DTH companies queue up to raise funds for expansion

Enthused by the surge in demand for digitisation, some of the leading domestic direct-to-home (DTH) service companies, such as the Tatas, Videocon and Dish TV, are looking to raise funds - from initial public offering (IPO), listing abroad or from private equity players.

The Tatas are looking to raise Rs 2,000 crore (Rs 20 billion) through stake sale in Tata Sky Ltd, while Videocon D2H is going to raise around Rs 1,000 crore (Rs 10 billion). Subhash Chandra's Dish TV aims to garner about Rs 550 crore (Rs 5.5 billion) by listing abroad. The funds will be used to expand operations, growing rapidly after the government's recent move to make installing set-top boxes to receive satellite television channels mandatory.

"We are looking at Rs 1,000-crore equity dilution to investors. Taking peer valuation as benchmark, our DTH company's valuation should be over Rs 5,500 crore ($1 billion)," says Videocon D2H chairman Venugopal Dhoot.

The company has a little more than 7.5 million customers and is even selling televisions with in-built DTH machines. "Each month, we are number one in terms of customer addition and the time now is ripe to give other investors an opportunity to participate in our growth," Dhoot said.

The DTH industry had been growing at an explosive rate, with 100 per cent increase in customer base and a steady income from customers, he said. Videocon D2H might file with Sebi the papers for an IPO in a couple of weeks, said a banker familiar with the matter.

Another banking source said Tata Sky needed Rs 500 crore (Rs 5 billion) each year as equity infusion for its operations and to service loans. The proceeds from a 10-15 per cent stake sale to a clutch of private equity (PE) firms would be used by the company for these. The loss-making company, which started operations in August 2006, is also evaluating the option of raising funds through a Rs 2,000-crore IPO, if it does not get a good valuation from PE firms.

Dish TV, listed on the Indian bourses and with  market capitalisation of Rs 8,597 crore, will sell its shares to foreign investors by issuing global depository receipts (GDRs) worth $100 million (Rs 550 crore). Promoters currently hold 64 per cent stake in the company, which has a 33 per cent market share in the six-operator industry. The others are Reliance BIG TV, Airtel Digital, Sun Direct, DD Direct and Videocon D2H.

Dish TV has taken shareholders' approval for its fund-raising plan and appointed Goldman Sachs to manage the GDR issue, banking sources say. When contacted, a Dish TV spokesperson declined to comment on the issue.

Companies needed money to finance their second phase of expansion in Tier-II towns, said Sandip Sabharwal, CEO (PMS), Prabhudas Lilladher.

"The costs are not for subscription additions but for set-top boxes. With the financial health of listed players improving, it makes sense for DTH operators to raise funds at these valuations," Sabharwal said.