Rating Rationale

Dish TV India Limited

Rating Reaffirmed

Total Bank Loan Facilities Rated	Rs.2700 Million
Long Term Rating	CRISIL A-/Stable (Reaffirmed)

(Refer to Annexure 1 for Facility-wise details)

Non-Convertible Debentures Aggregating Rs.2000 Million

CRISIL A-/Stable (Reaffirmed)

CRISIL has reaffirmed its rating of 'CRISIL A-/Stable' on the long-term bank facilities and non-convertible debenture issue of Dish TV India Ltd (DTIL).

For arriving at the rating, CRISIL has combined the financial and business risk profiles of DTIL and its wholly owned subsidiary Dish Infra Services Pvt Ltd (DISPL). This is because these companies, collectively referred to herein as Dish (or the combine), are in the same line of business, have high operational and financial interdependence, and a common management.

DTIL is transferring part of its assets and liabilities to DISPL. DTIL is shifting its entire direct-to-home (DTH) related infrastructure and service units to DISPL, but will retain the DTH license and focus solely on branding and subscriber acquisition. Effectively, all the consumer premise equipment (CPE) will be owned and leased to the customer by DISPL, while DTIL will control the content and broadcasting part. The CPEs currently on DTIL's books (effectively its entire fixed asset block), and most of the associated debt (including part of the bank loans rated by CRISIL, and the non-convertible debenture issue) are to be transferred to DISPL. DTIL is expected to provide corporate guarantee to DISPL for the loans transferred, and to continue supporting the subsidiary, if required.

CRISIL believes that while the move will lead to clear demarcation of revenue and profits between the two companies, there will be no significant changes in the day-to-day operations of either company. CRISIL expects the demerger to be effective from April 1, 2015.

CRISIL's rating on Dish's bank facilities and non-convertible debenture issue continues to reflect Dish's leadership position in the direct-to-home (DTH) industry, healthy operating efficiency marked by low content cost and strong cash accruals, and comfortable liquidity. The ratings also factor in the strong support that Dish receives from the Essel group because of the company's strategic importance in the media business. These rating strengths are partially offset by the combine's moderate financial risk profile, marked by high, though reducing, debt and negative net worth. Dish is also exposed to risks such as intense competition, capital intensity, and high regulatory compliance, inherent in the industry.

DTIL continues to be a leader in the domestic DTH industry, with a net subscriber base of around 12.5 million as on December 31, 2014. Moreover, it maintains a high operating efficiency as reflected in its low content cost, and healthy operating profitability leading to strong cash accruals (expected to be over Rs.5 billion annually over the medium term). Furthermore, the combine's liquidity is likely to remain strong, underpinned by the minimum cash and cash equivalents in excess of Rs.3 billion it is expected to maintain over the medium term. This provides it with financial flexibility to survive the impact of intense competition and unfavourable regulatory changes.

Dish continues to be an integral part of the Essel group's value chain, as the distribution arm of the group's media and entertainment business. Hence, CRISIL believes that the group will continue to support the combine as and when required and maintain a stake of more than 51 per cent in DTIL.

Dish has a moderate financial risk profile, marked by a negative net worth, primarily on account of high depreciation. Furthermore, its business is highly capital intensive; the capital requirement has been partially funded through debt, leading to high borrowings. Dish also has large debt maturing over the medium term; capital expenditure (capex) over the medium term is expected to be funded largely through internal accruals, leading to a gradual decrease in debt.

The DTH industry is highly regulated with high tax incidence. Furthermore, players have to pay licence fees. The Ministry of Information and Broadcasting's demand of Rs.6.25 billion for unpaid licence fees from DTIL is being disputed by the company and the matter is sub-judice. Significant capex or adverse regulatory changes, leading to sizeable debt will continue to be a key rating sensitivity factor. Furthermore, the DTH industry is intensely competitive with players pursuing subscribers aggressively, leading to high capital intensity and pressure on average revenue per user.