Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities of Tata Play Limited (formerly known as Tata Sky Limited).

 

The ratings continue to reflect the healthy business risk profile and healthy market position of Tata Play, driven by its industry-leading subscriber base with a sizeable lead over other players operating in the industry. As per the Telecom Regulatory Authority of India data, the subscriber market share of Tata Play stands at 32.8% as on June 30, 2022 as against 33.4% as on June 30, 2021. The moderation in company's active subscriber base over June 2021 to June 2022 is due to industry level headwinds emanating from competition from DD Free dish and other growing digital entertainment alternatives.

 

Despite a decline in revenue from the core DTH business, Tata Play's consolidated operating revenue grew by ~1.3% year-on-year during fiscal 2022 on back of growth in revenues from broadband business and traction of 'TATA Binge' mobile application in the market.

 

During fiscal 2021 company changed its accounting treatment pertaining to expenditure on customer premise equipment cost (from entrustment model [capital expenditure] to sale model [operating expenditure]) which impacted its reported EBITDA during the year although it is cash flow neutral.

 

CRISIL Ratings estimates that revenues from core DTH business in fiscal 2023 will inch downwards due to moderation in ARPU coupled with continued moderation in active subscriber base though consolidated revenues will be supported by healthy growth in TATA Play Binge and broadband businesses. Operating margins are estimated to see pressure during fiscal 2023 due to operating losses accruing from TATA Play Binge.

 

Adjusted debt (excluding lease liability) to EBITDA ratio was ~ 1.5 times for fiscal 2022 and should remain below 2 times over the medium term.  Interest cover was 5.6x times in fiscal 2022 and should continue to remain healthy.

 

Tata Play derives support from its parent, Tata Sons Ltd (Tata Sons; 'CRISIL AAA/Stable/CRISIL A1+'), which has ~62.2% stake (direct as well as indirect) in Tata Play and is likely to support the entity in case of any exigency. Any significant change in shareholding of Tata Sons in Tata Play in near future remains a monitorable.

 

Tata Play has potential liability towards disputed licence fees, as per the demand raised by the Ministry of Information and Broadcasting. The matter continues to remain sub judice.  CRISIL Ratings has not factored in any payout. This will remain a key monitorable.

 

The ratings continue to reflect Tata Play's healthy market position and operating margin in the DTH business, healthy financial risk profile and expectation of strong support from the parent, Tata Sons, during any exigency. These strengths are partially offset by exposure to risks inherent in the DTH industry, such as the evolving regulatory landscape, viewership patterns, throughput of pay subscriber numbers in TATA Binge and project risks in the broadband segment.

Analytical Approach

For this rating action, CRISIL Ratings has combined the business and financial risk profiles of Tata Play and its subsidiaries, Tata Play Broadband Pvt Ltd (TPBB), Actve Digital Services Pvt Ltd (ADSL) and TSBB Voice Private Limited (TSBBVCL), because of their strategic importance and significant operational integration. CRISIL Ratings has also factored in support from the parent, Tata Sons.

 

CRISIL Ratings believes Tata Play will, during any exigency, receive distress support from Tata Sons for timely servicing of debt, considering its strategic importance to the parent. Tata Play also receives operational and managerial support from the parent.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong market position and operating margin in the DTH business

Tata Play is a leader in the DTH industry, in terms of revenue and subscribers market share. Its market position strengthened in fiscal 2020 resulting in a sharp addition of subscribers and is supported by the largest high-definition subscriber base in the industry. As per TRAI's data, Tata Play had a subscriber market share of 32.8% as on June 30, 2022.

 

ARPU of the Tata Play has moderated in last few quarters due to higher addition of DAS 4 subscribers in the overall subscriber mix, though margins are expected to remain healthy.

 

• Healthy financial risk profile

The financial risk profile, though impacted, was still healthy in fiscal 2022. Interest coverage stood at around 5.6 times in fiscal 2022 against 6.0 times in fiscal 2021. 

 

The company plans to invest in the broadband segment gradually, such that adjusted debt to EBITDA ratio remains under 2 times over medium term - any deviation will be a rating sensitivity factor. Capital payables have been included in adjusted debt as the liability has characteristics similar to external debt. The financial risk profile, however, is constrained by negative networth, which is likely to improve over the medium term.

 

• Support from Tata Sons

Tata Play received regular and timely funds from its parent to support capex in the past. Improved cash accrual since fiscal 2016 lowered dependence on equity infusion (there has been no equity infusion since fiscal 2016 because of improved accrual). Tata Sons views Tata Play as a strategic subsidiary, and has articulated strong support to, and will maintain majority stake, in the latter. Tata Play will continue to benefit from its association with the Tata brand and its management control will remain with Tata Sons.

