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Dish TV India Limited
A lot to "Wish" for
Investment rationale
Leadership position in DTH industry
Dish TV Limited (DTV) has consistently maintained its leadership position in
the Indian DTH industry with 32% market share and a strong subscriber base
of 9.2m as on Nov 30, 2010. We estimate Dish TV’s gross subscriber base
to reach ~14.9m by FY13e, whereby the company can leverage on its high
fixed content cost.
ARPU growth to drive strong profitability
After seeing a stable ARPU over the past few quarters, DTH players with
overall market share of ~28% in C&S may witness a surge of 3-6% in ARPUs
during FY12e. Dish TV, which commands leadership in the DTH market, is
likely to witness an increase of ~6% to reach INR150 by FY12e. Growth in
ARPU alongwith a strong subscriber base and spreading of overheads over a
large base will help expand margins.
Falling subscriber acquisition cost (SAC)
The company has been able to reduce its SAC consistently over the last few
quarters resulting from increasing subscriber base and rupee appreciation.
We estimate the trend to continue in coming years and thus reduce the capex
requirement per incremental subscriber.
Valuation and outlook
Growth in subscriber base and ARPU followed by declining content cost and
SAC leads to a high growth potential for Company’s revenue and EBITDA.
ARPU has strong sensitivity towards DTH business cash flows; a mere 5%
change in ARPU is likely to result 14% increase in forecasted EBITDA for
FY12e. The upward revision in subscription packs gives strong confidence in
the scale and leadership built by DTV.
At the CMP of INR65, DTV is trading at 14.8x EV/EBITDA on FY12e basis.
We have valued the company at 20x EV/EBITDA on FY12e basis. We
reiterate our BUY recommendation with an increased target price of INR91,
which provides a potential upside of 38%.
Investment rationale
DTV’s leadership position to command premium
The overall increase in subscription charges amidst six players' DTH industry is indicating
the receding concerns of fierce competition and leadership capability of DTV which
warrants significant rerating. We have increased our ARPU from INR140 to INR150 for
FY12e and have increased gross addition in subscriber base by 0.5m for both FY11e
and FY12e. This resulted an overall increase in estimates of EBITDA and EPS by
INR1,088m and INR0.70, respectively for FY12e. Below table shows change in estimates.
Increasing market and incremental market share
The DTH market increased from 23.2m subscribers in 1QFY11 to 29m as on Nov
2010 and Dish TV has been able to achieve an incremental market share of 29%.
After a successful festive season, the Cricket World Cup will drive the next spur and
the DTH market is all set to achieve an average monthly run rate of 1m subs. We have
modeled gross addition of 3.5m and 2.5m subs in FY11e and FY12e, respectively.
Falling subscriber acquisition cost
With increasing subscriber base, the SG&A cost per subscriber acquisition reduces.
This coupled with rupee appreciation has helped the company reduce its SAC cost
over the last few quarters. We expect the trend to continue and with falling CPE
(Customer Premises Equipment) costs in coming years, the capex requirement per
subscriber acquisition will reduce.
Valuation and outlook
ARPU has high sensitivity to earnings
ARPU has strong sensitivity towards DTH business cash flows. Even a 5% change in
ARPU would result in 14% increase in forecasted EBITDA for FY12e. DTV will become
cash positive in FY12e itself with strong subscriber additions.
Growth in subscriber base and ARPU followed by declining content cost and SAC
lead to a high growth potential for revenue and EBITDA for the company.
At the CMP of INR65, the company is trading at 14.8x EV/EBITDA on FY12e basis.
We have valued the company at 20x EV/EBITDA on FY12e basis. We reiterate our
BUY with an increased target price of INR91, presenting a potential upside of 38%.
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