Rating Rationale
November 17, 2023 | Mumbai
Sun Direct TV Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.125 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of Sun Direct TV Pvt Ltd (Sun Direct).

 

The ratings continue to reflect the healthy business risk profile of Sun Direct, driven by continued addition of paying subscribers leading to an increase in market share in recent years. Despite the muted industry growth, Sun Direct has been able to add ~0.1 million paying subscribers each during fiscal 2023 and the first half of fiscal 2024 (compared to ~0.75 million added in fiscal 2022).  Its average revenue per user (ARPU) however fell 6% on-year in fiscal 2023; this coupled with lower activation revenue (owing to slowing subscriber additions) resulted in earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin declining to 45.1% in fiscal 2023 from 50.4% in fiscal 2022. The company subsequently took price hikes (in-line with rest of the industry), leading to an increase in ARPU by ~10.5% during the first half of fiscal 2024 over fiscal 2023 levels. However, the Ebitda margin moderated slightly to 44% in the first half of fiscal 2024 owing to higher selling costs.

 

Also, the company maintained its leadership position in South India, with its market share close to 49% in fiscal 2023. A modest growth in new subscribers along with further improvement in ARPU should support operating performance going forward.

 

Financial risk profile continues to be healthy with nil external debt. While debt from promoters and group companies stood at Rs 261 crore as on September 30, 2023, the cash and equivalents for the company were healthy at Rs 264 crore. In fiscal 2024, with sustenance of healthy cash accruals, the company is expected to fund its incremental capital expenditure (capex) and pay off a portion of the promoter debt, aided by cash accrual and existing cash balance.

 

In April 2021, the Ministry of Information and Broadcasting (MIB) had issued provisional licenses for 20 years to direct-to-home (DTH) operators including Sun Direct, subject to their fulfilling the terms and conditions mentioned in the guidelines issued by the ministry on December 30, 2020, for license renewal.

 

MIB had sent a demand notice to DTH operators in December 2020, for clearing all dues and fulfilling obligations under the terms and conditions of the current license as well as those arising out of legal cases pending before various courts of law; however, the issue continues to be sub judice.

 

As per the demand notice, Sun Direct has a potential liability of Rs 900-1,000 crore arising from the disputed license fees matter. CRISIL Ratings has not factored in any payout as of now. However, given its healthy cash flow and financial flexibility from strong promoters, the credit risk profile of Sun Direct should sustain even if the full payout has to be made. Any material deviation in the outgo from the potential amount will remain a key monitorable.

 

Furthermore, any likely impact of the new tariff order (NTO) 3.0 on DTH operators should not be significant and will be monitored.

 

The ratings also consider established market position of Sun Direct in South India, strong debt protection metrics and high financial flexibility. These strengths are partially offset by exposure to risks inherent in the DTH industry and average capital structure

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of Sun Direct.

Key Rating Drivers & Detailed Description

Strengths

  • Established market position in South India; improving subscriber base in the rest of India

Sun Direct has strong market presence, with over 49% market share among DTH operators in South India, as on March 31, 2023. The business strategy remains focused on this region, which contributes about 84% of the total subscriber base. The company has also made efforts to widen its geographic reach, by launching services in Maharashtra, Odisha and West Bengal, in the recent years leading to healthy growth in its subscriber base in rest of India as well. Availability of additional transponder space during fiscals 2018 and 2019, helped offer more channels and increase subscriber base. Besides, implementation of NTO 2.0 benefitted Sun Direct, as few cable subscribers have moved to the DTH platform. The company should be able to sustain its dominant position in South India.

 

  • Strong debt protection metrics

The company replaced external debt with promoter loans in fiscal 2021. Moreover, sustained increase in cash accrual has led to improvement in the debt protection metrics, with the company turning net cash positive in fiscal 2023 along with a strong interest coverage of 16.5 times. Further, the company has started repaying the promoter loans and is expected to be entirely debt free by the end of next fiscal. Debt protection metrics are expected to sustain, led by healthy cash accrual.

