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Dish TV India Ltd
Downgrade to EW on
Valuation, Estimate Cuts
What's Changed
Rating Overweight to Equal-weight
Price Target Rs76.00 to Rs90.00
F11e, F12e, F13e EPS Down 4%, 133%, 74%
F14e EPS introduced at Rs.3.6
DTIL has outperformed the Sensex by 37% YTD and
is now 2% above our new PT (raised by 18%). We
see little scope for substantial positive surprise for
the Street. Nor do valuations suggest upside to us.
Why a downgrade? Three reasons:
1) Valuation: EV/EBITDA multiple of 13.2x on our
revised F13 estimates implies a premium of 45%
over our media coverage universe. We are unable
to justify an uptick in this premium.
2) Limited potential upside to consensus
expectations: In the past month, 1-year foward
consensus EBITDA f/cast has risen 146%. DTIL
may find it tough to beat on timing of PAT
turnaround, subs addition and ARPU growth.
3) Margins: We have curbed our EBITDA margin
profile (lower by 479bps and 1234bps in F12 and
F13). We now expect higher costs than before and
relatively modest ARPU growth.
Our earnings forecasts have declined – for F12 mainly
due to a 7.5% higher operating costs and for F13 mainly
due to 10.8% lower ARPUs.
Why not a double downgrade? Two reasons:
1) Ongoing digitization: DTIL looks set to be among
the bigger beneficiaries, thanks to its first mover
advantage and healthy subscriber base expansion.
2) Still firmly on margin expansion trail: We cite its
rising subs base, cost reduction, and growing ARPU
Dish TV: Equal-weight – Positives in the Price
After solid performance… The stock is up 29% YTD,
while the Sensex is down 8%.
…we think the price now reflects most of the likely
positive developments in the next 4-6 quarters…
…and see little scope for incremental market
enthusiasm…
• ARPU trends – we expect a CAGR of 10% in
F11-F13 versus 18% earlier.
• PAT turnaround – We and the Street expect this in
3QF12.
• Subscriber additions – We expect gross additions of
3.5m in F12, in line with company guidance.
…yet the Street is still almost unanimously bullish:
According to Factset, no analyst on the Street has a
“Sell/UW” rating; 95% are “Buy/OW”.
Earnings forecasts: What’s Changed
Our EBITDA forecasts for F12 and F13 have declined by 14%
and 35% for F12 and F13 as our EBITDA margin projection for
the two years has shrunk by 479 bps and 1234 bps.
We curb our ARPU forecasts by 3% to 11% and ratchet up our
subscriber base assumptions by 3% to 4% for F12-F13 post
our fresh assessment of the pace of digitization and consumer
acceptance. To take into account the steeper trajectory of
subscriber acquisition we have increased our assumptions for
programming costs and advertising costs per subscriber
Valuation and Price Target
F12e and F13e EV/EBITDA multiples of 19.8x and 13.2x
respectively do not provide room for further upside.
Exhibit 14
Valuations of our media coverage
F13e EV/EBITDA F13e EBITDA growth
ZEEL 10.8x 16.6%
Sun 5.1x 16%
Hathway 6.3x 33%
UTV 10.2x 38%
DTIL 13.2x 47%
Source: Morgan Stanley Research
At our price target, the stock would trade at EV/EBITDA of
12.9x on F13e which looks fair to us given our EBITDA CAGR
forecast of 45% in F12-F14.
We value the company with a two-stage DCF model. Our base
case fair value increases from Rs76 to Rs83 per share as we
incorporate the following changes:
1) ARPU CAGR for F14-F16e from 6% to 7% Consumer
preferences demonstrated by our AlphaWise survey
indicate greater willingness to pay for digital services. Also,
the higher growth registered in 3Q and 4QF11 and the
company’s positive guidance towards the same has
reaffirmed our conviction on this. This adds Rs4 per share
to our base case fair value.
2) We also decrease advertising expenses per sub in line
with F11 actual. This adds another Rs3 per share to our
base case.
Price target: Rs 90
To derive our price target we assign 80% probability to base
case (Rs 83) and 20% to bull case of Rs 120. Our bull case
scenario is premised on subscriber base CAGR of 42% and
ARPU CAGR of 15%, and a fall of 10% per annum in
programming costs per subscriber in F11-F13. The above
assumptions are more likely to be achieved if the pace of
digitization picks up further to which we ascribe a 20%
probability.
Exhibit 15
WACC calculation: 12.8%
Risk free rate (Rf) (%) 7.9
Equity Risk Premium (Rm-Rf) (%) 6.5
Beta 1.2
CoE (%) 15.7
Cost of Debt (%) 9.0
Post Tax COD (%) 6.0
Equity (%) 70
Debt (%) 30
CoC (%) 12.8
Exchange Rate 45
Source: Morgan Stanley Research
Exhibit 16
Base DCF Value per Share: Rs83
(A) Present value of the explicit phase 16,294
Terminal value 115,491
Terminal growth rate (%) 3.0
(B) Present value of the terminal value 84,801
(A+B) Total present value 101,095
Net present value 95,135
Net debt 6,787
Equity Value Rs mn 88,348
Shares (m) 1,063
Value per share (Rs) 83
Source: Company data, Morgan Stanley Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dish TV India Ltd
Downgrade to EW on
Valuation, Estimate Cuts
What's Changed
Rating Overweight to Equal-weight
Price Target Rs76.00 to Rs90.00
F11e, F12e, F13e EPS Down 4%, 133%, 74%
F14e EPS introduced at Rs.3.6
DTIL has outperformed the Sensex by 37% YTD and
is now 2% above our new PT (raised by 18%). We
see little scope for substantial positive surprise for
the Street. Nor do valuations suggest upside to us.
