Page 42 - IACC Newsletter March 2013 Issue no. 9

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US investments in India
Carlyle joins the race for Airtel Digital TV stake
Bharti Airtel plans to dilute about 20% stake in its DTH business to raise about $200 mn
With a number of private equity players evincing interest in Bharti Airtel's direct-to-home business (DTH) Airtel Digital
TV, competition among bidders for a stake in the DTH arm has intensified. According to informed sources, US-based
private equity (PE) giant Carlyle is in early-stage discussions with Bharti Airtel to acquire a minority stake in Airtel Digital
TV.
Other PE majors that are already in the fray include KKR and Bain Capital. Bharti Airtel plans to dilute about 20 per cent
stake in its DTH business to raise about $200 million. It targets a valuation of $1 billion for the DTH arm. As of December
2012, Airtel Digital TV had 7.9 million digital TV subscribers.
According to people in the know, Carlyle plans to invest in Airtel DTH through its buyout fund Carlyle Asia Partners.
Carlyle is raising $3.5 billion for its fourth buyout fund, Carlyle Asia Partners IV. Simultaneously, Carlyle is also engaged
in discussions to buy minority stake in Lafarge India for $250-300 million.
A Carlyle spokesperson said, "As a policy, Carlyle does not comment on market speculations." An email questionnaire
sent to Airtel spokesperson did not elicit any response.
PE funds' attention turned to the DTH space after India decided to increase the foreign direct investment limit in DTH
and digital cable companies from 49 per cent to 74 per cent.
According to a Media Partners Asia report, the domestic DTH market would grow three times to more than $5 billion by
2020. The mandatory cable TV digitization would help DTH players expand their subscriber base in India. The DTH
industry's revenues will touch $3.9 billion by 2017 and $5.3 billion by 2020, the report noted. The Indian DTH industry is
estimated to have clocked revenues of about $1.5 billion in 2012. The active DTH subscriber base is estimated to grow
from 32.4 million in 2012 to 63.8 million by 2017 and 76.6 million by 2020.
Aneesh Vijayakar, partner, KPMG India, said, "The mandatory digitization has created an interesting tussle between DTH
and digital cable players. As part of this digitization, companies in both these segments are vying to maintain their
existing subscriber base as well as increase market penetration. Accordingly, sourcing capital is priority for companies in
the distribution space."
As part of sourcing fresh capital, another DTH player, Videocon, is also in the market to float an initial public offer (IPO)
for Bharat Business Channel group's DTH arm. It has received the approval of the Securities and Exchange Board of India
(Sebi) for its proposed Rs 700-crore IPO. According to reports, Tata Sky also plans to tap the IPO market to raise about Rs
2,000 crore by diluting 25 per cent stake.
PE investors need to consider if DTH will be able to add equal or more subscribers than digital cable over the next four-
five years.
Some of the DTH players are also reporting Ebitda (earnings before interest, taxes, depreciation and amortisation)
break-even, which may make them attractive now from an investor's perspective, because valuations may only become
more expensive, Vijayakar of KPMG added.