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Dish TV – (BUY)
Revenue, at INR 3,732 mn, in line with estimate
Dish TV India’s (Dish TV) Q3FY11 revenue stood at INR 3,732 mn (against estimated INR
3,607 mn), up 34.5% Y-o-Y. The company added a record 1.1 mn subscribers during the
quarter. As on December 31, 2010, its gross subscriber base stood at 9.4 mn and net
subscriber base at 7.7 mn. ARPU per month increased to INR 142 from INR 139 Q-o-Q
after a flattish trend over the past five quarters. ARPU rose 5% Y-o-Y due to price hike
across two popular packs announced towards Q2FY11 end and increasing traction in
middle level subscription packs over the base pack.
EBITDA margin expanded sharply 259bps Q-o-Q
Q3FY11 EBITDA, at INR 667 mn, was ahead of our INR 610 mn estimate. EBITDA
margins expanded sharply from 15.3% in Q2FY11 to 17.9% in Q3FY11 on back of
operating leverage benefits arising from fixed content cost deals and robust subscriber
additions. Content cost (as percentage of subscription revenues) remained at 39%.
Subscriber acquisition cost (SAC) increased marginally to INR 2,142 in Q3FY11 from INR
2,083 in the previous quarter due to higher selling and distribution expenses and
enhanced box subsidy as a result of aggressive competition.
Additional transponders increase SD and HD channel capacity
During Q3FY11, Dish TV inked a long-term contract with Antriksh for additional
transponders on Asiasat. Ergo, its total transmission bandwidth has increased from 432
MHz to 648 MHz, which will enable the company to increase its standard definition
channel capacity to over 320 and high definition capacity to over 30, substantially higher
than any competing DTH operator.
Outlook and valuations: Attractive; maintain ‘BUY’
We are bullish on the Indian pay TV market. Dish TV is at an inflection point with
expected higher growth on the back of low penetration, favourable regulatory
environment, increasing margins, and a strong balance sheet. Hence, we maintain ‘BUY’
recommendation on the stock and rate it ‘Sector Performer’ on relative return basis.
Focus on advertising revenues
Television rating measurement agencies have increased the all India digital weightage in
their reported markets from 8% to 15%. Advertisers have started looking at DTH as a
platform for focused advertisement. Dish TV has enhanced its focus on advertising
revenues. Sports, especially cricket, continues to drive the category.
Cricket to drive growth in Q4FY11
The Cricket World Cup and IPL matches are expected to provide similar boost to DTH in
Q4FY11. Dish TV recently added the India-South Africa cricketing series in HD on its platform.
Dish TV : Key takeaways from concall
• Subscriber addition will continue to be robust: Q4FY11 has Cricket World Cup in
India and post that is IPL followed by a heavy sports calendar.
• Revenue break up in Q3FY11: Out of the total INR 3,730 mn: ~ INR 3,100 mn from
subscription (INR 2,700 mn in Q2FY11), INR 520 mn from lease rental (INR 550 mn
in Q2FY11), INR 75 mn in bandwidth and sale of accessories (INR 20 mn in
Q2FY11). In Q1FY11 INR 2,500 mn in subscription, INR 450 mn in lease rental, INR
65 mn in bandwidth, sale of accessories.
• ARPU: INR 142 in Q3FY11 (INR 139 in Q2FY11, INR 139 in Q1FY11, INR 138 in
Q4FY10 and FY10). The company expects an exit ARPU of INR 155 in FY11 (earlier
guidance was INR 150-155).
• Bandwidth revenues: Bandwidth revenues have increased because of extra
transponder capacity (total transmission bandwidth increased to 648 MHz from 432
earlier.
• Ad revenues: Ads are likely to account for INR 60-80 mn in FY11E. With TV rating
agencies increasing digital weightage in their reported markets from ~8% to 15%,
advertisers have started taking DTH more seriously. To capitalise on this, Dish TV
has amplified its focus on advertising revenues as an alternate revenue stream and
is poised to materially scale up going forward from home page and entertainment
guide page.
• Premiumisation underway: The company expects an exit ARPU of INR ~155 in FY11
and Q3FY11 has seen improvement Q-o-Q. The improvement will happen because of
premiumisation as subscribers uptrade from Silver to Silver Plus and Silver Plus to
Gold, HD services, ala carte (as ala carte starts at INR 150 while base packs start
much lower) and sports events. Dish TV stopped Silver Packs in October.
