Dish TV India (DITV IN, INR 66, Buy)
We recently met Mr. R. C. Venkateish, CEO, and Mr. Rajeev Dalmia, CFO, Dish TV. The company expects its innovative SD-DVR offering and aggressive advertising to address concerns of slowdown post the price hike on July 1. Subscriber additions in Q2FY13 so far have been in line with Q1FY13. Management expects FY13E exit ARPU to be in the INR162-165 range. With the government again remaining firm on Phase 1 deadline and 60% inter-connect agreements in place, we expect the digitisation process to speed up considerably over the coming two months. We continue to remain positive on Dish TV and expect it to be one of the major beneficiaries of the digitisation process. Maintain ‘BUY’.
SD-DVR innovation, aggressive ad spends driving growth
Dish TV’s newly launched SD-DVR in Phase 1 and 2 areas of digitisation (42 cities) has met with an impressive response so far due to its ability to record unlimited SD content at a lower price than rival HD-DVRs (INR1,690 versus ~INR6,000). We do not expect other DTH companies and MSOs to launch an SD recorder in the near term, which will give Dish TV an advantage to target Phase 1 and 2 subscribers. The company has hiked ads in major newspapers in Phase 1 areas and also restarted ads on TV channels. In spite of the increase in ad expense in Q2FY13, management reiterated that the company will not exceed its ad budget and things are moving as per plan.
Operational metrics on track
The free cash generation remains on track and no fund raising will be required for Phase 1. The company added ~0.5mn gross subscribers in Q1FY13 (0.41mn in Q4FY12), taking total gross subscriber base to 13.4mn and net subscriber base to 9.8mn. Churn rate continues to remain at ~1%. ARPUs will continue to increase in the near term from the current INR156 due to price hikes and higher HD penetration.
Outlook and valuations: Positive; maintain ‘BUY’
We expect Dish TV to benefit during the digitisation process due to its huge brand and limited ability of smaller MSOs to switch to the digital platform. At CMP of INR66, the stock is trading at EV/EBITDA of 12.1x and 8.8x FY13E and FY14E, respectively. We maintain ‘BUY’and assign ‘Sector Performer’ rating to the stock.
Regards,
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