Sharekhan remains positive on DTH space

  • Thread starter Gaurav
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31 Oct 2011
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Sharekhan has come out with report on media. The key highlight of the report is as follows:

Hike in FDI limit in cable: favourable regulatory framework fuels growth prospects

After making digitisation of cable TV across the country compulsory by December 31, 2014, the government is set to increase the foreign direct investment (FDI) limit in the sector from 49% to 74%. The Telecom Regulatory Authority of India (TRAI)`s recommendation to increase the FDI limit from 49% to 74% for direct-to-home (DTH) TV, Internet Protocol TV (IPTV) and teleport has been validated by the information & broadcasting (I&B) ministry.

Currently FDI is allowed up to 74% in mobile TV, HITS and IPTV whereas the permissible foreign investment cap for cable distribution companies is 49%. The move will make the distribution of FDI uniform across platforms including DTH, IPTV, mobile TV, HITS and cable companies. However, the FDI ceiling for local cable operators will remain 49 % (it has been so since 1995) as the recommendation to reduce it to 26% by TRAI has been rejected by the I&B ministry.

According to industry estimates, the total fund requirement for the DTH and cable industry will be close to Rs 250-300 billion for the successful implementation of digitisation. Thus, an increase in the FDI limits will make the funding easier for the companies in an environment of high interest cost coupled. Besides, most companies already have high debts on their books.

View: We view this development as a welcome breather for the Indian cable distribution sector, which is reeling under high debts and negative cash flows. As the cable industry is gearing up for the compulsory digitisation mandate, it has become important for the companies to equip themselves with funds to create the necessary infrastructure. The possible increase in the FDI limit to 74% will help the companies to garner funds without creating further pressure on the balance sheets. We remain positive on the DTH space from a longer-term perspective. However, we remain selectively biased toward Dish TV.
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