• Content cost: Currently, 39% of revenues are for content cost. It has remained flat
Q-o-Q in spite of huge subscriber addition and fixed nature of content cost as Dish
TV has added some new channels like Neo Sports, Tarang, some regional channels,
UTV etc. The company expects content cost as a percentage of sales to decline
gradually. Content cost will not increase due to World Cup and IPL as Dish TV
already has a fixed fee content deal with these channels.
• Subscriber acquisition cost (SAC): SAC has gone up to INR 2,142 (INR 2,600 in
FY10; INR 2,083 in Q2FY11). It has risen marginally Q-o-Q because of the new entry
price at INR 990.
• Ad spends: Ad spends are likely to be lower than the earlier guidance of INR 1 bn.
However, ad spends will be higher Q-o-Q in Q4FY11 as the company will invest
around the World Cup.
• Entertainment tax (E-tax): E-tax is now 5.5-6% of subscription revenues (earlier
4.5%). Now, 21 states charge entertainment tax. Dish TV is waiting for Supreme
Court decision on this. This is unlikely to increase significantly in the next 2-3 years.
• Churn per month: 0.9% per month in Q3FY11 (0.7% per in Q2FY11). The company
expects a sustainable churn to be 1% per month as current rates are a bit low.
Churn is regarded if a customer does not pay even 120 days past his due date.
• Debt: INR 9.5 bn; Cash: INR 4 bn.
• Rate of interest: This has not changed as Dish TV has managed to convert some part
of domestic loan to overseas loan. Currently, it pays an average interest of 10.5%.
• Currency impact: INR 7.5 mn which is shown as part of other income.
• Fund raising plans: Dish TV had taken an enabling resolution to raise USD 100 mn.
This has still not been finalised.
• Depreciation expense: No change in depreciation policy. The company continues to
depreciate set top boxes at 20%. Depreciation expenses were INR 670 mn in
Q1FY11, INR 840 mn in Q2FY11, and INR 902 mn in Q3FY11. This has increased
because of the sharp pick up in subscriber addition.
• Provision for set top boxes that are not active: Impact of INR 40 mn in Q3FY11 (INR
30 mn is being taken in Q1FY11 and Q2FY11 each to provide for impairment taken
for inactive subscribers for compliance to IFRS). In FY10 this was INR 81 mn. The
company provides for a non-active consumer by making a provision for set top
boxes if they are beyond 500 days and no payment has been received. From April 1,
this period of 500 days is likely to reduce to 180 days.
• Break up of INR 990 entry pack: INR 450 for rental, INR 280 for activation charges,
INR 80 for VAT, and INR 170 for dealer commission.
• TRAI recommendation on digitisation: No concrete steps have been taken. DTH
industry is not impacted by any head way in this as the industry is anyways adding
strong numbers.
• Loans and advances: INR 700 mn repaid and additionally INR 800-1000 mn will be
repaid in Q4FY11.
• No significant impact from two liabilities:
• Dish TV entered into an agreement with its wholly owned subsidiary Agrani
Satellite Services (ASSL) for transponder capacity hiring. ASSL had entered into
a satellite capacity agreement with a supplier for obtaining transponder capacity
on a satellite to be launched. Dish TV provided a corporate guarantee to the
supplier for utilizing the proposed transponder capacity and also to ensure due
compliance of agreement between ASSL and the supplier. However, as the
supplier failed to meet various obligations under the agreement, ASSL
terminated the agreement. The supplier disputed the said termination and
initiated arbitration proceedings against ASSL in ICC International Court of
Arbitration at Singapore by filing its claim of USD 190,630,000. Both the parties
have reached an amicable settlement and consequently, the suit has been
withdrawn.
