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DishTV (DITV)
Media
Weak revenue drivers in 3QFY12 result in negative operating leverage. Dish TV
posted weak 3QFY12 EBITDA of Rs1.2 bn (+80% yoy, -1% qoq) against our
expectation of Rs1.45 bn. The negative variance was driven by weak revenue drivers:
(1) churn rate rose to ~18% annualized (~13% previously) and (2) ARPUs of Rs152/submonth
were flat qoq (Rs155 expected). Gross additions of 0.74 mn were lower than
expectations largely on increased scheme pricing. SAC declined qoq despite rising STB
prices (Rupee depreciation). Retain BUY; revised FY2013E FV of Rs80 (Rs90 previously).
Structural drivers are intact (core growth in rural markets, digitization benefit, HD-led
premiumization) but environment and execution need to improve.
Weaker-than-expected 3QFY12 driven by flat ARPU, high churn rate
Dish TV’s weak 3QFY12 EBITDA of Rs1.2 bn, versus our expectation of Rs1.45 bn was driven by
a Rs250 mn miss on revenues; ARPUs of Rs152/sub-month were flat qoq even as subscriber
churn rate increased to ~18% annualized (~13% in 2QFY12).
Dish TV cited (1) a soft economic environment (lack of expected improvement in package mix)
and (2) a weak sports calendar and the performance of Indian cricketers (decline in add-on
sports packages) for weak ARPU growth. The basic package price increase in November is likely
to reflect in 4QFY12 and sports calendar will regain strength in FY2013E. However, Dish TV also
needs to improve execution (cross-sell other packages, given weak sports).
However, the rising churn (~18% annualized in 3QFY12) was a disappointment. Dish TV cited
(1) aggressive distribution incentives and promotions (sub-Rs1,000 scheme price) by one DTH
operator and (2) rising prices, which may result in churn to cable. The former was a limited
period phenomenon and the latter is a volume-price trade-off, we have highlighted previously,
but we expected the impact to be more on gross additions than on churn.
Structural growth drivers need environment and Dish TV execution support
We reiterate our BUY rating on Dish TV, given structural drivers: (1) core growth driven by rural
markets, (2) potential subscriber addition benefit from digitization including HD-led
premiumization. The DTH competitive environment has improved (Videocon being the most
aggressive player has increased basic package pricing to Rs175/sub-month from Rs150 previously)
but cable players will certainly be more active during the mandatory digitization period. A strong
sports calendar, expected in FY2013 would provide a fillip to growth, notably on HD-services.
However, Dish TV would need to manage price-volume trade-offs better, notably scheme
pricing/gross additions as well as package pricing/churn rates. Our revised FY2013E FV of Rs80
(Rs90 previously) factors in reduced ARPU and a higher churn; we have cut Dish TV’s FY2012E-13E
EBITDA estimates by 8-10% to Rs5 bn (Rs5.5 bn previously) and Rs6.7 bn (Rs7.4 bn previously)
respectively.
Gross subscriber additions of 0.74 mn were marginally below our expectation of 0.8 mn
but a rise in scheme pricing (Rs1,390 currently against a Rs990 offer in 3QFY11) has had
an impact. Additionally, a limited sports calendar in FY2012 limited differentiation
between DTH and analog cable (quality and availability of channels). Our assumed 2.7 mn
gross additions were anyway below 3.0-3.5 mn Dish TV expectation. Finally, the weak
economic environment has not been conducive to new TV sales (flat-panels were
unaffected by CTV sales, which were below expectations).
Dish TV reported subscriber acquisition cost of Rs2,124 (-5% qoq), which was positively
impacted by increased scheme pricing despite rising prices of imported STBs (Rupee
depreciation). This is the price-volume trade-off Dish TV will have to execute, with
strategies to improve ARPU and manage churn. An improved environment in FY2013 will
help but competition will remain intense.
3QFY12 content and other costs increased 7% qoq due to renegotiations with Sony TV
and the addition of Neo Sports channels to the bouquet. We have modeled ~20%
increase in content costs in FY2013 and ~18% CAGR between FY2012 and FY2015 to
account for both these factors.
3QFY12 selling and distribution expenses of Rs566 mn declined 11% qoq despite
increased gross additions, reflecting a reversal of pre-booking S&D expenses in 2QFY12.
However, this was below our expectation of Rs500 mn; Dish TV noted increased
incentives for the distribution network during the festive season.
3QFY12 interest expenses of Rs477 were below our expectation due to forex losses of
Rs156 mn versus our estimate of Rs300 mn. Dish TV reported total forex losses of Rs560
mn (Rs460 mn in 2QFY12) given ~8% Rupee depreciation on Rs7.5 bn of forex debt,
with the remaining losses being capitalized (given the forex debt are specifically to fund
the import/acquisition of fixed assets/STBs). However, the gross forex debt of ~Rs12 bn
remained largely unchanged from that at the end of 2QFY12.
