Dish TV Buy Target Price: Rs81 :Centrum

Dish TV

Buy

Target Price: Rs81

CMP: Rs71

Upside: 14%

Strong operating performance

Dish TV posted strong operating performance in Q1FY13 on the back of 3.3% QoQ ARPU improvement, reduction in churn level to ~1% and flat SAC. Benefits of recent hikes in package prices, entry level STB price hikes coupled with higher subscriber addition on the back of digitization will accrue in the coming 3 quarters. We believe the margin expansion witnessed in the current quarter will sustain in FY13 and boost profitability. Maintain BUY rating on the stock.

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m  Results in-line with expectations: Dish TV posted 12.9% YoY in revenues to Rs5200mn on the back of strong subscriber addition coupled with increase in ARPU. Operating revenue was up by 38.8% YoY to Rs1556mn on the back of 403bps operating margin expansion due to fixed programming cost and lower advertising expenses. Forex loss to the tune to Rs138mn impacted profitability as the company posted a loss of Rs323mn.

m  Strong operating matrix: The company posted a strong Rs5 increment in ARPU on QoQ basis on the back of i) incremental 7% subscribers being HD subscribers they contributed 3.5% to total revenues (Rs2 at ARPU level); ii) Lower churn rate because of which paying subscribers increased and iii) Previous price hikes being implemented across all subscribers. Churn rate was lower at ~1% during the quarter as the entry level price point has been raised from Rs990 to Rs1790 and flat subscriber acquisition cost is at Rs2145. During the quarter the company added 0.5mn gross subscribers while the net subscriber addition was 0.2mn taking the total subscriber base to 9.8mn.   

m  Margin expansion to sustain: Dish TV posted 403bps YoY and 246bps QoQ margin expansion on the back of flat sequential content cost, 50% decline in advertising cost on QoQ basis while admin expenses declined by 16%. Programming cost is expected to increase by 13-15% YoY as the contract with MediaPro is expected to get re-negotiated in Q2FY13. Management continues to guide for Rs1bn advertisement expenses and believes that as the digitization date nears, promotions will increase. We believe going forward these margins are sustainable and have modeled 29.9% margins for FY13E.

m  Digitization to benefit: During the quarter the company did not benefit from digitization as the date was extended to 31^st October 2012. The company believes that its benefit would be in Q3FY13 as subscribers tend to migrate only after the signal is cut. Management believes it does not need to raise funds currently for digitization as from the current cash flows they can add 2mn subscribers while they already have 1.3mn STBs as inventory, taking the total gross addition to 3.3mn subscribers in FY13 is needed.

m  Maintain BUY: The stock currently trades at 12x and 8.8x FY12E and FY13E EV/EBIDTA. We have marginally increased our estimates on the back of strong operating numbers and annual report update. We continues to value the stock at 10x FY14E EV/EBIDTA and arrive at a target price of Rs81 (previous target price 78) and maintain our BUY rating on the stock.

Thanks & Regards, 

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