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At an inflection point
Dish TV is the leader and pioneer of the DTH space in
India. With a commanding market share in a rapidly
growing market, we expect an improvement in ARPU
coupled with lower content costs. We expect the
company to turn PAT positive by H2FY12 and Free Cash
flow positive by FY12.
Strong momentum in the Industry: Indian C&S
subscription market is set to reach Rs416bn in 2015 from
Rs194bn in 2010 with the DTH segment growing to
71mn subscribers in 2015 on back of the compulsory
digitization schedule.
Leader with 31% market share: Dish TV is the leader in
the DTH space with a market share of 31%. The company
is expected to sustain its pace of subscriber addition
aided by compulsory digitization. We believe the
company can maintain its lead given its strong network
strength and competitive product offering.
Improving operating metrics: ARPUs are estimated to
rise on back of value added services and migration of
customers to higher packs. The content cost is also
expected to be lower due to the fixed cost model in
operation while the subscriber acquisition cost is
expected to be under check going down from Rs 2142 in
Q3FY11.
Strong revenue growth Standalone revenue is
expected to post a CAGR of 32% to Rs25,193 mn by FY13
on back of strong growth in subscription revenue due to
higher ARPU and a robust growth in subscriber base. We
expect subscription revenues to be 89% of the revenues
and grow at a CAGR of 39% in the same period.
Margin improvement: EBITDA Margins are expected to
improve 3x from 9.7% to 30.7% due to lower content
cost, commissions and advertising costs. The company is
expected to turn Free Cash Flow positive by FY12 and
PAT positive by H2FY12.
Valuation: Global players such as Dish Network and
others in their growth phase, similar to Dish TV, have
witnessed an EV/EBITDA of 12-15X. We initiate coverage
on Dish TV with a BUY rating valuing it at an EV/EBITDA
of 12x FY13E arriving at a target price of Rs 81.
Key Risks: i) Competition from other DTH players ii)
Lower ARPU and higher SAC iii) Competition from other
technologies such as digital cable iv) Regulatory risk.
Upside risks i) Reduction in license fees from 10% to 4%
ii) Implementation of GST.
Valuations
Dish TV is in a sweet spot and at an inflection point in terms of benefiting from digitization of the
C&S industry. With more than 10mn subscribers in FY11 the company would increase its operating
margins by 3x along with being free cash flow positive from FY12 and PAT positive from H2FY12.
With revenue CAGR of 32% and EBIDTA CAGR of 101% over FY10-13E, respectively, we expect the
stock to get re-rated.
We valued Dish TV at 12x FY13E EV/EBIDTA and arrive at a target price of Rs81. We believe global
players such as Dish Network and others in their growth phase similar to that of Dish TV had
EV/EBIDTA multiples of 12-15x. Indian telecom companies in their hay days also witnessed
EV/EBIDTA multiples of 12-14x. Considering the turnaround in profitability, margin expansion,
leadership in the DTH space along with being free cash flow positive, EV/EBIDTA multiple of 12x is
justified. We are extremely bullish on the Indian Pay TV market and initiate coverage on Dish TV
with a BUY rating and target price of Rs81 (upside potential of 21%).
Key Risks
Competition from other DTH players
DTH being a six-player market has become a highly competitive industry with big corporate
houses such as Reliance ADAG, Bharti Airtel, Tata Group, Sun Network and Videocon being the
other players apart from Dish TV with deep pockets. We believe irrational competition will result in
high subscriber churn. Dish TV has a monthly subscriber churn of 0.7% and 12% annually while
competitors have a higher churn. As the market becomes mature, players will find it even more
difficult to acquire new customers and as currently there is no difference between DTH players as
all offer the same service and with mandatory content share regulation the broadcasters have to
share the same content with all players. Hence the players have to differentiate themselves only
with branding, marketing and service offerings.
Lower than expected ARPU and higher subscriber acquisition cost
With competition being irrational, the subscriber acquisition cost could increase significantly from
current levels of Rs2142 as players start to offer freebies while ARPUs come under pressure due to
discounted content offering to pay for promotional activities as new subscribers are entering the
system at significantly lower ARPU levels.
Competition from other technologies such as digital cable
As consolidation and corporatization is changing the face of MSOs, they could significantly fund
the STB at the customers’ end and convert the old analog cable into digital cable. We have seen
instances in the metro markets where the subscriber churn is from DTH to digital cable on back of
lower APRU offered by MSOs. We believe this could be a deterrent to the industry as a whole as
the ARPU would takes longer than expected to move upwards.
Regulatory risk
The DTH industry is subject to extensive regulations and hence it faces the risk of an unfavorable
regulatory environment. Regulation in terms of pricing of channels, inter-operability of STB,
license fee, content differentiation, entertainment tax levied by individual states and content cost,
to name a few, continue to dampen profitability of the sector.
Upside risk
Reduction in license fee
License fee currently is 10% of the gross DTH revenues. Favorable TDSAT order dated 28th May
2010 says that this should be at 6%. If implemented the increase in EBIDTA margins would be 4%.
Implementation of GST
Currently the company pays ~4% entertainment tax along with service tax and other taxes.
