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High Churn A Concern
ƒ Strong 1QFY12 financial performance in-line with estimates
ƒ Sharp increase in inactive subscribers drives down net adds
ƒ Set top box price hiked to counter churn and reduce SAC
ƒ Valuation expensive at 15.8x FY12E EV/EBITDA, raise TP to INR75
Strong in-line 1QFY12
Dish TV reported strong financial
performance in 1QFY12 with revenue
growth of 51% y-y, margin improvement
to 24.4% and reduction of net loss to
INR183m. The company added 0.72m
subscribers and was able to reduce the
subscriber acquisition cost by 7.5% q-q to
INR2,058. Programming costs came in
higher than our estimate due to renewal of
two content agreements while sales
commissions were lower due to reduction
in commission rates as well as lower new
connection sales.
Increase in inactive subscriber base a concern
Key negative from the quarter was sharp increase in inactive subscribers
which lead to a decline in net adds to 0.4m, lowest in last 5 quarters. This
is likely to continue for two more quarters as lag effect of world cup. The
Inactive subscribers are a concern for the DTH industry due to high
subscriber acquisition costs (14x monthly ARPU, 56x monthly EBITDA)
and as the companies do not acquire the equipment back from inactive
subscribers. To counter this, the industry has increased new connection
prices which serve the dual purpose of discouraging churn as well as
reducing subscriber acquisition costs. Due to the increase in new
connection prices the company is seeing some slowdown on subscriber
additions but it maintained its full year gross adds guidance at 3m-3.5m.
Other takeaways from the earnings call
1) Dish TV increased its HD channel offering to 40 and 5% of the
subscribers added were HD lower than 7% in 4QF11. 2) Dish does not
expect any significant impact on its content cost due to the distribution
joint ventures like Zee-Star or Sun-Network18 in the near term. 3) Dish
has a policy of writing off an inactive subscriber from its books after 500
days and records the same as inactive after 120 days.
Valuation expensive; maintain REDUCE
We are increasing out TP on Dish TV from INR40 to INR75 to factor in
higher subscriber growth, reduction in subscriber acquisition costs and
moving our valuation from FY12 to FY13. Dish TV is currently trading at
15.8x FY12E and 11.6x FY13E EV/EBITDA. At our TP Dish TV would
trade at 10.3x FY13 EV/EBITDA. At current price Dish is trading at
INR7,884 per paying subscriber which is 49x FY13E monthly ARPU and
145x FY13E monthly EBITDA/subscriber which is expensive in our view.
Risks to our thesis are higher than expected ARPU increase, lower
programming costs and churn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
High Churn A Concern
ƒ Strong 1QFY12 financial performance in-line with estimates
ƒ Sharp increase in inactive subscribers drives down net adds
ƒ Set top box price hiked to counter churn and reduce SAC
ƒ Valuation expensive at 15.8x FY12E EV/EBITDA, raise TP to INR75
Strong in-line 1QFY12
Dish TV reported strong financial
performance in 1QFY12 with revenue
growth of 51% y-y, margin improvement
to 24.4% and reduction of net loss to
INR183m. The company added 0.72m
subscribers and was able to reduce the
subscriber acquisition cost by 7.5% q-q to
INR2,058. Programming costs came in
higher than our estimate due to renewal of
two content agreements while sales
commissions were lower due to reduction
in commission rates as well as lower new
connection sales.
Increase in inactive subscriber base a concern
Key negative from the quarter was sharp increase in inactive subscribers
which lead to a decline in net adds to 0.4m, lowest in last 5 quarters. This
is likely to continue for two more quarters as lag effect of world cup. The
Inactive subscribers are a concern for the DTH industry due to high
subscriber acquisition costs (14x monthly ARPU, 56x monthly EBITDA)
and as the companies do not acquire the equipment back from inactive
subscribers. To counter this, the industry has increased new connection
prices which serve the dual purpose of discouraging churn as well as
reducing subscriber acquisition costs. Due to the increase in new
connection prices the company is seeing some slowdown on subscriber
additions but it maintained its full year gross adds guidance at 3m-3.5m.
Other takeaways from the earnings call
1) Dish TV increased its HD channel offering to 40 and 5% of the
subscribers added were HD lower than 7% in 4QF11. 2) Dish does not
expect any significant impact on its content cost due to the distribution
joint ventures like Zee-Star or Sun-Network18 in the near term. 3) Dish
has a policy of writing off an inactive subscriber from its books after 500
days and records the same as inactive after 120 days.
Valuation expensive; maintain REDUCE
We are increasing out TP on Dish TV from INR40 to INR75 to factor in
higher subscriber growth, reduction in subscriber acquisition costs and
moving our valuation from FY12 to FY13. Dish TV is currently trading at
15.8x FY12E and 11.6x FY13E EV/EBITDA. At our TP Dish TV would
trade at 10.3x FY13 EV/EBITDA. At current price Dish is trading at
INR7,884 per paying subscriber which is 49x FY13E monthly ARPU and
145x FY13E monthly EBITDA/subscriber which is expensive in our view.
Risks to our thesis are higher than expected ARPU increase, lower
programming costs and churn.
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