Star India, an unlisted company, is enjoying high valuations from financial services companies. While late last year Morgan Stanley valued Star at $11.2998 billion (around Rs 75,000 crore based on the value of Indian currency at that time), domestic brokerage firm Edelweiss Securities has in its recent report pegged the value of the wholly owned subsidiary of 21st Century Fox at a whopping $14.3 billion (Rs 97,011.2 crore based on Monday’s exchange rate). “As per our calculations (based on publicly available data), if Star gets listed on the bourses, its enterprise value (EV) could potentially be $14.3 billion and become India’s largest media company,” Edelweiss Securities said in its report. Edelweiss has valued Star on SOTP (sum of the parts) basis. Star’s entertainment business has been valued at Rs 63,360 crore (Rs 633.60 billion), Hotstar at Rs 10,245.2 crore (Rs 102.45 billion), and the sports business at Rs 18,000 crore (Rs 180 billion). “We expect Hotstar to garner revenues of over Rs 1,000 crore (Rs 10 billion) in FY20. Considering the high growth potential of the OTT platform, we valued Star’s Hotstar business at 15xEV/sales at FY20,” Edelweiss said. Star’s entertainment segment has been valued at 33x FY16E EV/EBITDA. The company is re‐investing 100 per cent of profits generated from entertainment business in building its sports businesses after acquiring ESPN Star Sports (ESS). “Such investment in sports business is likely to phase out from FY16, leading to substantial jump in EBITDA growth in ensuing years. EBITDA margin for the company has fallen from 21 per cent in FY10 to 9.4 per cent in FY14 due to heavy sport losses,” the report said. For valuing the sports business, Edelweiss considered Star’s investments (worth Rs 20,000 crore). “With the sports business in India still at a nascent stage and backed by heavy investments, we assign 0.9x to the investments (Rs 20,000 crore) done by Star in sports business to arrive at a valuation of Rs 180 billion. Hence, Star’s sports business is valued at 8.2xEV/sales,” the report said. According to Edelweiss, Star could make disproportionate gains in the long term from: (i) investments done in sports; (ii) aggression on Hotstar; and (iii) huge capital from parent 21st Century Fox. The company’s recent acquisition of MAA TV (second-largest Telugu GEC) will bolster its presence in South India, the report added. Star expects to deliver EBITDA (including sports losses) of $500 million by FY18 and $1 billion by FY20 (~9.5x of FY14).
According to Edelweiss, Star reported 42.6 per cent subscription revenue CAGR during FY09–14, aided by sports and expansion in southern India (Star acquired Asianet in 2009 and MAA TV in 2015). Regional channels contribute 15–20 per cent to the company’s overall revenues from entertainment and movie channels. “We expect the acquisition of MAA TV will further bolster Star’s FY16 top line by Rs 300 crore (Rs 3 billion),” the report said. Currently, ~33 per cent of Star’s top line is driven by subscription revenues. For broadcasters subscription revenues have always been low because of lower ARPUs. “We expect subscription revenue for the company to increase at ~20 per cent CAGR over the next 2–3 years, led by Phase III digitisation and improving ARPU growth,” the report stated. Star, Edelweiss said, has the ability to get higher share of subscription revenues (given much stronger sports bouquet) and likely share gains in South India. Entertainment is on a winning streak, with Star Plus remaining market leader for the past many years in the Hindi GEC space.
Star clocked 31.2 per cent revenue CAGR during FY09–14, driven by 27.2 per cent advertising CAGR during the period, the report stated.
The sports business likely constitutes 25 per cent of Star’s revenues. “Though sports segment is loss making, we believe it will start generating profits after five years. Star has invested in developing the sports ecosystem in India, which we believe will benefit in the long run. Further, Star has won most of the broadcasting rights to India cricket matches, which will help the company to promote other sports like kabaddi, soccer and hockey. We believe that sport business should be valued based on content, investments in league and the OTT platform being used for sports. Star is present in all the three areas, thus giving it an edge over competition,” the report said.
In February 2015, Star officially launched Hotstar, its new mobile and online entertainment destination for television shows, movies and sports content, which achieved 20 million downloads in four months after launch. Initially, it was intended to serve as a mobile application that would support streaming of the Cricket World Cup with some entertainment content. However, Hotstar expanded its offerings with 40,000 hours of content available in eight languages through Star’s entertainment, movie and sports channels. Hotstar is an ad-led video-on-demand (VoD) model. Hence, all its content is available for free. Apart from content available on television, which can also be seen on Hotstar, Star also creates original content for the digital platform. Some of it will air on TV at a later stage. “Hotstar alone has over 100 advertisers, which may help Star get a bite of digital advertising. We believe Star will be able to enjoy early‐mover advantage as the OTT (non‐linear viewing) market picks up. Later Star can re‐evaluate its decision to shift from advertising VoD to subscription VoD model,” the report said.
Source: Television Post