Nearly three years after Cyrus Mistry’s failed attempt to list Tata Sky through an IPO, the company’s financial investors are looking to monetise their investments through a stake sale.
The Singapore government’s investment firm Temasek Holdings and Tata Opportunities Fund, which together control 19% of the DTH satellite TV distributor, have initiated a formal process to find a buyer for their shares, valuing the company at $2.75-3 billion, said several people aware of the matter. Morgan Stanley has been roped in as adviser and feelers have gone out to PE firms as well as sovereign and pension funds, they said.
Temasek was among the earliest investors in the venture in 2007 and has chosen to stay invested. Tata Opportunities Fund came on board in 2013. The company was incorporated in 2004 as an 80:20 joint venture between the Tata Group and Rupert Murdoch’s 21st Century Fox. The Tata stake has been declining over the years while Fox raised it by 10%.
Tata Sons currently owns 51% of the venture and the Walt Disney Co has 30% after its $52-billion global takeover of Fox in December 2017. Disney, which does not own any distribution business worldwide, has decided to stay invested. Tata Group watchers say the conglomerate is more enthusiastic about its dominant promoter role under Tata Sons chairman N Chandrasekaran, who’s keen to consolidate and expand the various consumercentric businesses within the group.
Challenging Times for Industry
Temasek and Tata Opportunities Fund declined to comment. Tata Sky CEO Harit Nagpal didn’t respond to queries. Depending on final offers, Temasek and Tata Opportunities Fund may decide to exit partially, said the people cited above. No final decision has been taken on whether multiple investors will be entertained.
With 17.7 million subscribers, Tata Sky is the second-largest DTH company in the market after Dish TV and Videocon D2H merged. Executives see growth coming from both rural areas and premium customers in the top four urban centres where Tata Sky is dominant. More than 50-80 million homes in rural India don’t have cable and satellite TV access.
“The idea is to continue the rollout in rural India where, compared to broadband, satellite is the most cost-efficient broadcast technology. In cities, we strive to own the premium customers by offering value-added services and be a one-stop shop,” said an executive on condition of anonymity. The company has introduced services on mobile phones and overthe-top (OTT) platforms to draw customers, especially millennials who are cutting the cord amid plummeting data prices that have fuelled its consumption.
DTH is seeing intense competition from OTT companies, telcos and wireless broadband service providers as live TV and streaming services are gaining across platforms. Reliance Jio Infocomm has been leading the charge in driving down data prices.
In China, pay TV operator Gehua CATV has seen its EV/EBITDA multiple contract by about 70% in the past 12 months due to the business facing challenges from IPTV, OTT and online video. In India, Dish TV, the only listed player in the segment, has dropped 43% in the past six months.
“This, in our view, has been driven by concerns around the impact Jio’s FTTH offering could potentially have on pay TV operators like Dish, aggravated by ongoing concerns around the threat from OTT (digital) content,” said Manish Adukia and Piyush Mubayi, analysts with Goldman Sachs. That’s a reference to Jio’s fibre-to-the-home (FTTH) announcement by Reliance Industries chairman Mukesh Ambani in July last year.
DTH players including Tata Sky are also currently at loggerheads with the regulator over its new tariff regime.
With comparable transactions — Warburg Pincus’ investment in Airtel DTH in 2017 and Reliance’s recent strategic investment in Hathway Cable — taking place at 10-11x EV/ EBITDA valuations, the Tata Sky transaction too may value the company at around $3-$3.2 billion since 20% growth is expected in the coming years.
Revenue from consolidated operations in FY18 was Rs 5,735 crore, 7.6% higher than the previous year. Overall operational expenses for the year stood at Rs 3,983 crore against Rs 3,937 crore in the previous year while profit before exceptional items and tax was Rs 160 crore, against a Rs 17-crore loss in FY17. It made losses in FY16 and FY17, while EBITDA margins have been at 25-30% during FY15-18.
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