IPL team owners may sell stake as valuations rise post mega auction

Analysts predict team valuations to touch Rs 7,500 cr to 9,000 cr given improved economics

As the valuations of Indian Premier Team league teams rise post Rs 48,400 crore earned by BCCI (Board of Control for Cricket in India) by selling media rights for IPL for next five years, the team owners are looking at the option of raising funds by selling part of their stake in the companies. Listed companies such as Reliance Industries, United Spirits, Sun TV, India Cements own IPL teams and analysts are predicting that the teams’ net profit would increase to Rs 270 crore to Rs 300 crore from the present Rs 100 to Rs 125 crore, thus leading to higher valuations, say bankers.

Team owners said they will look at listing their teams or raising capital from private investors before the next season starts in May next year. “Our revenues will rise to Rs 600 crore with the increased media rights from Rs 200 crore a year. The valuations of the team will also rise accordingly and several companies will raise funds as original owners encash part of their holdings,” said a top official of a leading team asking not to be quoted. "There are several private equity companies and Indian billionaires who are looking to invest in the IPL teams," the official said. 

Analysts said the valuations of RCB (owned by United Spirits), SRH (Sun TV) and CSK (India Cements) could increase to Rs 7,500 crore to Rs 9,000 crore given improved economics. “‘With IPL media rights sold for Rs 48,400 crore and assuming central sponsorships of Rs 6,500 crore, we estimate the central revenue payout of Rs 550 crore a year versus Rs 200 crore to Rs 225 crore a year earlier) to each team,” a report by Kotak Institutional Securities said. 

The revenues of an IPL team could increase to Rs 625 crore to Rs 700 crore a  year (including local  sponsorship of Rs 100 crore) and gate fees. “Assuming 33 per cent increase in player fees cap  and unchanged franchise fees (20% of revenues),  the net profit of an IPL team could increase to Rs 270 crore to Rs 300 crore a year (2023-27 average) from Rs 110 crore,” the Kotak report said.

Citing an example, analysts said the annual profits of companies like Sun TV  would increase from Rs 73 crore in the fiscal 2022 to Rs 300 crore by the fiscal ending March 2024. “The IPL profits will be entirely translated to free cash flow for the company, as it does not entail any annual capex or working capital,” said an analyst with Elara Capital on team valuations.

Analysts said in the 15th edition of IPL, most of the old franchises are likely to have turned profitable as central revenues (14-15 per cent of compounded annual growth rate (CAGR) over FY2009-22) have grown faster than the costs, particularly  player fees. However, IPL franchises still have a long way to go in terms of reducing their dependence on central revenue (66-75% salience) when compared to some established foreign franchises (40% salience). Since the franchises have no control over central revenue share, scaling up local revenues becomes critical for them, analysts said.