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Dish TV India Ltd
Reuters: DSTV.BO Bloomberg: DITV IB Exchange: BSE Ticker: DSTV
Business scale delivers operating leverage
Net subscriber additions of 1.1 million; total subscribers reach 9 million
Net subscriber additions of 1.1 million in Q3FY11 (up 43% sequentially and the
highest in the past eight quarters) are manifestations of strong market share shifts
in favor of DTH (as against cable). With Dish TV maintaining a 25% incremental
share in a growing market, the company is in line to double EBITDA in FY11 and
then double it again in FY12. We are raising our target price from INR53 to INR71,
on the back of higher-than-expected subscriber numbers, which are a driver of
higher cash flows. We are maintaining our Buy recommendation.
Strong Q3 results
Dish TV reported 34% growth in revenue and a 475% increase in EBITDA,
primarily on account of fixed programming costs. Dish TV had entered into fixed
programming cost agreements with broadcasters and therefore, despite an
incremental 4.4 million subscribers from Q1FY10 to Q3FY11, quarterly
programming costs grew by only 34% (3QFY11 over 1QFY10), which has resulted
in a 1194 bps increase in the EBITDA margins since 1QFY10.
Upgrading customers would help increasing ARPU
The company has discontinued the base silver pack at INR125 per month, to new
customers and has introduced the silver saver pack with nine additional channels
at INR150 per month as the new base pack. The company will also try to
encourage existing silver pack customers to switch by offering a discount. As of
Q3FY11, blended ARPU was INR142, up from INR139 in the previous quarter.
Maintaining Buy with a DCF-based target price of INR71 per share
Our DCF valuation is based on cost of capital of 13.6% and a terminal growth rate
of 4%. While free cash flow for Dish TV is unlikely to be positive over the next 24-
36 months, market valuations should factor in the scale build-up and growth in
EBITDA. Key risks to our earnings assumptions include a decline in ARPUs and/or
an increase in content costs. Please see pp. 5-6 for details on valuation and risks.
Business scale delivers
operating leverage
Net subscriber additions of 1.1 million; 475% growth in EBITDA
Dish TV reported net subscriber additions of 1.1 million, 34% growth in revenue for 3QFY11
and a 475% increase in EBITDA. The near-five-fold increase in EBITDA has taken place
notwithstanding only a marginal increase in programming costs and advertising & marketing
costs. Dish TV had entered into fixed programming cost agreements with broadcasters and
therefore, despite an incremental 4.38 million subscribers in the past seven quarters (Q1FY10
to Q3FY11) – growth of 102% – quarterly programming costs grew by just 34% (3QFY11
over 1QFY10), which has resulted in a 1194 bps increase in the EBITDA margin since
1QFY10.
Upgrading customers would help increasing ARPU
The company has discontinued the silver pack, the base pack at INR125 per month, to new
customers and has introduced the silver saver pack with nine additional channels at INR150
per month as the base pack. The company will also try to encourage existing silver pack
customers to switch by offering a discount. The blended ARPU as on Q3FY11 was INR142,
up from INR139 in the previous quarter.
Valuation
DCF implies valuation of INR71 per share
The key assumptions of our three-stage FCFF (free cash flow to firm) methodology are:
„ Risk-free rate of 6.4%, market risk premium of 7.2% (we apply a standard estimated riskfree rate and market risk premium to all the Indian companies we cover), and beta of
1.12 (Bloomberg data) implying a cost of equity of 14.5%.
„ 9% cost of debt, implying an after-tax cost of debt of 5.85%.
„ Using the above cost of debt and cost of equity, we derive a WACC of 13.6%.
„ Growth in the stable phase of 4% (which is the long-term growth rate in the number of
households in India).
Risks
High sensitivity to ARPU and content cost
We examine the sensitivities in terms of change in the number of subscribers, change in
ARPU, and change in content costs and their impact on Dish TV’s per share valuation.
