Dish TV: BUY ::Business Line

�� -->

Expanding market for digital viewership will increase subscriber growth for the company.

As customers move from hitherto analog mode of viewing television to the digital way, thanks to both regulatory push and improving lifestyles, cable operators and DTH (direct-to-home) players get a big market to play in.

In this regard, Dish TV, the largest DTH player domestically, has been able to add subscribers at an impressive pace and improve its revenues generated on a per user basis over the past few years.

Investors with a two-year horizon can consider buying the shares of the company, given its strong positioning in the DTH space and availability at reasonably attractive valuation levels.

At Rs 67, the share trades at an EV/EBITDA(enterprise value to operating profits) multiple of 9 times based on its likely FY14 numbers.

This is cheaper than what digital cable peers such as Den Networks and Hathway Cable are trading at (12-15 times).

This despite the fact that Dish TV operates on a much larger scale compared to these peers and enjoys better operating margins.

In the first nine months of FY-13, the company’s revenues rose by 11.8 per cent over the same period in the previous fiscal to Rs 1,161.4 crore, while operating profits grew 29.3 per cent to Rs 571.4 crore.

The company may be expected to turn profitable at the net level later this fiscal or early in the next financial year.

ENTRENCHED PRESENCE

Dish TV has managed to garner an estimated subscriber market share of 28 per cent in a six player market.

Most of these players such as Tata Sky, Airtel Digital and Sun Direct have solid backing in terms of financial strength, as does Dish TV..

Clearly, the company has been able to hold its own in the face of competition from both DTH players as well as digital cable operators. It has a base of 14.7 million customers as of December 2012.

Subscriber addition has been quite healthy for the company, with 2.5 million added in FY12 and 1.8 million in the nine months of FY13.

The fourth quarter is expected to be quite healthy in customer additions as a result of the regulatory fillip to cable digitization. After the metros, the telecom regulator had mandated digitisation in 38 cities by March 2013.

This has been mostly successful with an estimated 75-80 per cent covered in the phase.

Around 20 million set top boxes have reportedly been installed in the digitisation drive covering both the metros and other 38 large cities.

Reports suggest that nearly 40 per cent of the analog cable customers in these cities opted for DTH services. Being the market leader, Dish TV may have garnered a significant share of this market.

Digital cable operators though have an advantage in large cities as they have an existing infrastructure in place.

A recent report from FICCI-KPMG indicates that DTH subscribers would grow at the rate of 14.6 per cent annually from 52 million in 2013 to 90 million by 2017.

For players such as Dish TV, the next big opportunity would be the implementation of digitisation mandated for the whole country by December 2014 whereby smaller towns would be covered. In these places, cable has limited reach.

IMPROVING PARAMETERS

Dish TV has been able to increase the tariff rates for its offerings on a regular basis.

The company’s average revenue per user (ARPU) has been rising steadily from Rs 152 levels in December 2011 to Rs 160 in December 2012.

With digital cable operators set to increase their tariffs to garner higher ARPUs and to cover the cost of set top boxes, the scope for DTH operators to increase tariffs will improve.

The ARPU for DTH operators is likely to be around Rs 293 by 2017 according to a recent FICCI-KPMG report.

The other key phenomenon that could drive up ARPU is the trend of offering newly released movies in DTH by film producers looking to monetize the medium.

At a fraction of the cost of buying movie tickets, DTH presents a cheaper alternative to subscribers wishing to watch movies that are launched recently.

Meanwhile, at Rs 2,200 per customer, Dish TV’s subscriber acquisition cost has been largely stable or declining, indicating that the company is not having to spend more to enhance its customer base.

Any steep depreciation of the rupee would increase the cost of importing set top boxes for Dish TV. This can hurt margins if the cost hike is not passed on.