Rating Rationale
July 21, 2020 | Mumbai
Dish Infra Services Private Limited
'CRISIL B/Stable/CRISIL A4' assigned to bank debt
 
Rating Action
Total Bank Loan Facilities Rated Rs.2500 Crore
Long Term Rating CRISIL B/Stable (Assigned)
Short Term Rating CRISIL A4 (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL B/Stable/CRISIL A4' ratings to the bank facilities of Dish Infra Services Private Limited [DISPL, a wholly owned subsidiary of Dish TV India Ltd (DTIL), together referred as the DTIL group].
 
The ratings reflect the DTIL group's weak financial flexibility, large disputed1 regulatory dues and exposure to risks inherent in the direct-to-home (DTH) industry. These weaknesses are partially offset by the group's strong market position with a well-established brand and improving cushion between cash accrual and debt obligation.
 
The DTIL group's financial flexibility is constrained by sizable debt of the promoter entities through pledging of DTIL's shares and instances of delays in the recent past. The group's weak financial flexibility led to delayed payment of the buyer's credit facilities due in March-April 2020 by DISPL. DISPL has been meeting all its debt obligations since May 12, 2020, on time.
 
The DTIL group has a strong market position in the DTH industry with a market share of over 30% (as on March 31, 2020) and annual net cash accrual of Rs 1,800-2,000 crore over the last two fiscals. Despite healthy accrual, lumpy repayments led to cash flow mismatches, and the group could not arrange funds to meet the shortfall because of constrained financial flexibility.
 
The banks have provided additional facilities, which should support liquidity in the near term. The company has serviced a significant portion of its debt since March 2019 and therefore cash accruals should remain sufficient to meet the repayments going forward. Furthermore, banks have appointed a monitoring agent to closely observe the company's budgeted cash flow against the debt obligation and ascertain a better cash flow discipline.
 
The DTIL group's cash accrual should be sufficient to meet the debt obligation over the medium term. However, the large unpaid liability and promoter-level issues will continue to constrain the financial flexibility.
 
The DTIL group has potential liability towards the disputed licence fees (including interest) of Rs 3,570 crore as on March 31, 2020. The matter is currently sub judice. CRISIL has not factored in any material outgo towards these liabilities. In case of adverse ruling and significant payout towards these liabilities, the DTIL group's financial risk profile can deteriorate materially. CRISIL will continue to monitor any developments in this regard.
 
CRISIL takes note of the invocation of pledge on the company's share towards liability of the promoter group on May 29, 2020, leading to Yes Bank taking a 24.19% stake in the company. Promoters hold around 30% in DTIL, and around 88% thereof is pledged. Therefore, further invocation of pledge by the lenders and consequent change in the management are key rating sensitivity factors.
 
The rating also factors in the moratorium availed of by DISPL on its bank facilities amounting Rs 9 crore, in accordance with the relief measures announced by the Reserve Bank of India (RBI) on March 27, 2020.

Analytical Approach

CRISIL has applied its parent notch-up framework to factor in the strong operational, financial and managerial linkages between DISPL and DTIL. For arriving at the rating for DTIL, CRISIL has combined the business and financial risk profiles of DISPL and DTIL. The two companies, together referred to as the DTIL group, are in the same line of business and have high operational and financial interdependence and a common management.

Key Rating Drivers & Detailed Description
Weaknesses:
* Weak financial flexibility
The DTIL group's financial flexibility is constrained by the sizeable pledge of the promoter entities and instances of default in the recent past.
 
Furthermore, financial difficulties at the Essel group level had a cascading impact on DTIL's financial flexibility. While buyer's credit was discontinued by the RBI in February 2018, the company was unable to get fresh letter of credit (LC) limit because of constrained financial flexibility. As a result, the company had to incur capital expenditure (capex) against cash payments while continuing to repay the existing buyer's credit, LCs and other scheduled repayments. Thus, significant pressure on the cash flow eventually led to default on the short-term loan for DTIL from Yes Bank in November 2019 and on buyer's credit for DISPL from ICICI Bank in March-April 2020.
 
Thereafter, banks have provided additional facilities, which should ease the company's liquidity position. Financial flexibility should remain constrained because of issues with the promoter group entities. Impact on the company's credit profile or any change in management will remain a key rating sensitivity factor.
 
* Large disputed regulatory dues
DTIL has potential liability towards disputed licence fees of around Rs 3,570 crore as on March 31, 2020. The matter is currently sub judice. Any large payout towards this liability, if it crystallises, could significantly weaken the company's financial risk profile. CRISIL will continue to monitor any developments in this regard.
 
* Exposure to risks inherent in the DTH business
The DTH business requires sizeable capex on an ongoing basis. DTH operators need to deploy set top boxes (STBs), which form a major part of the capex. Besides STBs, DTH operators also need to undertake significant establishment costs (installation service and software, operational and customer support) and operating expenses (advertising as well as cost of acquiring subscribers) to continue ramping up operations.
 
Furthermore, DTH operators face risks arising from technological advancements and changing consumer behaviour. For instance, growing popularity of over-the-top (OTT) platforms could be a threat in the long run. With limited product differentiation, the DTH industry is exposed to intense competition from the four large operators and from cable TV operators.
 
