Tata Group’s direct to home (DTH) television venture Tata Sky seems to have tweaked its fund raising plans in favour of private equity (PE) investors. The company was earlier exploring share sale through an initial public offer (IPO) that would have seen a 25% stake dilution for nearly INR2,000 crore (USD313.1 million). The company had shortlisted investment banks Citigroup Capital Markets, Morgan Stanley India Equities and Kotak Mahindra Capital Company for the IPO in 2013 but has now turned to private equity investors following lukewarm institutional response, financial daily The Economic Times has learnt.
Tata Sky – a joint venture between Tata Group and 21st Century Fox – has been reeling under the twin impact of high debt and slower than expected sales growth amid intensifying competition. The company posted a loss of INR280 crore in FY 2013/14 that ended on 31 March. Net sales during the period grew more than 30% to INR3,023 crore while losses trimmed from INR378.9 crore. However, this was evidently not enough to convince institutional investors for a valuation of INR8,000 crore. According to latest reports, PE investors will put the company’s valuation in the range of INR7,000-8,000 crore. This wouldn’t be Tata Sky’s first exposure to PE investors though, as Temasek is known to have a substantial minority stake in the company which is 60% owned by Tata Group. Rupert Murdoch’s 21st Century Fox owns another 30%. Group company Tata Opportunities Fund has also supported the venture by picking up a 5% stake in October 2013.
The report of the IPO plans being thrown out of the window appears to be true as company CEO Harit Nagpal has mentioned Tata Sky’s future cash requirements “will continue to be met by existing shareholders”. The last bit of Nagpal’s statement is important (and conflicting at the same time) in giving an entirely new direction to the company’s future in terms of raising more funds. However, it would be a stretch to ask Temasake to put even more money when it is clearly time for the PE player to exit. Investment by Singapore’s sovereign wealth fund in Tata Sky dates back to 2007.
Tata Sky competes with Dish TV, Bharti Telemedia, Hathway Cable and Datacom, Den Networks, and Videocon d2h among others. Its fortunes contrast with market leader Dish TV which has a market capitalization of INR10,783 crore. In FY2014/15, Dish TV earned a small profit of INR1.01 crore on sales of INR2,781.64 crore.