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Q1FY12 result highlights
Quarterly performance: Dish TV has reported a 6.3% QoQ revenue growth at Rs4.6bn (estimates of Rs4.68bn), EBITDA
growth of 24.5% QoQ at Rs1.12bn (estimates of Rs1.07bn) and net loss of Rs183m (estimates of loss of Rs271m) which is
down from Rs371m in Q4FY11. Dish TV has added 0.75m gross subscribers (0.43m net) taking its total subscriber base to
11.2m subscribers. ARPU during the quarter remained flat sequentially at Rs150/month.
Key positives: Gross subscriber addition during the quarter was higher than expected (estimates of 6.5-7m subscribers).
Further, subscriber acquisition costs (SAC) reduced sequentially from Rs2142 to Rs2058 per subscriber.
Key negatives: Churn rate increased to 1.1% per month on account of subscriber inactivity post sporting events in Q4FY11.
No improvement in ARPU (against estimates of a 2-3% improvement) is attributable to the churn in packages (subscribers
opting out of sports package) and muted HD subscriber addition during the quarter.
Impact on financials
We have increased our subscriber addition estimates to 3.1m for FY12 (from 2.8m earlier) and 2.5m for FY13 (2m earlier).
With ARPU growth poised to be back-ended in FY12, we have reduced our average ARPU estimates by 2% for FY12. Thus,
our EBITDA estimates stand unchanged. With depreciation costs increasing on the back of higher subscriber addition, our
PAT estimates stands revised to Rs383m for FY12 (Rs440m earlier) and Rs2.33bn for FY13 (Rs2.5bn earlier).
Valuations & view
We value Dish TV on an EV/subscriber basis with the multiple based on the number of months of ARPU. We use a DCF
based model (with cash flows from an individual subscriber from the time of acquisition) to arrive at a multiple of 36 months
of ARPU for an Indian DTH subscriber. Applying this to Dish TV’s FY13E subscriber base of 12.1m and ARPU of
Rs220/month, we arrive at an EV/subscriber of Rs8106 and a fair price of Rs85. We upgraded our call on Dish TV in June
2010, and the stock has given 2x returns since then. While operational performance continues to remain strong, we believe
valuations are now in the fair price zone. We downgrade our call on Dish TV to Neutral with a target price of Rs85.
Other Highlights
• Subscribers: During the quarter Dish TV has added 0.725m gross subscribers, taking the total gross subscriber
base to 11.2. However, churn during the quarter increased to 1.1% per month on account of subscriber inactivity
post the completion of sporting events in Q4FY11. Thus, net subscriber addition stood at 0.43m, taking the total net
subscriber base to 8.9m. Dish TV currently has a 25.5% market share of the incremental subscriber base.
• ARPU: For Q1FY12, ARPUs for Dish TV have remained flat on a QoQ basis at Rs150/month. Important to note that
Q4FY11 witnessed a strong 6% QoQ growth on account of increased traction in HD due to sporting events as also
better product mix. With the base being high as also some churn among packages (exit of sports package by some
subscribers) and subdued growth in HD subscriber addition (now stands at 5% of incremental subscriber addition)
led to no improvement in ARPU in Q1FY12. The management is targeting an exit ARPU of Rs165 in FY12.
• Revenue breakup: Of the total revenues of Rs4.6bn, subscription revenues contributed Rs3.92bn during the quarter.
Revenues from lease rentals at Rs550m were lower by Rs55m on account of write-off taken for subscriber churn.
Bandwidth charges stood at Rs95m and teleport charges at Rs30m.
• Programming costs: Dish TV has witnessed a sharp 22% increase in programming cost in Q1FY12. During the
quarter, Dish TV re-negotiated contracts with two key broadcasters, which led to this increase. The management has
indicated that their contract with one more broadcaster is due for re-negotiation in September 2011.
• Operational costs: Among other operational costs, selling and distribution expenses have reduced by 29% QoQ.
This is partially attributable to the sequentially lower subscriber base addition (1m subscribers added in Q4FY11
against 0.725m in Q1FY12) as also the reduction in dealer commission which was increased during sporting events
in Q4FY11. During the quarter, total operating costs increased 1.6% QoQ at Rs3.5bn.
• Subscriber acquisition cost (SAC): Reduction in selling and distribution expenses led to improvement in SAC for
Dish TV. SAC has reduced to Rs2058 in Q1FY12 (from Rs2142 in Q4FY11). Of this, Rs1600 is towards the STB,
Rs250 towards selling & distribution and the remaining towards marketing.
• EBITDA margins: Dish TV has witnessed a 355bp expansion in EBITDA margins on a QoQ basis. EBITDA margins
for the quarter stood at 24.4%.
• Key balance sheet highlights: Gross debt currently stands at Rs10.5bn, while cash on books stands at Rs3.7bn.
During the quarter, Dish TV has recovered loans and advances to the tune of Rs900m from group companies. Also,
Dish TV is in the process of converting its domestic debt into foreign currency, which would reduce interest costs
going forward. With regards fresh capital raise, while Dish TV has taking an enabling resolution to raise USD200m of
funds, the management has indicated no immediate plans for the same.