Strengths:
* Strong market position and well-established brand
Dish TV is among the leading players in the DTH industry following its merger with Videocon D2h. The company has been able to leverage its strong brand to maintain a healthy market share in the DTH industry. As on March 31, 2020, the company had a net active subscriber base of 1.66 crore and a market share of over 30%, with average revenue per user (ARPU) of Rs 262 in fiscal 2020.
 
Following implementation of new tariff order (NTO) by Telecom Regulatory Authority of India, the entire DTH industry has witnessed an increase in profitability since April 2019. With the implementation of the proposed NTO 2.0, operating profit will remain intact, as content cost is a pass-through for DTH players.
 
The Covid-19 pandemic has not impacted DTH operators' revenue materially.
Liquidity Stretched

Liquidity has been stretched because of weak financial flexibility and large debt obligation, which led to default on certain bank facilities in November 2019 and March-April 2020.  Between July 2020 and March 2021, debt obligation is estimated at Rs 600 crore and capex at Rs 600-650 crore, which the company should be able to manage from internal accrual of Rs 1,300-1,400 crore. Availability of additional bank limit will further support liquidity over this period. Any adverse ruling on the unpaid license fees may have a significant impact on the liquidity profile and will remain a key monitorable.

Outlook: Stable

CRISIL believes sustained high cash accrual should continue to benefit the credit risk profile of DTIL group.

Rating Sensitivity factors
Upward factors
* Sustained annual cash accrual of over Rs 2,000 crore and improvement in the cushion between cash accrual and debt obligation
* Improvement in financial flexibility, with continued track record of meeting debt obligation in a timely manner and resolution of promoter-level issues
 
Downward factors
* Sustained reduction in annual cash accrual to below Rs 1,500 crore
* Discontinuity in operations caused by change in management
* Any adverse impact on financial flexibility, such as invocation of pledge, or restrictions by lenders in accessing bank lines or the cascading impact of promoter-level issues on the DTIL group
About the Company

Dish TV is one of India's leading DTH service providers by number of subscribers. It is part of the Essel group, which has presence in the media industry through Zee Entertainment Enterprises, Zee Media Corp Ltd and Siti Cable Network.
 
Dish TV has its own platform with more than 700 channels and services, including 31 audio channels and 71 high-definition channels and services. The company has a vast distribution network of over 3,700 distributors and around 400,000 dealers spanning 9,400 towns in India.
 
DISPL is a 100% subsidiary of DTIL and provides DTH-related infrastructure and services. DTIL retains the DTH licence and focusses on branding and subscriber acquisition. Effectively, the consumer premise equipment is owned and leased to the customer by DISPL, while DTIL manages the content and subscriber revenue. The entire debt for DISPL is guaranteed by DTIL.
 
For the nine months ended December 31, 2019, on a consolidated basis, profit after tax (PAT) loss was Rs 198 crore and operating revenue was Rs 2,687 crore against PAT of Rs 198 crore and operating revenue of Rs 4,767 crore for the corresponding period of the previous fiscal.

1Matter pending with Supreme Court

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Revenue Rs crore 6031 4,499
PAT Rs crore -1,111 -85
PAT margin % -18.0 -1.8
Adjusted debt/adjusted networth Times 0.84 0.76
Interest coverage Times 5.1 5.2
NOTE: As the merger appointed date is effective from October 1, 2017, fiscal 2018 financials include financials of the second half of fiscal 2018 of Videocon D2h. From fiscal 2019 onwards, the financials include 100% of Dish TV (consolidated) and Videocon d2h; hence, they are not comparable to the previous periods.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity
date		 Issue size (Rs crore) Complexity
Levels		 Rating assigned
with outlook
NA Overdraft NA NA NA 139 NA CRISIL B/Stable
NA Buyer`s Credit NA NA NA 54.9 NA CRISIL A4
NA Letter of Credit NA NA NA 89.4 NA CRISIL A4
NA Term Loan-1 NA NA Jun-23 984 NA CRISIL B/Stable
NA Term Loan-2 NA NA Mar-22 150 NA CRISIL B/Stable
NA Proposed Letter of Credit NA NA NA 1082.7 NA CRISIL A4
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT    --    --    --    --  23-10-17  Withdrawn  CRISIL A-/Watch Developing 
                    23-08-17  CRISIL A-/Watch Positive   
                    31-05-17  CRISIL A-/Watch Positive   
                    20-02-17  CRISIL A-/Watch Positive   
Fund-based Bank Facilities  LT/ST  1327.90  CRISIL B/Stable/ CRISIL A4    --    --    --  23-10-17  Withdrawn  CRISIL A-/Watch Developing 
                    23-08-17  CRISIL A-/Watch Positive   
                    31-05-17  CRISIL A-/Watch Positive   
                    20-02-17  CRISIL A-/Watch Positive   
Non Fund-based Bank Facilities  LT/ST  1172.10  CRISIL A4    --    --    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Buyer`s Credit 54.9 CRISIL A4 Term Loan# 270 Withdrawn
Term Loan 1134 CRISIL B/Stable -- 0 --
Proposed Letter of Credit 1082.7 CRISIL A4 -- 0 --
Overdraft 139 CRISIL B/Stable -- 0 --
Letter of Credit 89.4 CRISIL A4 -- 0 --
Total 2500 -- Total 270 --
#Fully interchangeable with buyer's credit, letter of credit, and letter of undertaking
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Recognising Default
Understanding CRISILs Ratings and Rating Scales

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