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Growth momentum continues
Consolidated revenue masks a robust cable growth
Den Networks reported a consolidated topline growth of 13% for
Q2FY11 on a YoY basis. However, revenue growth in cable business
was far more robust at 28% YoY as the company benefited from the
first full year of operations of all of its subsidiaries. Revenues growth in
the channel distribution JV, Star:Den (contributing 50% to the
consolidated revenues)came flat during Q2FY11, impacted by the
absence of Network18 group of channel during the quarter.
Cable EBITDA margin improves to 23%
The EBITDA margin from the cable business improved to 23% for
Q2FY11, up from 11% during same quarter last year. The growing size
of the cable operations helped in keeping the operating costs in check
(growth of 10% YoY) as the topline grew higher (28% YoY), indicating
benefits of consolidation accruing to the company. However, lower
EBITDA margin from the content JV dragged the overall margin down
to 13.3% (as against our expectations of 14.4%).
Industry anticipates a favorable regulation
Progress on the digital front remained muted in Q2FY11 as well.
Industry players remain hopeful of a favorable regulation as well as a
rise in DTH penetration to help them drive the demand for digital
cable services in India in the next 12-18 months.
Valuation – Maintain Accumulate
We continue to believe in the long term digital cable growth story in
India, and hold on to our thesis that the impending consolidation and
digitization wave in the domestic cable space would favor bigger
MSOs like DEN Networks who have the capacity to digitize cable
networks. We maintain our ‘Accumulate’ rating on the stock with a
DCF based target price of INR250.
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