall total operating income and synergies of merger resulted in improvement in the profitability margins. The New Tariff Order was implemented by TRAI on March 01, 2019 and is expected to result in increase in the subscription revenue for the DTH players. However, the impact of the said order is yet to be fully seen.
DTIL has been facing increasing competition both from its peers as well as from allied technology platforms. Accordingly, amongst the increasing competition faced, the ability of DTIL to maintain its operating margins (PBILDT) without jeopardizing its market share amongst the DTH players forms a key rating monitorable.
Post the merger of Vd2h into DTIL, the consolidated gross debt of the company has significantly reduced to Rs.1930.69 crore as on March 31, 2019 (Abridged) from Rs.3401.88 crore as on March 31, 2018 on account of scheduled repayments and pre-payment of NCDs. This has resulted in improvement in the overall capital structure of the company with overall gearing at 0.35x as on March 31, 2019 (vis-à-vis 0.51x as on March 31, 2018).
DTIL has accounted for impairment of goodwill (created on account of its merger with Vd2h), which has been charged to profit & loss account for FY19. The same resulted in net loss to the company in FY19 and in turn reduction in the networth base of the company. Nevertheless, gross cash accruals generated from the business has improved. The interest coverage and total debt to GCA ratios stood at 4.88x and 0.94x respectively in FY19 vis-à-vis 5.32x and 2.73x respectively in FY18.