• The company had acquired transponder capacity for the HITS services under
Transponder Capacity Agreement. Due to change in government policy, the
company terminated the Agreement with supplier under the Force Majeure
condition. The supplier claimed damages of USD 15,806,802.28. However,
subsequent to the balance sheet, the company and supplier have settled the
dispute under which both parties will be released of all liabilities. Formal
settlement agreement is yet to be executed by the parties. Dish TV
management said the impact will be nominal, if any, in Q4FY11.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Dish TV – (BUY)
Revenue, at INR 3,732 mn, in line with estimate
Dish TV India’s (Dish TV) Q3FY11 revenue stood at INR 3,732 mn (against estimated INR
3,607 mn), up 34.5% Y-o-Y. The company added a record 1.1 mn subscribers during the
quarter. As on December 31, 2010, its gross subscriber base stood at 9.4 mn and net
subscriber base at 7.7 mn. ARPU per month increased to INR 142 from INR 139 Q-o-Q
after a flattish trend over the past five quarters. ARPU rose 5% Y-o-Y due to price hike
across two popular packs announced towards Q2FY11 end and increasing traction in
middle level subscription packs over the base pack.
EBITDA margin expanded sharply 259bps Q-o-Q
Q3FY11 EBITDA, at INR 667 mn, was ahead of our INR 610 mn estimate. EBITDA
margins expanded sharply from 15.3% in Q2FY11 to 17.9% in Q3FY11 on back of
operating leverage benefits arising from fixed content cost deals and robust subscriber
additions. Content cost (as percentage of subscription revenues) remained at 39%.
Subscriber acquisition cost (SAC) increased marginally to INR 2,142 in Q3FY11 from INR
2,083 in the previous quarter due to higher selling and distribution expenses and
enhanced box subsidy as a result of aggressive competition.
Additional transponders increase SD and HD channel capacity
During Q3FY11, Dish TV inked a long-term contract with Antriksh for additional
transponders on Asiasat. Ergo, its total transmission bandwidth has increased from 432
MHz to 648 MHz, which will enable the company to increase its standard definition
channel capacity to over 320 and high definition capacity to over 30, substantially higher
than any competing DTH operator.
Outlook and valuations: Attractive; maintain ‘BUY’
We are bullish on the Indian pay TV market. Dish TV is at an inflection point with
expected higher growth on the back of low penetration, favourable regulatory
environment, increasing margins, and a strong balance sheet. Hence, we maintain ‘BUY’
recommendation on the stock and rate it ‘Sector Performer’ on relative return basis.
Focus on advertising revenues
Television rating measurement agencies have increased the all India digital weightage in
their reported markets from 8% to 15%. Advertisers have started looking at DTH as a
platform for focused advertisement. Dish TV has enhanced its focus on advertising
revenues. Sports, especially cricket, continues to drive the category.
Cricket to drive growth in Q4FY11
The Cricket World Cup and IPL matches are expected to provide similar boost to DTH in
Q4FY11. Dish TV recently added the India-South Africa cricketing series in HD on its platform.
Dish TV : Key takeaways from concall
• Subscriber addition will continue to be robust: Q4FY11 has Cricket World Cup in
India and post that is IPL followed by a heavy sports calendar.
• Revenue break up in Q3FY11: Out of the total INR 3,730 mn: ~ INR 3,100 mn from
subscription (INR 2,700 mn in Q2FY11), INR 520 mn from lease rental (INR 550 mn
in Q2FY11), INR 75 mn in bandwidth and sale of accessories (INR 20 mn in
Q2FY11). In Q1FY11 INR 2,500 mn in subscription, INR 450 mn in lease rental, INR
65 mn in bandwidth, sale of accessories.
• ARPU: INR 142 in Q3FY11 (INR 139 in Q2FY11, INR 139 in Q1FY11, INR 138 in
Q4FY10 and FY10). The company expects an exit ARPU of INR 155 in FY11 (earlier
guidance was INR 150-155).
• Bandwidth revenues: Bandwidth revenues have increased because of extra
transponder capacity (total transmission bandwidth increased to 648 MHz from 432
earlier.
• Ad revenues: Ads are likely to account for INR 60-80 mn in FY11E. With TV rating
agencies increasing digital weightage in their reported markets from ~8% to 15%,
advertisers have started taking DTH more seriously. To capitalise on this, Dish TV
has amplified its focus on advertising revenues as an alternate revenue stream and
is poised to materially scale up going forward from home page and entertainment
guide page.
• Premiumisation underway: The company expects an exit ARPU of INR ~155 in FY11
and Q3FY11 has seen improvement Q-o-Q. The improvement will happen because of
premiumisation as subscribers uptrade from Silver to Silver Plus and Silver Plus to
Gold, HD services, ala carte (as ala carte starts at INR 150 while base packs start
much lower) and sports events. Dish TV stopped Silver Packs in October.
