Annual Report Analysis - Dish TV:: Edelweiss PDF link

Dish TV’s FY12 annual report highlights reduced losses for the year which led to higher cash profits (w/o considering cost of set top boxes). Reduced capex due to lower gross subscriber addition led to better FCF. Customer churn rate was on an uptick which may lead to higher w/offs of CPEs while debt analysis indicates financing of capex requirements largely through short-term buyer’s credit which is low coupon but carries the forex risk. Adjusted net debt surged from INR7.9bn in FY11 to INR9.6bn in FY12. Provision for regulatory dues is up at INR4.9bn.

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High churn rate may lead to higher write-off of CPEs

Dish TV’s fixed assets include CPEs (set-top boxes given on operating lease) of INR13.4bn while total advances received were INR4.8bn (company had aggressive policy of amortising CPE over five years whereas revenue gets recognized over three years*). This implies a potential amortization of INR8.6bn (net of advances) over the next few years.

Client churn has increased from 12.3% in FY11 to 15.9% in FY12. Though the company has improved churn rate to 1% per month since last two quarters (Q4FY12 and Q1FY13) from 1.3% during FY12, the churn rate @ 12% p.a. leads to an addition of 1.2mn non-paying customers, leading to higher net acquisition costs. Total 3.3mn customers churned till FY12, of which 2.1mn were during the past two years. The company has a policy to w/off cost of CPE post 500 days of inactivity.

*The company has aligned the policy of recognizing revenue over five years - w.e.f. FY13

Margins improve, losses continue due to higher amortization costs

During FY12, EBITDA margins improved to 25.3% (FY11: 16.6%); however, losses continue at INR1.3bn (FY11: INR1.9bn) due to higher amortization cost which has led to net worth turning negative to the tune of INR0.9bn.

Elevated debt, primarily short term…

Dish TV’s adjusted net debt surged from INR7.9bn in FY11 to INR9.6bn in FY12 primarily comprising foreign currency short-term buyer’s credit. Auditors have highlighted that INR8.7bn short-term funds have been used for acquisition of long-term investments, primarily fixed assets. The company also has unutilised rights issue/GDR proceeds of INR3.6bn as of end FY12, which it intends to use for repayment of debt.

….potential regulatory dues may further increase stress

As at FY12 end, Dish TV had an outstanding provision of regulatory dues of INR4.9bn (FY11: INR3.2bn).

Analysis Beyond Consensus - Annual Report Analysis - Dish TV

Regards,