Dish TV’s net subscriber base to grow at 22% CAGR: UBS

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Dish TV (Buy; price target Rs70)
Company background
Dish TV is part of the Zee Group, a media conglomerate, and is the first and
largest direct-to-home (DTH) operator in India with a strong brand presence and
a wide distribution network. The company had a gross subscriber base of 8.3m
and an estimated 32-33% subscriber market share in 2QFY11.



Key takeaways
􀁑 Dish TV highlighted that 92% of content cost is fixed. Dish TV highlighted
that it had entered into content cost agreements with most large broadcasters
(excluding Sun TV) for 3-5 years, with an annual escalation of 7%. The first
contract is likely to be up for renewal by end-FY11.
􀁑 Management believes that steady state EBITDA margin is likely to be in the
range of 28-32%. At a subscriber base of 11m, Dish TV’s EBITDA margin is
likely to be c28%. Dish TV aims to achieve net profit breakeven during mid-
FY12.

􀁑 Dish TV’s new entry packages (especially 100% cash back offer) are gaining
traction and Dish TV added ~350,000 subscribers in October 2010. It aims to
add around 3m subscribers in FY11 and FY12. We estimate Dish TV to add
3.1m gross subs in FY11 (added 1.41m in 1HFY11) and 2.6m in FY12.


UBS view
Dish TV is a play on India’s growing DTH subscriber base, driven by rising
income levels and an increasing awareness of DTH services. Consumers are
likely to prefer a higher-quality digital platform. We forecast Dish TV’s net
subscriber base to grow at an average annual rate of 22% for the three years to
FY13. Potential share price catalysts include: 1) strong quarterly performance in
the next 2-3 quarters; 2) implementation of mandatory digitisation as
recommended by TRAI as it will lead to increase in DTH subscriber pick-up; 3)
likely reduction of license fee, which will further improve EBITDA margin.