Strategic investors eye scale in Indian cable TV firms

NEW DELHI: Indian cable TV companies will be able to attract foreign strategic investors only after they build scale, have a large primary point ownership and operate in a more friendly regulatory environment.

The cable TV sector has seen investments pour in from private equity firms over the last few years and three multi-system operators (MSOs) have raised capital from initial public offerings (IPOs), but global majors like Comcast have been reluctant to enter the Indian market.
“For strategic investors to come in, the MSOs need to scale up their primary point ownership. The regulatory environment also needs to improve,” said Emam Securities executive director investment banking and media practices head Salil Pitale.

The government has prescribed a foreign direct investment (FDI) cap of 49 per cent on the cable TV sector and 20 per cent on DTH.

The risks in investing in the cable and direct-to-home (DTH) sectors have reduced over the years but the rewards are still far away. While the DTH companies are incurring losses as they play the volume game, the MSOs are struggling to speed up digitisation.

“Various investors have different risk profiles. Some strategic investors are probably waiting for the sector to evolve,” said Astro Group executive director Raghvendra Madhav.

Malaysia-based Astro has made a string of investments in India including Sun Direct, FM radio and niche channels NDTV Good Times and Sanjeev Kapoor’s upcoming cookery channel. 
“We had a different approach and decided to participate at an early stage. We took a stake in Sun Direct,” said Madhav, while speaking at the 6th India Digital Networks Summit here today. .

There are several challenges in investing in India as the evolution of the digital story is still at its infancy stage. “A fundamental shift, however, has taken place. It is market forces and not regulation that is taking the entire digitisation forward,” said Madhav.

Sun Direct is in investment mode and the current focus is acquisition of subscribers. “We got to keep the investments up. Raising ARPUs (average revenue per user) is a later stage development,” Madhav added.

Consolidation in the cable TV sector will, however, take place ahead of DTH which has six private players with size.
“There will be more opportunities in the cable sector as it is fragmented. Individual players have taken different strategies. Some MSOs have build reach and revenues and hope to convert them into profitability. Other MSOs have gone ahead with direct point acquisitions. Investors are examining both these models carefully with an open approach,” said Pitale.

Cable TV companies have a combined revenue of Rs 200 billion and the operating margins stand at 30-35 per cent, added Pitale.

The distribution sector is getting stronger and there is a fair amount of richness in valuations of cable TV and DTH companies. As digitisation paces up, investors will find more funding opportunities.

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