Dish TV India - All eyes on progress of digitization drive; visit note; Buy :: Edelweiss

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Dish TV India (DITV IN, INR 68, Buy)

Our recent interaction with Dish TV management has given us confidence that the company will maintain its earlier FY12 guidance for subscriber additions and ARPU. The expansion in EBITDA margins is also likely to continue. In the post-digitisation scenario, DTH companies could potentially add ~50% incremental market share due to their strong brand equity and better access to funds as compared to cable companies. We expect Dish TV to be a key beneficiary and maintain ‘BUY’.

Subscriber acquisition slows down marginally post festive season

We expect Dish TV to add ~0.9mn subscribers in Q3FY12 (0.58mn in Q2FY12, 0.73mn in Q1FY12, 1.1mn in Q3FY11). It had added ~0.43mn subscribers in the festive month of Oct 2011. However, post the end of the festive season and a hike in set top box and base pack prices, subscriber additions have gone down slightly in the second half of Nov 2011. If Dish TV adds 0.9mn subscribers in Q3FY12, total subscriber additions till the end of Q3FY12 will be 2.2mn. FY12 guidance by Dish TV is at ~3-3.5mn.

ARPU guidance maintained, EBITDA margins to scale up

The management has been guiding for an exit ARPU of ~INR160-165 in FY12 and feels that the recent price hike of INR10 in the base pack will help Dish TV to maintain its ARPU guidance.  Also, the expansion in the EBITDA margin is expected to continue. Recently, the Foreign Investment Promotion Board (FIPB) has approved Dish TV’s application to raise ~INR9.8bn. The funds raised will act as a war chest to help the company get ready for digitisation and HD. As per Mr. Venkateish, CEO, Dish TV the company expects to turn free cash flow positive from Q4FY12 or Q1FY13 (same as earlier guidance) for current operations.

Outlook and valuation: Stays our top pick in media sector

Compared to 0.58mn subscriber additions in Q2FY12, we expect Dish TV to add ~0.9mn subscribers in Q3FY12 which will boost the EBITDA growth. At CMP of INR68, the stock is trading at EV/EBITDA of 15.6x and 10.6x FY12E and FY13E respectively. We maintain ‘BUY’recommendation and ‘Sector Outperformer’ rating.