Why a downgrade? Three reasons:
1) Valuation: EV/EBITDA multiple of 13.2x on our
revised F13 estimates implies a premium of 45%
over our media coverage universe. We are unable
to justify an uptick in this premium.
2) Limited potential upside to consensus
expectations: In the past month, 1-year foward
consensus EBITDA f/cast has risen 146%. DTIL
may find it tough to beat on timing of PAT
turnaround, subs addition and ARPU growth.
3) Margins: We have curbed our EBITDA margin
profile (lower by 479bps and 1234bps in F12 and
F13). We now expect higher costs than before and
relatively modest ARPU growth.
Our earnings forecasts have declined – for F12 mainly
due to a 7.5% higher operating costs and for F13 mainly
due to 10.8% lower ARPUs.
Why not a double downgrade? Two reasons:
1) Ongoing digitization: DTIL looks set to be among
the bigger beneficiaries, thanks to its first mover
advantage and healthy subscriber base expansion.
2) Still firmly on margin expansion trail: We cite its
rising subs base, cost reduction, and growing ARPU
Dish TV: Equal-weight – Positives in the Price
After solid performance… The stock is up 29% YTD,
while the Sensex is down 8%.
…we think the price now reflects most of the likely
positive developments in the next 4-6 quarters…
…and see little scope for incremental market
enthusiasm…
• ARPU trends – we expect a CAGR of 10% in
F11-F13 versus 18% earlier.
• PAT turnaround – We and the Street expect this in
3QF12.
• Subscriber additions – We expect gross additions of
3.5m in F12, in line with company guidance.
…yet the Street is still almost unanimously bullish:
According to Factset, no analyst on the Street has a
“Sell/UW” rating; 95% are “Buy/OW”.
Earnings forecasts: What’s Changed
Our EBITDA forecasts for F12 and F13 have declined by 14%
and 35% for F12 and F13 as our EBITDA margin projection for
the two years has shrunk by 479 bps and 1234 bps.
We curb our ARPU forecasts by 3% to 11% and ratchet up our
subscriber base assumptions by 3% to 4% for F12-F13 post
our fresh assessment of the pace of digitization and consumer
acceptance. To take into account the steeper trajectory of
subscriber acquisition we have increased our assumptions for
programming costs and advertising costs per subscriber
Valuation and Price Target
F12e and F13e EV/EBITDA multiples of 19.8x and 13.2x
respectively do not provide room for further upside.
Exhibit 14
Valuations of our media coverage
F13e EV/EBITDA F13e EBITDA growth
ZEEL 10.8x 16.6%
Sun 5.1x 16%
Hathway 6.3x 33%
UTV 10.2x 38%
DTIL 13.2x 47%
Source: Morgan Stanley Research
At our price target, the stock would trade at EV/EBITDA of
12.9x on F13e which looks fair to us given our EBITDA CAGR
forecast of 45% in F12-F14.
We value the company with a two-stage DCF model. Our base
case fair value increases from Rs76 to Rs83 per share as we
incorporate the following changes:
1) ARPU CAGR for F14-F16e from 6% to 7% Consumer
preferences demonstrated by our AlphaWise survey
indicate greater willingness to pay for digital services. Also,
the higher growth registered in 3Q and 4QF11 and the
company’s positive guidance towards the same has
reaffirmed our conviction on this. This adds Rs4 per share
to our base case fair value.
2) We also decrease advertising expenses per sub in line
with F11 actual. This adds another Rs3 per share to our
base case.
Price target: Rs 90
To derive our price target we assign 80% probability to base
case (Rs 83) and 20% to bull case of Rs 120. Our bull case
scenario is premised on subscriber base CAGR of 42% and
ARPU CAGR of 15%, and a fall of 10% per annum in
programming costs per subscriber in F11-F13. The above
assumptions are more likely to be achieved if the pace of
digitization picks up further to which we ascribe a 20%
probability.
Exhibit 15
WACC calculation: 12.8%
Risk free rate (Rf) (%) 7.9
Equity Risk Premium (Rm-Rf) (%) 6.5
Beta 1.2
CoE (%) 15.7
Cost of Debt (%) 9.0
Post Tax COD (%) 6.0
Equity (%) 70
Debt (%) 30
CoC (%) 12.8
Exchange Rate 45
Source: Morgan Stanley Research
Exhibit 16
Base DCF Value per Share: Rs83
(A) Present value of the explicit phase 16,294
Terminal value 115,491
Terminal growth rate (%) 3.0
(B) Present value of the terminal value 84,801
(A+B) Total present value 101,095
Net present value 95,135
Net debt 6,787
Equity Value Rs mn 88,348
Shares (m) 1,063
Value per share (Rs) 83
Source: Company data, Morgan Stanley Research
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