Target price of Rs85
Number of subscribers (FY13E) 12.1
Overall ARPU (Rs) 220
Months of ARPU 36
EV / subscriber (Rs) 8,016
Enterprise value (Rs m) 96,997
Less: Net debt (Rs m) 6,800
Equity Value 90,197
Number of shares (m) 1,064
Per share value 85
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Q1FY12 result highlights
Quarterly performance: Dish TV has reported a 6.3% QoQ revenue growth at Rs4.6bn (estimates of Rs4.68bn), EBITDA
growth of 24.5% QoQ at Rs1.12bn (estimates of Rs1.07bn) and net loss of Rs183m (estimates of loss of Rs271m) which is
down from Rs371m in Q4FY11. Dish TV has added 0.75m gross subscribers (0.43m net) taking its total subscriber base to
11.2m subscribers. ARPU during the quarter remained flat sequentially at Rs150/month.
Key positives: Gross subscriber addition during the quarter was higher than expected (estimates of 6.5-7m subscribers).
Further, subscriber acquisition costs (SAC) reduced sequentially from Rs2142 to Rs2058 per subscriber.
Key negatives: Churn rate increased to 1.1% per month on account of subscriber inactivity post sporting events in Q4FY11.
No improvement in ARPU (against estimates of a 2-3% improvement) is attributable to the churn in packages (subscribers
opting out of sports package) and muted HD subscriber addition during the quarter.
Impact on financials
We have increased our subscriber addition estimates to 3.1m for FY12 (from 2.8m earlier) and 2.5m for FY13 (2m earlier).
With ARPU growth poised to be back-ended in FY12, we have reduced our average ARPU estimates by 2% for FY12. Thus,
our EBITDA estimates stand unchanged. With depreciation costs increasing on the back of higher subscriber addition, our
PAT estimates stands revised to Rs383m for FY12 (Rs440m earlier) and Rs2.33bn for FY13 (Rs2.5bn earlier).
Valuations & view
We value Dish TV on an EV/subscriber basis with the multiple based on the number of months of ARPU. We use a DCF
based model (with cash flows from an individual subscriber from the time of acquisition) to arrive at a multiple of 36 months
of ARPU for an Indian DTH subscriber. Applying this to Dish TV’s FY13E subscriber base of 12.1m and ARPU of
Rs220/month, we arrive at an EV/subscriber of Rs8106 and a fair price of Rs85. We upgraded our call on Dish TV in June
2010, and the stock has given 2x returns since then. While operational performance continues to remain strong, we believe
valuations are now in the fair price zone. We downgrade our call on Dish TV to Neutral with a target price of Rs85.
Other Highlights
• Subscribers: During the quarter Dish TV has added 0.725m gross subscribers, taking the total gross subscriber
base to 11.2. However, churn during the quarter increased to 1.1% per month on account of subscriber inactivity
post the completion of sporting events in Q4FY11. Thus, net subscriber addition stood at 0.43m, taking the total net
subscriber base to 8.9m. Dish TV currently has a 25.5% market share of the incremental subscriber base.
• ARPU: For Q1FY12, ARPUs for Dish TV have remained flat on a QoQ basis at Rs150/month. Important to note that
Q4FY11 witnessed a strong 6% QoQ growth on account of increased traction in HD due to sporting events as also
better product mix. With the base being high as also some churn among packages (exit of sports package by some
subscribers) and subdued growth in HD subscriber addition (now stands at 5% of incremental subscriber addition)
led to no improvement in ARPU in Q1FY12. The management is targeting an exit ARPU of Rs165 in FY12.
• Revenue breakup: Of the total revenues of Rs4.6bn, subscription revenues contributed Rs3.92bn during the quarter.
Revenues from lease rentals at Rs550m were lower by Rs55m on account of write-off taken for subscriber churn.
Bandwidth charges stood at Rs95m and teleport charges at Rs30m.
• Programming costs: Dish TV has witnessed a sharp 22% increase in programming cost in Q1FY12. During the
quarter, Dish TV re-negotiated contracts with two key broadcasters, which led to this increase. The management has
indicated that their contract with one more broadcaster is due for re-negotiation in September 2011.
• Operational costs: Among other operational costs, selling and distribution expenses have reduced by 29% QoQ.
This is partially attributable to the sequentially lower subscriber base addition (1m subscribers added in Q4FY11
against 0.725m in Q1FY12) as also the reduction in dealer commission which was increased during sporting events
in Q4FY11. During the quarter, total operating costs increased 1.6% QoQ at Rs3.5bn.
• Subscriber acquisition cost (SAC): Reduction in selling and distribution expenses led to improvement in SAC for
Dish TV. SAC has reduced to Rs2058 in Q1FY12 (from Rs2142 in Q4FY11). Of this, Rs1600 is towards the STB,
Rs250 towards selling & distribution and the remaining towards marketing.
• EBITDA margins: Dish TV has witnessed a 355bp expansion in EBITDA margins on a QoQ basis. EBITDA margins
for the quarter stood at 24.4%.
• Key balance sheet highlights: Gross debt currently stands at Rs10.5bn, while cash on books stands at Rs3.7bn.
During the quarter, Dish TV has recovered loans and advances to the tune of Rs900m from group companies. Also,
Dish TV is in the process of converting its domestic debt into foreign currency, which would reduce interest costs
going forward. With regards fresh capital raise, while Dish TV has taking an enabling resolution to raise USD200m of
funds, the management has indicated no immediate plans for the same.
Target price of Rs85
Number of subscribers (FY13E) 12.1
Overall ARPU (Rs) 220
Months of ARPU 36
EV / subscriber (Rs) 8,016
Enterprise value (Rs m) 96,997
Less: Net debt (Rs m) 6,800
Equity Value 90,197
Number of shares (m) 1,064
Per share value 85
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