Implementation of GST would rationalize and reduce taxes since the industry is heavily
taxed currently
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
At an inflection point
Dish TV is the leader and pioneer of the DTH space in
India. With a commanding market share in a rapidly
growing market, we expect an improvement in ARPU
coupled with lower content costs. We expect the
company to turn PAT positive by H2FY12 and Free Cash
flow positive by FY12.
Strong momentum in the Industry: Indian C&S
subscription market is set to reach Rs416bn in 2015 from
Rs194bn in 2010 with the DTH segment growing to
71mn subscribers in 2015 on back of the compulsory
digitization schedule.
Leader with 31% market share: Dish TV is the leader in
the DTH space with a market share of 31%. The company
is expected to sustain its pace of subscriber addition
aided by compulsory digitization. We believe the
company can maintain its lead given its strong network
strength and competitive product offering.
Improving operating metrics: ARPUs are estimated to
rise on back of value added services and migration of
customers to higher packs. The content cost is also
expected to be lower due to the fixed cost model in
operation while the subscriber acquisition cost is
expected to be under check going down from Rs 2142 in
Q3FY11.
Strong revenue growth Standalone revenue is
expected to post a CAGR of 32% to Rs25,193 mn by FY13
on back of strong growth in subscription revenue due to
higher ARPU and a robust growth in subscriber base. We
expect subscription revenues to be 89% of the revenues
and grow at a CAGR of 39% in the same period.
Margin improvement: EBITDA Margins are expected to
improve 3x from 9.7% to 30.7% due to lower content
cost, commissions and advertising costs. The company is
expected to turn Free Cash Flow positive by FY12 and
PAT positive by H2FY12.
Valuation: Global players such as Dish Network and
others in their growth phase, similar to Dish TV, have
witnessed an EV/EBITDA of 12-15X. We initiate coverage
on Dish TV with a BUY rating valuing it at an EV/EBITDA
of 12x FY13E arriving at a target price of Rs 81.
Key Risks: i) Competition from other DTH players ii)
Lower ARPU and higher SAC iii) Competition from other
technologies such as digital cable iv) Regulatory risk.
Upside risks i) Reduction in license fees from 10% to 4%
ii) Implementation of GST.
Valuations
Dish TV is in a sweet spot and at an inflection point in terms of benefiting from digitization of the
C&S industry. With more than 10mn subscribers in FY11 the company would increase its operating
margins by 3x along with being free cash flow positive from FY12 and PAT positive from H2FY12.
With revenue CAGR of 32% and EBIDTA CAGR of 101% over FY10-13E, respectively, we expect the
stock to get re-rated.
We valued Dish TV at 12x FY13E EV/EBIDTA and arrive at a target price of Rs81. We believe global
players such as Dish Network and others in their growth phase similar to that of Dish TV had
EV/EBIDTA multiples of 12-15x. Indian telecom companies in their hay days also witnessed
EV/EBIDTA multiples of 12-14x. Considering the turnaround in profitability, margin expansion,
leadership in the DTH space along with being free cash flow positive, EV/EBIDTA multiple of 12x is
justified. We are extremely bullish on the Indian Pay TV market and initiate coverage on Dish TV
with a BUY rating and target price of Rs81 (upside potential of 21%).
Key Risks
Competition from other DTH players
DTH being a six-player market has become a highly competitive industry with big corporate
houses such as Reliance ADAG, Bharti Airtel, Tata Group, Sun Network and Videocon being the
other players apart from Dish TV with deep pockets. We believe irrational competition will result in
high subscriber churn. Dish TV has a monthly subscriber churn of 0.7% and 12% annually while
competitors have a higher churn. As the market becomes mature, players will find it even more
difficult to acquire new customers and as currently there is no difference between DTH players as
all offer the same service and with mandatory content share regulation the broadcasters have to
share the same content with all players. Hence the players have to differentiate themselves only
with branding, marketing and service offerings.
Lower than expected ARPU and higher subscriber acquisition cost
With competition being irrational, the subscriber acquisition cost could increase significantly from
current levels of Rs2142 as players start to offer freebies while ARPUs come under pressure due to
discounted content offering to pay for promotional activities as new subscribers are entering the
system at significantly lower ARPU levels.
Competition from other technologies such as digital cable
As consolidation and corporatization is changing the face of MSOs, they could significantly fund
the STB at the customers’ end and convert the old analog cable into digital cable. We have seen
instances in the metro markets where the subscriber churn is from DTH to digital cable on back of
lower APRU offered by MSOs. We believe this could be a deterrent to the industry as a whole as
the ARPU would takes longer than expected to move upwards.
Regulatory risk
The DTH industry is subject to extensive regulations and hence it faces the risk of an unfavorable
regulatory environment. Regulation in terms of pricing of channels, inter-operability of STB,
license fee, content differentiation, entertainment tax levied by individual states and content cost,
to name a few, continue to dampen profitability of the sector.
Upside risk
Reduction in license fee
License fee currently is 10% of the gross DTH revenues. Favorable TDSAT order dated 28th May
2010 says that this should be at 6%. If implemented the increase in EBIDTA margins would be 4%.
Implementation of GST
Currently the company pays ~4% entertainment tax along with service tax and other taxes.
Implementation of GST would rationalize and reduce taxes since the industry is heavily
taxed currently
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