Dish TV India - Inflection point in sight; raise TP to 90 :: Macquarie Research,

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Dish TV India
Inflection point in sight; raise TP to 90
Event
 We are increasing our target price by 17% to Rs90 as we raise our subscriber
addition and ARPU forecast post strong FY11 results from the company. Our
recent interaction with the management gives us comfort in the growth story
and the company should turn PAT and FCF positive by 4Q FY12.  Dish
remains our top pick in the sector.
Impact
 Upward ARPU movement deconstructed – 4Q was not a one-off. Dish
does not provide the subscriber mix break up across its different packages. In
this note we have attempted to map up the three drivers of ARPU
enhancement and bridge the ARPU movement from Rs139 in 2Q FY11 to
Rs150 in 4Q FY11.  (See Figures 1 and 2).
 Dish has taken second rate hike in last 12 months. We are raising our
ARPU forecasts by 4% in FY12 and 4% in FY13. The company has
announced another round of hike in subscription packages last month and we
expect the same to get fully reflected in 2Q FY12.  We extend our ARPU
analysis across different subscriber packages to establish the step up in
ARPU through the current fiscal on Page 2.
 High Definition TV – changing the rules of the game. Average realisation
from a HD subscriber is almost three times the base package offered by Dish
TV. We estimate at least 1% of Dish TV’s subscriber base to be on HD
package by end of FY12. The contribution from this to blended ARPU is
shown in Figure 8.
 FY12 - another year of explosive subscriber growth. The appetite for
quality television viewing was underestimated by most analysts on the street,
including us. The Indian DTH industry has surprised us positively by adding
13m subscribers last year. Our Cable and Satellite model expects another
year of 13m gross additions and expect Dish TV to repeat its FY11
performance adding 3.5m gross subs in FY12. (See Fig 14)
Earnings and target price revision
 Revised subscriber addition and ARPU forecast are the key reasons for our
estimate and target price change. Our FY12/FY13 EPS moves to
Rs0.51/Rs1.55 from –Rs0.33/Rs0.55 previously.
Price catalyst
 12-month price target: Rs90.00 based on a DCF methodology.
 Catalyst: Sustained uptick in subscription ARPU for FY12.
Action and recommendation
 Reaffirm OP. Dish is fast approaching the inflection point on Net Profit and
cash flow and should achieve these milestones in FY12. We retain our
positive investment view on the stock and are 7%/17% ahead of street on
FY12 revenues and EBITDA, respectively.