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Den Networks - leading cable operator
Den Networks, the only profitable MSO in India, has the largest reach with
11mn subscribers including ~1.4mn paying subscribers, acquired mainly through
secondary point acquisitions. Its strategic acquisitions helped it garner better
carriage revenue through improved subscriber base. Star-Den, a syndication
venture with Star, adds to the scale and stability of the business. Den's strong
execution capabilities, market leadership in key markets and profitable business
model makes it a strong contender to benefit from the digitisation wave. We
initiate coverage on the company with a 'BUY' recommendation on the stock
with a target price of Rs64(4.6x FY14E EV/EBITDA).
Paying subscriber base to grow further…
With a reach of 11 mn subscribers, paying subscriber base of ~1.4mn and digital
subscriber base of 0.5mn it has captured 25% market share in Mumbai and 40% in
Delhi. Within two years from the commencement of operations, Den turned profitable
in FY10. We believe the compulsory digitisation will be a key trigger to multiply the
subscription revenue by curbing the under-declaration of subscription revenue. We
estimate the company to digitise 1mn subscribers in FY13 (9% of its current subscriber
base) and 2.6 mn in FY14 (33% of its current subscriber base).
Distribution JV - provides scale to the business
The company has been well able to leverage its distribution network (subscriber reach)
through its Star- Den JV(50:50 JV with Star Network). We expect scalability and stability
to continue with its new distribution JV - Media-Pro (50:50 JV between Star- Den and
Zee-Turner formed in May'11). We expect the segment to register 9% CAGR during
FY11-FY14E (~46% of total revenue).
Revenue and profitability to elevate manifold
With improved paid subscriber base and scalability from the distribution business, we
expect revenue to show 13% CAGR (FY11-FY14E) led by subscription revenue increase
of 30%CAGR (FY11-FY14E) We believe its operating profits should augment 2.5x by
FY14 resulting in OPM expansion from 9% in FY11 to 15% in FY14E. We expect
overall PAT to register 21% CAGR over FY11-FY14E to Rs671mn in FY14E.
VALUATIONS & RECOMMENDATION
Den's strong execution capabilities with aggressive subscriber acquisition strategy
and profitable business model, comfort us on its ability to emerge as a formidable
player post digitisation. At CMP, the stock is trading at 5.3x EV/EBIDTA FY13E and
3.7xFY14E EV/EBIDTA. We initiate coverage on the stock with a ‘BUY’ recommendation
and a target price of Rs64(4.6x EV/EBITDA FY14E).We have valued the stock on
average of DCF, EV/Subscribers and EV/EBITDA (taking Comcast and Time Warner
as peers).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Den Networks - leading cable operator
Den Networks, the only profitable MSO in India, has the largest reach with
11mn subscribers including ~1.4mn paying subscribers, acquired mainly through
secondary point acquisitions. Its strategic acquisitions helped it garner better
carriage revenue through improved subscriber base. Star-Den, a syndication
venture with Star, adds to the scale and stability of the business. Den's strong
execution capabilities, market leadership in key markets and profitable business
model makes it a strong contender to benefit from the digitisation wave. We
initiate coverage on the company with a 'BUY' recommendation on the stock
with a target price of Rs64(4.6x FY14E EV/EBITDA).
Paying subscriber base to grow further…
With a reach of 11 mn subscribers, paying subscriber base of ~1.4mn and digital
subscriber base of 0.5mn it has captured 25% market share in Mumbai and 40% in
Delhi. Within two years from the commencement of operations, Den turned profitable
in FY10. We believe the compulsory digitisation will be a key trigger to multiply the
subscription revenue by curbing the under-declaration of subscription revenue. We
estimate the company to digitise 1mn subscribers in FY13 (9% of its current subscriber
base) and 2.6 mn in FY14 (33% of its current subscriber base).
Distribution JV - provides scale to the business
The company has been well able to leverage its distribution network (subscriber reach)
through its Star- Den JV(50:50 JV with Star Network). We expect scalability and stability
to continue with its new distribution JV - Media-Pro (50:50 JV between Star- Den and
Zee-Turner formed in May'11). We expect the segment to register 9% CAGR during
FY11-FY14E (~46% of total revenue).
Revenue and profitability to elevate manifold
With improved paid subscriber base and scalability from the distribution business, we
expect revenue to show 13% CAGR (FY11-FY14E) led by subscription revenue increase
of 30%CAGR (FY11-FY14E) We believe its operating profits should augment 2.5x by
FY14 resulting in OPM expansion from 9% in FY11 to 15% in FY14E. We expect
overall PAT to register 21% CAGR over FY11-FY14E to Rs671mn in FY14E.
VALUATIONS & RECOMMENDATION
Den's strong execution capabilities with aggressive subscriber acquisition strategy
and profitable business model, comfort us on its ability to emerge as a formidable
player post digitisation. At CMP, the stock is trading at 5.3x EV/EBIDTA FY13E and
3.7xFY14E EV/EBIDTA. We initiate coverage on the stock with a ‘BUY’ recommendation
and a target price of Rs64(4.6x EV/EBITDA FY14E).We have valued the stock on
average of DCF, EV/Subscribers and EV/EBITDA (taking Comcast and Time Warner
as peers).
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