Dish TV India -Another price hike, this time on settop boxes ::Macquarie Research,

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Dish TV India
Another price hike, this time on settop
boxes
Event
 Dish TV has raised the price of its standard set-top box by ~Rs150 to Rs1,340
(see Fig 1). The increase should help the company to reduce its cash subsidy
on subscriber acquisitions and meet its target of turning FCF positive by
4Q FY12.
 In early May, the company hiked prices across its different content packages
(see Fig 2). We continue to remain positive on the name but after a steep
15% run-up in the stock price in the last month, we recommend investors wait
for a better entry point.
 For our detailed investment thesis, please see our report, Inflection point in
sight, raise TP to Rs90, dated 7 June 2011.
Impact
 Increased price for set-top boxes to aid free cash generation. We expect
this move to add ~Rs300-400m to cash flow generation in FY12. For our
analysis, we have assumed the company will add 2–2.5m gross subscribers
in FY12 on increased set-top box prices. Our full year FY12 gross add target
is 3.5m but the full impact of this move could take time to play out.
 Price hike not due to supply side pressure. We confirmed with
management that this hike is not to pass on any increase/potential increase in
the sourcing cost of the set-top boxes. In addition, there has been no significant
change in the content bundle that has been offered with the set-top box.
 Another price hike adds to investment confidence. The company has had
two rounds of price increase on its content packages – the first in September
2010, followed by another hike in May 2011. We believe the hike in set top
box prices is another positive since this provides comfort on free cash
generation thesis.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs90.00 based on a DCF methodology.
 Catalyst: Sustained uptick in ARPU towards exit FY12 target of Rs165
Action and recommendation
 Reaffirm OP.