Dish TV India Mgmt explains optical miss in 2Q, watch out for subs addition :Macquarie Research,

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Dish TV India
Mgmt explains optical miss in 2Q,
watch out for subs addition
Event
 Dish TV 2Q results were broadly in-line with our expectations but subscriber
gross additions surprised negatively. Our 3.5m gross subs addition estimate is
at marginal risk but we will wait for trends in the festive quarter before
assessing our estimates (See Fig 1 for details). Retain OP.
Impact
 Macro hurting subs momentum, Dish confident of market share. Dish
added 0.6m subs this quarter. Mgt believes the softness in subs momentum is
due to a Rs300 increase in the set top box price in July and partially due to
tailwinds in economy. Our conversation with DTH peers indicated that Dish is
at 24% incremental share for 1H FY12. Mgmt reiterated on the call that they
are comfortably placed to end the year at net adds share of ~25-26%.
 Push to channel partners ahead of festive quarter spikes S&D expense.
Dish books commission paid to distributors in its P&L once the set top box is
shipped and prior to the actual activation (i.e. recognising that as gross subs
addition). Given the clubbing of key festivals in October, the company shipped
~1m set top boxes in 2Q but saw gross add of only 0.6m. This skewed the
S&D expense for the company and the trend should reverse in 3Q.
 Rational competition in the festive season. Our recent channel checks did
not indicate that DTH operators are resorting to price cuts to boost subs
addition. Rational competition in the sector is one of the key investment
arguments on Dish TV. See our note “Festival shopping - what's the best
deal?”, dated 13th Oct. 2011
 Bullish sound bytes on HD. Dish believes the pick-up in the HD offering will
be a key lever to meet its exit quarter ARPU guidance of Rs160-165.
 Non-cash forex loss hurting reported profit. Dish has ~Rs7.5bn debt
denominated in foreign currency (all US$). The ~10% INR depreciation during
the quarter resulted in the M2M non-cash forex loss of Rs304m. We learnt
from the management that the majority of this debt will only mature in 2-3
years and they are not unduly worried about the non cash impact on P&L.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs95.00 based on a DCF methodology.
 Catalyst: Pick up in subs addition and ARPU uptick
Action and recommendation
 OP maintained. We believe DTH will gain share from the cable operators in
the Indian TV distribution market. Dish TV with its leading position in the
segment is well placed to take advantage of this secular theme.