Den Networks Ltd. Digitisation led growth :: Ventura

Den Networks Ltd.
Digitisation led growth
Outlook
Although the valuation of stock seems expensive at 35.8 & 29.4x for FY13/14, we maintain a BUY. Given the fact
that subscriber additions remain strong and the benefits of digitization would start accruing to the top line from
Q1FY14. Further with not much significant costs being associated with the incremental revenues, the profitability
should be positively affected. We have not yet modeled this incremental revenue, as we would like to see proof of
the pudding before revising our forecast.
The Ministry of information & broadcasting (MIB) has demonstrated the seriousness of DAS implementation in
phase 2 cities. This can be reiterated from the various key initiatives (such as increasing intervals of review
meetings and conducting workshops) taken by MIB to achieve the superior results. Given that MSO’s are expected
to be the biggest beneficiaries of digitisation, we believe Den Networks Ltd is well placed to reap the benefit on the
back of its strong subscriber revenue base of ~11 mn and aggressive management team.
Key Takeaways
• According to the management, various steps are being initiated by the Ministry of Information & Broadcasting
(MIB) to lay emphasis on the seriousness of digitisation in phase 2 cities. Some of the initiatives include
increasing the intervals of review meetings (from every 10 days to 3 days), one day workshop with all the
nodal officers and IAS officials (of 38 phase 2 cities) to discuss various issues (queries related to customers,
stakeholders, technologies, etc). Further, state level meetings are also likely to be held with participants being
LCOs, MSOs and nodal officers.
• Den Networks reported strong set sets of numbers during the quarter with 13.3% QoQ top-line growth in its
cable business led largely by consolidation of acquired JVs and successful completion of Phase I.
Consolidated revenues were at Rs 241.8 crore during the current quarter. It is to be noted that consolidated
top-line is not comparable with corresponding period of previous year due to the change in accounting policy
at Media Pro which has started reporting revenues on a net basis (Gross revenues – Cost of Distribution
rights).
• Moreover, the company has been able to save on operating costs (64.8% v/s 66.0% of sales QoQ) in cable
business which has lead to significant improvement in margins by 260 bps QoQ (25.5% v/s 22.9%).
Consequently, consolidated EBITDA was at Rs 60.4 crore (+21.8% QoQ). PAT growth (+12% QoQ) was
offset by higher depreciation (+21.4% QoQ; higher deployment of set top boxes) and higher interest expense

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(29% QoQ).
• During the quarter, company added over ~9,00,000 more set top boxes taking its total universe to ~2.4 mn
(~1.8 mn in Phase 1 cities; ~0.6 mn in Phase 2 cities). Moreover, the company expects to seed another 0.2
mn set top boxes in Kolkata in Q4FY13. We remain upbeat on the company as it has analog network of over
3.75 mn subscribers in Phase 2 cities (presence in 60% of all Phase 2 cities) and is likely to convert a
significant portion. The company has a strong analog presence in Phase II cities across Uttar Pradesh (7
cities), Maharashtra (5 cities), Gujarat (3 cities), Karnataka (2 cities), Rajasthan (2 cities) and Haryana (1
city).
• Den Networks Ltd has allocated ESOPs to employees in March, 2011 and as a result would amortise the
ESOP premium over the next three years. The company has amortised Rs 0.81 crore during the quarter.
• Concall Takeaways
Gross debt stands Rs 520 crore (Rs 280 crore – Term loans; Rs 240 crore – Buyers’ & Vendors’ credit)
and Cash at Rs 170 crore. While the gross debt is expected to increase by Rs 200 crore by end of current
fiscal, net debt is expected to be at similar levels (~Rs 350-400 crore).
The management has guided for aggressive layout plans for its broadband business in coming 3-6
months.
The company currently bills on a net basis owing to the ongoing transformation process (45-60 days) and
expects to bill on a per customer basis from Q1FY14. It is imperative to note that despite November 1
deadline (for phase 1), the company (industry as well) witnessed substantial seeding of set top boxes in
the month of November, 2012 and could only start billing in December, 2012.