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UBS Investment Research
Dish TV India
L eading the digitisation wave [EXTRACT]
�� Management meeting takeaways
While there has been some slowdown in subscriber additions in Q2 due to general
economic weakness, Dish TV has maintained its guidance for subscriber additions
and is likely to add around 3m in gross subscribers in FY12. Q2 is also a
seasonally weak period. Dish TV maintained its guidance for Q4 FY12 ARPU of
Rs160-165 and FY12 content cost growth of 10-15%.
�� Pure exposure to growing DTH subscriber base
Dish TV offers pure exposure to India’s fast-growing DTH subscriber base, which
is led by rising income levels, increasing consumer awareness about better-quality
digital programming on the DTH platform, a sports-heavy calendar in 2011, and
low entry prices for new DTH connections. The implementation of mandatory
digitisation should further help grow the DTH subscriber base.
�� Key catalysts: mandatory digitisation; licence fee reduction; GST
We believe potential share price catalysts include: 1) its strong financial and
operating performance starting in Q3; 2) the implementation of mandatory
digitisation; 3) a likely reduction in licence fees; and 4) an implementation of the
goods and services tax (GST) or a rationalisation of the tax structure, as the DTH
industry is heavily taxed. Newsflow suggests that mandatory digitisation has
received cabinet approval today, which we think is a big positive.
�� Valuation: maintain Buy rating; Rs110.00 price target
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool, assuming 12.6% WACC.
�� Dish TV India
Dish TV commenced operations in October 2003 and is the first and the largest
DTH operator in India with 5.7m subscribers in FY10. It is part of Essel Group,
a media conglomerate, and was formed after the demerger of Zee
Entertainment's Direct Consumer Services business. Dish TV was listed in April
2007 and recently raised Rs4.16bn in the third and final tranche of a rights issue.
It also received funding of US$100m (Rs4.65bn) from US-based Apollo
Management, through a GDR issue.
�� Statement of Risk
We believe the key risks for Dish TV are: 1) intense competition from other
DTH operators as well as large multi-system operators that offer digital cable;
and 2) regulatory risks. We believe content costs could increase for Dish TV if
broadcasters negotiate a variable fee structure based on the number of
subscribers. Dish TV is also exposed to currency risks as it imports set-top
boxes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Dish TV India
L eading the digitisation wave [EXTRACT]
�� Management meeting takeaways
While there has been some slowdown in subscriber additions in Q2 due to general
economic weakness, Dish TV has maintained its guidance for subscriber additions
and is likely to add around 3m in gross subscribers in FY12. Q2 is also a
seasonally weak period. Dish TV maintained its guidance for Q4 FY12 ARPU of
Rs160-165 and FY12 content cost growth of 10-15%.
�� Pure exposure to growing DTH subscriber base
Dish TV offers pure exposure to India’s fast-growing DTH subscriber base, which
is led by rising income levels, increasing consumer awareness about better-quality
digital programming on the DTH platform, a sports-heavy calendar in 2011, and
low entry prices for new DTH connections. The implementation of mandatory
digitisation should further help grow the DTH subscriber base.
�� Key catalysts: mandatory digitisation; licence fee reduction; GST
We believe potential share price catalysts include: 1) its strong financial and
operating performance starting in Q3; 2) the implementation of mandatory
digitisation; 3) a likely reduction in licence fees; and 4) an implementation of the
goods and services tax (GST) or a rationalisation of the tax structure, as the DTH
industry is heavily taxed. Newsflow suggests that mandatory digitisation has
received cabinet approval today, which we think is a big positive.
�� Valuation: maintain Buy rating; Rs110.00 price target
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool, assuming 12.6% WACC.
�� Dish TV India
Dish TV commenced operations in October 2003 and is the first and the largest
DTH operator in India with 5.7m subscribers in FY10. It is part of Essel Group,
a media conglomerate, and was formed after the demerger of Zee
Entertainment's Direct Consumer Services business. Dish TV was listed in April
2007 and recently raised Rs4.16bn in the third and final tranche of a rights issue.
It also received funding of US$100m (Rs4.65bn) from US-based Apollo
Management, through a GDR issue.
�� Statement of Risk
We believe the key risks for Dish TV are: 1) intense competition from other
DTH operators as well as large multi-system operators that offer digital cable;
and 2) regulatory risks. We believe content costs could increase for Dish TV if
broadcasters negotiate a variable fee structure based on the number of
subscribers. Dish TV is also exposed to currency risks as it imports set-top
boxes.
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