Tata Sky’s FY18 net profit zooms to Rs 408 cr

MUMBAI: After the big fall in FY17 due to demonetisation, direct to home (DTH) Tata Sky’s net profit has seen a surge in FY18. The company’s net profit has zoomed to Rs 408 crore for the fiscal ended March 2018 as against Rs 8 crore in the previous fiscal.

PAT margin saw an improvement at 7.1% compared to 0.1% in the year-ago period. In FY17, the company’s net profit had tanked 90% to Rs 8 crore compared to Rs 80 crore in FY16.

Tata Sky’s revenue for the fiscal has jumped 8% to Rs 5719 crore from Rs 5302 crore in FY17. The revenue was Rs 4472 crore in FY16.

According to a Crisil report, the DTH operator added more subscribers compared to its peers over the nine months ended 31 December 2017. It also has the largest high definition (HD) subscriber base in the industry and improving churn rates.

Tata Sky is the second largest player in the DTH industry, in terms of both revenue market share and subscriber market share. Dish TV Videocon is the largest pay-TV operator following the merger between Dish TV and Videocon d2h.

The company’s operating margin was 31.8% during fiscal 2018 compared to 28.6% in fiscal 2017. The operating margin is expected to remain stable over the medium term. The company’s cash accrual is projected at over Rs 1,800 crore in fiscal 2019.

Tata Sky’s growing scale will ensure better negotiation power with broadcasters thereby reducing programming cost, the Crisil report noted. The DTH operator had a 25% share of the pay net active DTH subscriber which stood at 67.56 million, as of 31 December 2017.

Tata Sky’s net debt levels are expected to further decline over the medium term with capital expenditure (Capex) intensity waning off. The company does not have any substantial, debt-funded Capex or acquisition plans in the medium term.

That said, the company’s financial risk profile remains constrained by negative net worth, Crisil noted.

Tata Sky has received regular and timely funding from its parent to support Capex over the past few years. Improved cash accrual since fiscal 2016 lowered dependence on equity infusion; there was no equity infusion since the fiscal year 2016, due to improved accruals. Tata Sons views Tata Sky as its strategic subsidiary and articulated strong support to the latter.

The company incurred a Capex of over Rs 1,600 crore per annum on an average, between fiscals 2014 and 2016. Capex is believed to have declined to Rs 1300 crore per annum from fiscal 2017 onwards.

The DTH industry involves large Capex, as operators need to undertake significant establishment cost (installation service, software and operation support, customer support) and operating expenses (advertising as well as the cost of acquiring subscribers) to ensure sustained ramp up in the scale.

They also face intense competition from the other operators and the local cable television providers. The industry also faces the risk of technological obsolescence, and change in consumer behaviour, for example, the acceptance of over-the-top (OTT) platforms.

However, Crisil believes Tata Sky will continue to benefit over the medium term to sustain from healthy cash accrual and moderate Capex intensity. Business risk profile will continue to benefit from the established market position and brand value. Stability of the ratings also emanates from the strong support expected from Tata Sons.

CRISIL has upgraded its rating on the long-term bank facilities and debt programme of Tata Sky to ‘CRISIL AA/Stable’ from ‘CRISIL A+/Positive’, and reaffirmed its ‘CRISIL A1+’ rating on the short-term bank facility.

Tata Sky (formerly Space TV Ltd) commenced operations in 2004 as an 80:20 joint venture between Tata Sons and Network Digital Distribution Services FZ-LLC (NDDS). The company commenced DTH operations in August 2006.

In fiscal 2008, Bay Tree Investments (Mauritius), a part of Temasek Holdings (owned by the Ministry of Finance, Singapore) acquired 10% equity in Tata Sky. Later, Tata Capital Ltd, Tata Opportunities Fund, through Omega FII Investments Pte Ltd (Omega), and TS Investments Ltd (TSIL) also acquired an equity stake in Tata Sky.

As of 31 December 2017, Tata Sons, NDDS, TSIL, Bay Tree, Omega and Tata Capital Ltd (directly/indirectly) owned 41.49%, 20%, 20%, 7.8% and 0.71%, respectively, of the company’s equity capital.

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