The following table illustrates that the EBITDA and, subsequently, valuation, are highly
sensitive to the ARPU assumption. A 20% decrease in the ARPU assumption for FY11
decreases EBITDA by 87%. Likewise, a 40% decrease in the new subscriber addition
assumption for FY11 reduces EBITDA by 15%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dish TV India Ltd
Reuters: DSTV.BO Bloomberg: DITV IB Exchange: BSE Ticker: DSTV
Business scale delivers operating leverage
Net subscriber additions of 1.1 million; total subscribers reach 9 million
Net subscriber additions of 1.1 million in Q3FY11 (up 43% sequentially and the
highest in the past eight quarters) are manifestations of strong market share shifts
in favor of DTH (as against cable). With Dish TV maintaining a 25% incremental
share in a growing market, the company is in line to double EBITDA in FY11 and
then double it again in FY12. We are raising our target price from INR53 to INR71,
on the back of higher-than-expected subscriber numbers, which are a driver of
higher cash flows. We are maintaining our Buy recommendation.
Strong Q3 results
Dish TV reported 34% growth in revenue and a 475% increase in EBITDA,
primarily on account of fixed programming costs. Dish TV had entered into fixed
programming cost agreements with broadcasters and therefore, despite an
incremental 4.4 million subscribers from Q1FY10 to Q3FY11, quarterly
programming costs grew by only 34% (3QFY11 over 1QFY10), which has resulted
in a 1194 bps increase in the EBITDA margins since 1QFY10.
Upgrading customers would help increasing ARPU
The company has discontinued the base silver pack at INR125 per month, to new
customers and has introduced the silver saver pack with nine additional channels
at INR150 per month as the new base pack. The company will also try to
encourage existing silver pack customers to switch by offering a discount. As of
Q3FY11, blended ARPU was INR142, up from INR139 in the previous quarter.
Maintaining Buy with a DCF-based target price of INR71 per share
Our DCF valuation is based on cost of capital of 13.6% and a terminal growth rate
of 4%. While free cash flow for Dish TV is unlikely to be positive over the next 24-
36 months, market valuations should factor in the scale build-up and growth in
EBITDA. Key risks to our earnings assumptions include a decline in ARPUs and/or
an increase in content costs. Please see pp. 5-6 for details on valuation and risks.
Business scale delivers
operating leverage
Net subscriber additions of 1.1 million; 475% growth in EBITDA
Dish TV reported net subscriber additions of 1.1 million, 34% growth in revenue for 3QFY11
and a 475% increase in EBITDA. The near-five-fold increase in EBITDA has taken place
notwithstanding only a marginal increase in programming costs and advertising & marketing
costs. Dish TV had entered into fixed programming cost agreements with broadcasters and
therefore, despite an incremental 4.38 million subscribers in the past seven quarters (Q1FY10
to Q3FY11) – growth of 102% – quarterly programming costs grew by just 34% (3QFY11
over 1QFY10), which has resulted in a 1194 bps increase in the EBITDA margin since
1QFY10.
Upgrading customers would help increasing ARPU
The company has discontinued the silver pack, the base pack at INR125 per month, to new
customers and has introduced the silver saver pack with nine additional channels at INR150
per month as the base pack. The company will also try to encourage existing silver pack
customers to switch by offering a discount. The blended ARPU as on Q3FY11 was INR142,
up from INR139 in the previous quarter.
Valuation
DCF implies valuation of INR71 per share
The key assumptions of our three-stage FCFF (free cash flow to firm) methodology are:
„ Risk-free rate of 6.4%, market risk premium of 7.2% (we apply a standard estimated riskfree rate and market risk premium to all the Indian companies we cover), and beta of
1.12 (Bloomberg data) implying a cost of equity of 14.5%.
„ 9% cost of debt, implying an after-tax cost of debt of 5.85%.
„ Using the above cost of debt and cost of equity, we derive a WACC of 13.6%.
„ Growth in the stable phase of 4% (which is the long-term growth rate in the number of
households in India).
Risks
High sensitivity to ARPU and content cost
We examine the sensitivities in terms of change in the number of subscribers, change in
ARPU, and change in content costs and their impact on Dish TV’s per share valuation.
The following table illustrates that the EBITDA and, subsequently, valuation, are highly
sensitive to the ARPU assumption. A 20% decrease in the ARPU assumption for FY11
decreases EBITDA by 87%. Likewise, a 40% decrease in the new subscriber addition
assumption for FY11 reduces EBITDA by 15%.
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