• Content cost: Currently, 39% of revenues are for content cost. It has remained flat
Q-o-Q in spite of huge subscriber addition and fixed nature of content cost as Dish
TV has added some new channels like Neo Sports, Tarang, some regional channels,
UTV etc. The company expects content cost as a percentage of sales to decline
gradually. Content cost will not increase due to World Cup and IPL as Dish TV
already has a fixed fee content deal with these channels.
• Subscriber acquisition cost (SAC): SAC has gone up to INR 2,142 (INR 2,600 in
FY10; INR 2,083 in Q2FY11). It has risen marginally Q-o-Q because of the new entry
price at INR 990.
• Ad spends: Ad spends are likely to be lower than the earlier guidance of INR 1 bn.
However, ad spends will be higher Q-o-Q in Q4FY11 as the company will invest
around the World Cup.
• Entertainment tax (E-tax): E-tax is now 5.5-6% of subscription revenues (earlier
4.5%). Now, 21 states charge entertainment tax. Dish TV is waiting for Supreme
Court decision on this. This is unlikely to increase significantly in the next 2-3 years.
• Churn per month: 0.9% per month in Q3FY11 (0.7% per in Q2FY11). The company
expects a sustainable churn to be 1% per month as current rates are a bit low.
Churn is regarded if a customer does not pay even 120 days past his due date.
• Debt: INR 9.5 bn; Cash: INR 4 bn.
• Rate of interest: This has not changed as Dish TV has managed to convert some part
of domestic loan to overseas loan. Currently, it pays an average interest of 10.5%.
• Currency impact: INR 7.5 mn which is shown as part of other income.
• Fund raising plans: Dish TV had taken an enabling resolution to raise USD 100 mn.
This has still not been finalised.
• Depreciation expense: No change in depreciation policy. The company continues to
depreciate set top boxes at 20%. Depreciation expenses were INR 670 mn in
Q1FY11, INR 840 mn in Q2FY11, and INR 902 mn in Q3FY11. This has increased
because of the sharp pick up in subscriber addition.
• Provision for set top boxes that are not active: Impact of INR 40 mn in Q3FY11 (INR
30 mn is being taken in Q1FY11 and Q2FY11 each to provide for impairment taken
for inactive subscribers for compliance to IFRS). In FY10 this was INR 81 mn. The
company provides for a non-active consumer by making a provision for set top
boxes if they are beyond 500 days and no payment has been received. From April 1,
this period of 500 days is likely to reduce to 180 days.
• Break up of INR 990 entry pack: INR 450 for rental, INR 280 for activation charges,
INR 80 for VAT, and INR 170 for dealer commission.
• TRAI recommendation on digitisation: No concrete steps have been taken. DTH
industry is not impacted by any head way in this as the industry is anyways adding
strong numbers.
• Loans and advances: INR 700 mn repaid and additionally INR 800-1000 mn will be
repaid in Q4FY11.
• No significant impact from two liabilities:
• Dish TV entered into an agreement with its wholly owned subsidiary Agrani
Satellite Services (ASSL) for transponder capacity hiring. ASSL had entered into
a satellite capacity agreement with a supplier for obtaining transponder capacity
on a satellite to be launched. Dish TV provided a corporate guarantee to the
supplier for utilizing the proposed transponder capacity and also to ensure due
compliance of agreement between ASSL and the supplier. However, as the
supplier failed to meet various obligations under the agreement, ASSL
terminated the agreement. The supplier disputed the said termination and
initiated arbitration proceedings against ASSL in ICC International Court of
Arbitration at Singapore by filing its claim of USD 190,630,000. Both the parties
have reached an amicable settlement and consequently, the suit has been
withdrawn.
• The company had acquired transponder capacity for the HITS services under
Transponder Capacity Agreement. Due to change in government policy, the
company terminated the Agreement with supplier under the Force Majeure
condition. The supplier claimed damages of USD 15,806,802.28. However,
subsequent to the balance sheet, the company and supplier have settled the
dispute under which both parties will be released of all liabilities. Formal
settlement agreement is yet to be executed by the parties. Dish TV
management said the impact will be nominal, if any, in Q4FY11.
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