 

  • Strong funding support from promoters

Promoters invested Rs 1,088 crore over the five fiscals through 2016, in addition to providing personal guarantees against term loans. Additionally, promoters have infused non-convertible debentures of Rs 350 crore and intercompany deposits of Rs 90 crore during fiscals 2021 and 2022, which were entirely used to repay external bank loans. Sun Direct remains strategically important to the Sun group, as it complements the flagship broadcasting business and reinforces its market position as a media conglomerate. Need-based financial support continues to underpin the high financial flexibility.

 

Weaknesses

  • Exposure to risks inherent in the DTH business

The DTH business requires consistent capex, primarily to deploy set up boxes (STBs). It is important for DTH players to maintain market share as subscriber churn continues. 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 their operations and hold the market share. Therefore, any impact on the operating performance, constraining the cash flow, may have a direct impact on the market position because of reduced capex intensity.

 

Furthermore, DTH operators face risks arising from technological advancements and changing consumer behaviour. For instance, growing popularity of over-the-top platforms could be a threat in the medium to long run. With limited product differentiation, the DTH industry is exposed to intense competition among the four large operators and from cable TV operators as well as free dish (operated by Prasar Bharati).

 

  • Average capital structure

Continued net losses until fiscal 2016 led to large accumulated losses. However, the company had reported profit until fiscal 2022, leading to networth turning positive. With significant gross subscriber additions post fiscal 2020 (about ~12 million) and an aggressive depreciation policy (company depreciates its STBs and broadcasting equipment that form most of the gross block over a period of five years), the company reported profit after tax (PAT) level losses for fiscal 2023. Resultantly, the company is expected to see a moderation in networth owing to PAT-level losses while is expected to remain positive in the near term.

Liquidity: Strong

Cash and equivalents (unencumbered portion) stood at ~Rs 264 crore as on September 30, 2023. Cash accruals are projected to be more than Rs 500 crore for fiscal 2023 as well as fiscal, which should be adequate to meet the capex requirement along with any repayment of promoter loans.

Outlook: Stable

Sun Direct will continue to benefit from its strong market position and healthy debt protection metrics.

Rating Sensitivity factors

Upward factor

  • Sustained growth of operating profit over the medium term.
  • More-than-expected increase in active subscriber base and average revenue per user, leading to revenue growth sustaining above 15%.

 

Downward factor

  • Increased competition or regulatory changes, resulting in interest coverage ratio dropping below 4 times.
  • Any adverse outcome in the license fee mater, leading to a significant increase in leverage.
  • Change in the extent of support from the promoters.

About the Company

Sun Direct, a Chennai-based DTH operator, began operations in December 2007. It is among the top five DTH operators in India, with a gross subscriber base of ~28 million as on March 31, 2023. The Maran group holds 80% equity in Sun Direct; the remaining is held by South Asia Entertainment Holdings Ltd, Mauritius, an investment arm of All Asia Networks Plc, the leading cross-media group of Malaysia.

Key Financial Indicators - CRISIL Ratings adjusted numbers

Particulars

Unit

FY23

FY22

Revenue

Rs crore

1367

1587

PAT

Rs crore

-5

196

PAT margin

%

NM

12.4

Adjusted debt/adjusted networth

Times

2.58

3.09

Interest coverage

Times

16.53

17.82

NM: not meaningful

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon

rate (%)

Maturity

date

Complexity

level

Issue size

(Rs.Crore)

Rating assigned

with outlook

NA

Bank guarantee

NA

NA

NA

NA

100

CRISIL A1

NA

Proposed long-term bank loan facility

NA

NA

NA

NA

25

CRISIL A/Stable

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 25.0 CRISIL A/Stable   --   -- 28-05-21 Withdrawn 27-02-20 CRISIL A2+ / CRISIL A-/Stable CRISIL BBB+/Stable / CRISIL A2
Non-Fund Based Facilities ST 100.0 CRISIL A1   -- 23-08-22 CRISIL A1 / CRISIL A/Stable 28-05-21 CRISIL A2+ / CRISIL A-/Positive 27-02-20 CRISIL A2+ CRISIL A2
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 100 City Union Bank Limited CRISIL A1
Proposed Long Term Bank Loan Facility 25 Not Applicable CRISIL A/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
The Rating Process
CRISILs Criteria for rating short term debt

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