TATA Sky Limited

'CRISIL A+/Stable' assigned to NCD programme

Total Bank Loan Facilities Rated Rs.28980 Million Long Term Rating CRISIL A+/Stable (Reaffirmed) Short Term Rating CRISIL A1 (Reaffirmed)

(Refer to Annexure 1 for Facility-wise details)

Rs.2 Billion Non Convertible Debentures CRISIL A+/Stable (Assigned) Rs.3.6 Billion Non Convertible Debentures CRISIL A+/Stable (Reaffirmed)

CRISIL has assigned its 'CRISIL A+/Stable' rating to the Rs.2.0 billion non-convertible debenture programme of TATA Sky Ltd (Tata Sky), while reaffirming its ratings on the company's bank facilities and other debt programme at 'CRISIL A+/Stable/CRISIL A1'.
 
The ratings reflect Tata Sky's strong business risk profile, driven by a substantial increase in its active subscriber base and improvement in its operating profitability. The company has a strong market position, with an active subscriber base of 8.95 million as on February 28, 2015. This has resulted in significant improvement in its operating performance, reflected in its operating margin of above 25 per cent in the nine months ended December 31, 2014. The rating also factors in regular equity infusion in the company, on account of which, its debt is not expected to increase from current levels over the medium term.
 
The ratings also factor in the strong support that Tata Sky receives from its majority shareholder, Tata Sons Ltd (Tata Sons; rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+'). These rating strengths are partially offset by Tata Sky's exposure to intense industry competition, its large capital expenditure (capex) plans, and its weak financial risk profile.
 
Tata Sky will continue to depend on regular equity infusion, as seen in the past, for meeting its capex requirements over the medium term. CRISIL believes that Tata Sky's promoters will regularly infuse equity in the company over this period. CRISIL also expects Tata Sky's association with the Tata brand to continue, and the management control to remain with Tata Sons. Furthermore, CRISIL believes that Tata Sons' shareholding (at 52.8 per cent, directly and indirectly, as on December 31, 2014) in Tata Sky will not go below 51 per cent.
 
Tata Sky's financial risk profile is expected to improve over the medium-term, with a sustained increase in its revenue and cash accruals. This improvement is likely to be driven by its high average revenue per user (ARPU), an increase in subscriber base in the direct-to-home (DTH) market, and an increase in digitisation because of regulations mandated by the Government of India, enabling Tata Sky to maintain healthy additions to its net subscriber base. The company's working capital management and control on debt levels, as well as need-based equity infusion from promoters, will remain key rating monitorables.

CRISIL believes that Tata Sky's operating and financial performances will continue to improve over the medium to long term, and that the company's promoters will ensure infusion of equity at regular intervals. The outlook may be revised to 'Positive' if Tata Sky significantly improves its financial risk profile by achieving break-even earlier than expected and by significantly improving its working capital management. Conversely, the outlook may be revised to 'Negative' in case of an increase in the company's debt levels, or delays in equity infusion, or if it is impacted by any regulatory changes.

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). Tata Sky commenced DTH operations in August 2006. In 2007-08 (refers to financial year, April 1 to March 31), Bay Tree Investments (Mauritius) Pte Ltd (Bay Tree), part of Temasek Holdings (owned by the Ministry of Finance, Singapore) acquired 10 per cent of Tata Sky's equity shares. In 2013-14, Tata Capital Ltd and Tata Opportunities Fund (TOF), through Omega FII Investments Pte Ltd, acquired 4.4 per cent of Tata Sky's equity shares. As on October 31, 2014, Tata Sons, NDDS, Bay Tree, TOF, and Tata Capital Ltd (directly/indirectly) owned 52.8 per cent, 30 per cent, 10 per cent, 6.6 per cent, and 0.6 per cent, respectively, of Tata Sky's equity capital.
 
For 2013-14, Tata Sky reported a net loss of Rs.2.80 billion on an operating income of Rs.30.3 billion, against a net loss of Rs.3.79 billion on an operating income of Rs.22.9 billion for the previous year.

Annexure 1 - Details of various bank facilities

Current facilities Previous facilities Facility Amount (Rs.Million) Rating Facility Amount (Rs.Million) Rating Long Term Bank Facility@ 23000 CRISIL A+/Stable Long Term Bank Facility@ 23000 CRISIL A+/Stable Short Term Bank Facility@@ 5980 CRISIL A1 Short Term Bank Facility@@ 5980 CRISIL A1 Total 28980 -- Total 28980 -- @Interchangeable with buyer's credit, working capital demand loan, and non-fund-based facilities @@Interchangeable with short-term loan, purchase invoicing financing, purchase bill discounting, and non-fund-based facilities