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DEN Networks: Content advantage
We met with the management of DEN Networks (DEN IN) to understand the
outlook for the Indian cable players, the business drivers of the company, and
its positioning vs. the offerings of other vendors.
DEN Networks was founded in July, 2007 by Mr. Sameer Manchanda, who
has over 20 years of experience in media and channel distribution.
Key differentiator: Star DEN channel distribution JV
JV provides content advantage. In 2008, the company formed a JV with
Star India to exclusively distribute all the broadcaster’s channels to different
platforms (i.e. Cable and DTH operators). This JV accounts for ~50% of the
consolidated revenue but only 10% of the EBITDA given the low pass-through
margins in the TV channel distribution business. This JV helps the company in
its Cable business given Star’s leading position in key TV genres.
Partnership with arch rival to address leakage. In May 2011, Star DEN
announced the formation of a 50-50 Joint Venture with Zee Turner (the TV
channel distribution JV of Zee Entertainment and Turner). The arch rivals in
the TV channel distribution business came together to jointly market 68
channels. The JV has been in force since July 2011 but we expect to see the
financial performance of this JV only in FY13 across the ecosystem.
Dominant cable operator: potential threat from DTH
Large subs base but largely analogue. DEN has about 10m subscribers
across 80+ cities. Its key markets are Delhi, Uttar Pradesh and Karnataka
followed by a presence in certain cities in Maharashtra (including Mumbai),
Gujarat, Rajasthan, Haryana, West Bengal and Kerala. The existing subs
base is largely analogue with only 700k subscribers on the digital platform.
Leader in LCO consolidation. It has acquired and integrated 80+ MSOs
since inception and offers digital cable in 45+ cities.
IPO cash balance: Reason for strength of expansion
IPO funding has strengthened the balance sheet. DEN had its IPO in Nov
2009 and raised Rs3.6bn. The company currently has cash of Rs2bn on the
balance sheet and debt of Rs1.25bn. The net cash position is sufficient to
fund free set-top boxes for 0.625m subscribers.
Risks and Valuation
A play on digitisation but prefer DTH. Den is riding the digitisation wave in
the Indian TV distribution industry. Even so, we believe the company’s growth
forecasts are predicated on government strictly sticking to the analogue
sunset clause. We believe DTH players that have demonstrated consumer
pull are better placed than the digital cable industry in India.
Steep correction results in trough valuation. Management expects FY12
EBITDA of Rs1,400m, implying an FY12E EV/EBITDA of 2.9x based on the
current share price. The biggest risk to the business model is potential
pressure on the carriage and placement fees that comprise ~27% of
consolidated revenues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DEN Networks: Content advantage
We met with the management of DEN Networks (DEN IN) to understand the
outlook for the Indian cable players, the business drivers of the company, and
its positioning vs. the offerings of other vendors.
DEN Networks was founded in July, 2007 by Mr. Sameer Manchanda, who
has over 20 years of experience in media and channel distribution.
Key differentiator: Star DEN channel distribution JV
JV provides content advantage. In 2008, the company formed a JV with
Star India to exclusively distribute all the broadcaster’s channels to different
platforms (i.e. Cable and DTH operators). This JV accounts for ~50% of the
consolidated revenue but only 10% of the EBITDA given the low pass-through
margins in the TV channel distribution business. This JV helps the company in
its Cable business given Star’s leading position in key TV genres.
Partnership with arch rival to address leakage. In May 2011, Star DEN
announced the formation of a 50-50 Joint Venture with Zee Turner (the TV
channel distribution JV of Zee Entertainment and Turner). The arch rivals in
the TV channel distribution business came together to jointly market 68
channels. The JV has been in force since July 2011 but we expect to see the
financial performance of this JV only in FY13 across the ecosystem.
Dominant cable operator: potential threat from DTH
Large subs base but largely analogue. DEN has about 10m subscribers
across 80+ cities. Its key markets are Delhi, Uttar Pradesh and Karnataka
followed by a presence in certain cities in Maharashtra (including Mumbai),
Gujarat, Rajasthan, Haryana, West Bengal and Kerala. The existing subs
base is largely analogue with only 700k subscribers on the digital platform.
Leader in LCO consolidation. It has acquired and integrated 80+ MSOs
since inception and offers digital cable in 45+ cities.
IPO cash balance: Reason for strength of expansion
IPO funding has strengthened the balance sheet. DEN had its IPO in Nov
2009 and raised Rs3.6bn. The company currently has cash of Rs2bn on the
balance sheet and debt of Rs1.25bn. The net cash position is sufficient to
fund free set-top boxes for 0.625m subscribers.
Risks and Valuation
A play on digitisation but prefer DTH. Den is riding the digitisation wave in
the Indian TV distribution industry. Even so, we believe the company’s growth
forecasts are predicated on government strictly sticking to the analogue
sunset clause. We believe DTH players that have demonstrated consumer
pull are better placed than the digital cable industry in India.
Steep correction results in trough valuation. Management expects FY12
EBITDA of Rs1,400m, implying an FY12E EV/EBITDA of 2.9x based on the
current share price. The biggest risk to the business model is potential
pressure on the carriage and placement fees that comprise ~27% of
consolidated revenues.
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