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****Diwali Muharat Pick: Dish TV: ICICI Sec ****
Dish TV Growth on track…
�� Strong subscriber addition
Dish TV is the market leader in the DTH industry with a healthy market
share of 31%. It has a total subscriber base of 8.3 million at the end of
Q2FY11. The subscriber base for the company has grown at 31.9% CAGR
(FY07-10) to 6.9 million subscribers. In the recent past, the DTH industry
has grown at a faster than expected pace, adding about 5.3 million
subscribers in H1FY11. Given the festive season in Q3 and the Cricket
World Cup to follow in Q4, we expect even stronger traction in subscriber
growth. Dish TV being the industry leader and with 26.6% share in new
additions in H1FY11, would gain immensely from this subscriber
outburst. Dish TV is expected to add 2.9 million and 3.0 million
subscribers in FY11E and FY12E, respectively.
�� Funding in place for growth
Dish TV has raised sufficient funds in the last fiscal to take care of future
expansion needs. The company has raised Rs 1140-crore through a rights
issue in October last year. The company also diluted 11% equity to USbased
Apollo management in the form of GDRs for Rs 475 crore.
Altogether, the company has raised ~ Rs 1615 crore in the past year. We
believe the company is well funded for growth in the next two years.
Furthermore, the management has taken board approval to raise $200
million.
�� Strong margins could lead to early profitability
The company has been improving its efficiency and is delivering healthy
EBITDA margins QoQ. Dish TV has contracted for the programming cost
with the broadcasters on a fixed basis rather than on a per subscriber
basis, leading to huge cost saving. This cost alone accounted for ~60% of
the total cost and is expected to reduce to 53% by FY12E. Healthy
subscriber addition and strong EBITDA margin could lead to earlier than
expected profitability for the company.
Given the healthy subscriber addition in the industry and high share of
Dish TV in net adds at 26.6% in H1FY11, we have revised our subscriber
estimates for both the industry and the company for FY11E and FY12E.
However, we have also tapered down our ARPU estimates in light of lost
collections in the quarter. Assuming revenue CAGR of 26.6% over FY11E–
FY20E and terminal growth of 4.5% thereon, we have arrived at a target
price of Rs 70/share. The stock is currently trading at Rs 56. Our target
price implies an upside potential of 25%.
Technical outlook
• The stock has broken out of symmetrical Triangle pattern above
Rs.47 early August’09. Then it rallied up to Rs. 60 levels and now
is consolidating for the past eight weeks.
• Measuring implication of the price pattern projects targets of Rs.
72-74 levels over the medium term
• Although the share price pulling back to the breakout area may
not be ruled out, it could be considered as a buying opportunity
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