Dish TV reiterated its requirement for additional capital only in the event of a spike in
subscriber additions, driven by digitization, and expressed confidence that it would be
able to capitalize on the opportunity. We have discussed this in greater detail in our note
“HD-Ready” dated November 25, 2011. Dish TV launched a new brand campaign for
digitization, which will be activated in 4QFY12. HD additions at 4-5% of gross additions
remained in line with expectations. However, the inflection point would be FY2013,
driven by sports and more HD channels/content.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DishTV (DITV)
Media
Weak revenue drivers in 3QFY12 result in negative operating leverage. Dish TV
posted weak 3QFY12 EBITDA of Rs1.2 bn (+80% yoy, -1% qoq) against our
expectation of Rs1.45 bn. The negative variance was driven by weak revenue drivers:
(1) churn rate rose to ~18% annualized (~13% previously) and (2) ARPUs of Rs152/submonth
were flat qoq (Rs155 expected). Gross additions of 0.74 mn were lower than
expectations largely on increased scheme pricing. SAC declined qoq despite rising STB
prices (Rupee depreciation). Retain BUY; revised FY2013E FV of Rs80 (Rs90 previously).
Structural drivers are intact (core growth in rural markets, digitization benefit, HD-led
premiumization) but environment and execution need to improve.
Weaker-than-expected 3QFY12 driven by flat ARPU, high churn rate
Dish TV’s weak 3QFY12 EBITDA of Rs1.2 bn, versus our expectation of Rs1.45 bn was driven by
a Rs250 mn miss on revenues; ARPUs of Rs152/sub-month were flat qoq even as subscriber
churn rate increased to ~18% annualized (~13% in 2QFY12).
Dish TV cited (1) a soft economic environment (lack of expected improvement in package mix)
and (2) a weak sports calendar and the performance of Indian cricketers (decline in add-on
sports packages) for weak ARPU growth. The basic package price increase in November is likely
to reflect in 4QFY12 and sports calendar will regain strength in FY2013E. However, Dish TV also
needs to improve execution (cross-sell other packages, given weak sports).
However, the rising churn (~18% annualized in 3QFY12) was a disappointment. Dish TV cited
(1) aggressive distribution incentives and promotions (sub-Rs1,000 scheme price) by one DTH
operator and (2) rising prices, which may result in churn to cable. The former was a limited
period phenomenon and the latter is a volume-price trade-off, we have highlighted previously,
but we expected the impact to be more on gross additions than on churn.
Structural growth drivers need environment and Dish TV execution support
We reiterate our BUY rating on Dish TV, given structural drivers: (1) core growth driven by rural
markets, (2) potential subscriber addition benefit from digitization including HD-led
premiumization. The DTH competitive environment has improved (Videocon being the most
aggressive player has increased basic package pricing to Rs175/sub-month from Rs150 previously)
but cable players will certainly be more active during the mandatory digitization period. A strong
sports calendar, expected in FY2013 would provide a fillip to growth, notably on HD-services.
However, Dish TV would need to manage price-volume trade-offs better, notably scheme
pricing/gross additions as well as package pricing/churn rates. Our revised FY2013E FV of Rs80
(Rs90 previously) factors in reduced ARPU and a higher churn; we have cut Dish TV’s FY2012E-13E
EBITDA estimates by 8-10% to Rs5 bn (Rs5.5 bn previously) and Rs6.7 bn (Rs7.4 bn previously)
respectively.
Gross subscriber additions of 0.74 mn were marginally below our expectation of 0.8 mn
but a rise in scheme pricing (Rs1,390 currently against a Rs990 offer in 3QFY11) has had
an impact. Additionally, a limited sports calendar in FY2012 limited differentiation
between DTH and analog cable (quality and availability of channels). Our assumed 2.7 mn
gross additions were anyway below 3.0-3.5 mn Dish TV expectation. Finally, the weak
economic environment has not been conducive to new TV sales (flat-panels were
unaffected by CTV sales, which were below expectations).
Dish TV reported subscriber acquisition cost of Rs2,124 (-5% qoq), which was positively
impacted by increased scheme pricing despite rising prices of imported STBs (Rupee
depreciation). This is the price-volume trade-off Dish TV will have to execute, with
strategies to improve ARPU and manage churn. An improved environment in FY2013 will
help but competition will remain intense.
3QFY12 content and other costs increased 7% qoq due to renegotiations with Sony TV
and the addition of Neo Sports channels to the bouquet. We have modeled ~20%
increase in content costs in FY2013 and ~18% CAGR between FY2012 and FY2015 to
account for both these factors.
3QFY12 selling and distribution expenses of Rs566 mn declined 11% qoq despite
increased gross additions, reflecting a reversal of pre-booking S&D expenses in 2QFY12.
However, this was below our expectation of Rs500 mn; Dish TV noted increased
incentives for the distribution network during the festive season.
3QFY12 interest expenses of Rs477 were below our expectation due to forex losses of
Rs156 mn versus our estimate of Rs300 mn. Dish TV reported total forex losses of Rs560
mn (Rs460 mn in 2QFY12) given ~8% Rupee depreciation on Rs7.5 bn of forex debt,
with the remaining losses being capitalized (given the forex debt are specifically to fund
the import/acquisition of fixed assets/STBs). However, the gross forex debt of ~Rs12 bn
remained largely unchanged from that at the end of 2QFY12.
Dish TV reiterated its requirement for additional capital only in the event of a spike in
subscriber additions, driven by digitization, and expressed confidence that it would be
able to capitalize on the opportunity. We have discussed this in greater detail in our note
“HD-Ready” dated November 25, 2011. Dish TV launched a new brand campaign for
digitization, which will be activated in 4QFY12. HD additions at 4-5% of gross additions
remained in line with expectations. However, the inflection point would be FY2013,
driven by sports and more HD channels/content.
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