Stay-at-home to beam up DTH revenue growth 400-600 bps

Direct-to-home (DTH) broadcasting, which accounts for ~37% of total television (TV) subscribers in India, is set to buck the economic downturn and log a revenue growth of 400-600 basis points (bps) to ~Rs 22,000 crore this fiscal, because of healthy subscriber additions. The industry’s credit outlook is also positive as cash accruals improve despite sizeable capital expenditure (capex).

This is based on an analysis of CRISIL-rated DTH companies, which account for over 95% of the industry’s revenue.

Says Sachin Gupta, Senior Director, CRISIL Ratings, “Last fiscal, the DTH sector saw a healthy revenue growth of ~1,400 bps (~900 bps rise in subscriber base and ~500 bps in average revenue per user, or ARPU). This fiscal, the subscriber base is seen increasing another 600-700 bps to ~68 million, which will lift revenue growth up 400-600 bps. But ARPU is seen contracting 100-200 bps to Rs 310-315 on downtrading¹ by viewers and reduction in charges for multi-TV subscribers as per the New Tariff Order 2.0 (NTO 2.0).”

Last fiscal, the DTH subscriber base increased as cable TV subscribers shifted after implementation of the NTO 1.0. While cable TV operators were grappling with integration and roll-out challenges, DTH peers transitioned smoothly as they already had better systems. Besides, pricing parity required as per new regulations meant a 30-35% increase in cable TV tariffs, which eroded the price advantage cable TV enjoyed over DTH (refer to annexure for details).

The trend would continue this fiscal, too, aided by the pandemic. During January-June, TV viewership² rose ~9% on-year. Social distancing norms and work from home (WFH) are likely to keep people indoors for most of this fiscal. Besides, gradual resumption of the airing of new TV serial episodes and major sporting events such as Indian Premier League being streamed during the festive season, should keep viewers hooked.

Besides, with people spending more time at home than earlier, we believe TV households will continue to grow as well. Over the past decade, TV penetration (as a percentage of total household) in India improved 1,000 bps, but was still ~69% in fiscal 2020, indicating potential for further increase.

Meanwhile, the buzz around over-the-top (OTT) has been getting louder. In the medium-term, however, OTT does not pose much of a challenge to TV and both platforms will co-exist. That is because, in India, TV subscription costs less than half of OTT services³. Besides, India lags other countries in terms of high-speed infrastructure, which is needed for a good OTT content viewing experience. India’s wireline broadband penetration (as a percentage of total household) is currently less than 8% compared with over 80% in the developed countries.

Says Nitesh Jain, Director, CRISIL Ratings, “To be sure, the increasing popularity and rapid proliferation of OTT platforms is a cause for concern for TV segment. But TV will continue to hold sway over the medium term for three reasons: conducive demographics, low penetration, and, most importantly, low cost. OTT will become a material threat only when its cost becomes equal to, or cheaper than, TV subscription, and internet connectivity improves to ensure consistently comparable quality of viewing experience.”

The DTH business requires sizeable ongoing capex, primarily to deploy set-top boxes, because of high subscriber churn. The sector’s capex rose ~18% to Rs 4,500 crore last fiscal. Yet DTH companies were able to deleverage balance sheets because of healthy growth in cash accrual. The industry’s net debt to earnings before interest, taxes, depreciation and amortisation improved to 0.9 time in fiscal 2020 from 1.5 times in fiscal 2019 and should reach 0.4 time this fiscal. CRISIL, therefore, expects the industry’s credit profile to continue improving this fiscal. Crisil