 

Weaknesses:

• Exposure to risks inherent in the DTH business

The DTH business requires consistent expenditure, primarily to deploy set top 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 other operating expenses (advertising as well as cost of acquiring subscribers) to continue to ramp up 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 expenditure in deploying STBs.

 

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 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.

 

• Exposure to project risks in the broadband segment

Tata Play launched its broadband business through its wholly owned subsidiary TPBB, which enabled it to make bundled offerings to subscribers in a few large cities. While the broadband business is likely to complement the DTH business, it will remain in the investment phase and is likely to face competition over the medium term.  Tata Play remained prudent with its investment plans in the broadband business. While the company is witnessing healthy growth in the broadband business, however it will keep Tata Play exposed to project risks, demand risks and implementation risks until the project stabilises, and subscribers see a significant ramp up.

Liquidity: Strong

Tata Play has cash and equivalent of Rs 376 crore as on March 31, 2022 and average bank limits utilisation stood at around 64% for last 12 months ending September 30, 2022. Internal accrual, cash and equivalent, and unutilised bank lines will be sufficient to meet debt obligation and working capital requirement over the medium term. The company has sufficient headroom to raise debt to meet capex and investment requirement of subsidiaries. Moreover, Tata Sons should provide support in case of exigencies.

Outlook: Stable

Tata Play's business risk profile should remain supported by its leading market share while healthy cash accruals which should keep the financial profile stable.

Rating Sensitivity factors

Upward factors

• Sustained improvement in operating performance, leading to significantly improved cash accrual
• Improvement in liquidity such that Adjusted debt to EBITDA sustains below 1x 

 

Downward factors

• Weakening in the credit risk profile of Tata Sons, or any change in the stance of support from the parent
• Increased competition, resulting in lower-than-expected cash accrual
• Significant increase in capex or decline in cash accruals leading to Adjusted debt to EBITDA sustaining above 2x

About the Company

Tata Play commenced operations in 2004 as an 80:20 joint venture between Tata Sons and Network Digital Distribution Services FZ-LLC (NDDS). DTH operations commenced in August 2006. In fiscal 2008, Baytree Investments (Mauritius) Pte Ltd (Bay Tree), an affiliate of Temasek Capital Pvt Ltd acquired 10% of Tata Play's equity shares. In fiscal 2010, TS Investments Ltd (TSIL) acquired 20% equity stake in Tata Play. In fiscal 2013, Tata Opportunities Fund, through Omega FII Investments Pte Ltd (Omega), and Tata Capital Ltd acquired equity stake in Tata Play.

 

Tata Sons, NDDS, TSIL, Baytree, Omega, and Tata Capital Ltd hold 41.49%, 20.00%, 20.00%, 10.00%, 7.80% and 0.71%, respectively, of Tata Play's equity share capital.

About the TPBB

Founded in 2015, TPBB is a wholly owned subsidiary of Tata Play. Headquartered in Mumbai, the company's services are available across 16 cities. It plans to build fibre to the home (FTTH) broadband infrastructure in India.

Key Financial Indicators (Consolidated)

Particulars	Unit	2022	2021
Operating income	Rs crore	4,741	4,682
Profit after tax (PAT)	Rs crore	69	69
PAT margin	%	1.4	1.5
Adjusted debt /adjusted Tangible networth	Times	-4.25	-4.6
Interest coverage	Times	5.6	6.0

 

Any other information: Not applicable

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	Foreign Exchange Forward #&	NA	NA	NA	128	NA	CRISIL A1+
NA	Letter of Credit #&	NA	NA	NA	5190	NA	CRISIL A1+
NA	Long Term Loan #&	NA	NA	Jul-22	200	NA	CRISIL AA/Stable
NA	Long Term Loan #&	NA	NA	Mar-23	300	NA	CRISIL AA/Stable
NA	Long Term Loan #&	NA	NA	Apr-23	450	NA	CRISIL AA/Stable
NA	Purchase Bill Discounting #&	NA	NA	NA	60	NA	CRISIL A1+
NA	Short Term Loan #&	NA	NA	NA	1450	NA	CRISIL A1+
NA	Proposed Short Term Bank Loan Facility #&	NA	NA	NA	222	NA	CRISIL A1+

#Limits interchangeable across Letter of credit, Buyer's credit, bank guarantee, vendor finance programs, purchase bill discounting and Term loans

&Limits are interchangable between Non fund based and fund based limits

Annexure - List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
TPBB	Full	Strategically important and significant operational integration
ADSL	Full	Strategically important, and significant operational integration
TSBBVCL	Full	Strategically important, and significant operational integration