Dish TV:: HSBC research

Dish TV India Ltd (DITV IN)
UW: Lack of catalysts prevents near-term upside
 1QFY14 results were below estimates, but ARPU showed a
sequential improvement of 5%
 Muted volume growth remains a concern
 Maintain UW, and cut target price to INR55 (from INR59)

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Results for 1QFY14 below estimates, but ARPU was a bright spot: Revenues were c2%
above our estimate, but EBITDA was c15% below our estimate and the net loss for the quarter
was c8% higher than our estimate. The bright spot was a sequential improvement in ARPU of
5% (management suggested there was some upside to ARPU in FY14). We estimate ARPU at
INR167 at end-FY14e, averaging INR165 for the financial year. Management retained its
guidance of 1.2m subscriber additions for the year, although we see downside risk to this
number, with our estimate at c1m. Gross debt at the end of the quarter was cUSD280m and net
debt cUSD200m. The company plans to retire debt of cUSD125m during FY14e using internal
accruals (cash in hand at end of 1QFY14 was estimated at cUSD75m). Separately, subscriber
acquisition costs came down this quarter by 8% and we estimate this to go down further given
the recent tariff hikes of INR250 for set-top boxes. Further, Dish TV plans to enhance
transponder capacity in the medium term. We see this as positive, as it should enable Dish TV
to offer more regional content, thereby allowing it to compete more effectively against cable
operators. Moreover, the move could position Dish TV to gain market share in the direct-tohome (DTH) space over the long term.
Growth prospects muted: We remain sceptical about volume growth and expect it to be
muted. The improvement in ARPU this quarter is positive, but is already priced in, in our view.
We believe the improvement in volume growth is linked to the coming rollout of the Digital
Addressable System (DAS) to Phase 3 and 4 markets, scheduled for 2H of the next financial
year. There is, however, poor visibility on the Phase 3 rollout, as it is scheduled for after the
general election in 2014. Last, while we estimate a recovery in margins over the next couple of
quarters, we still estimate margins will contract 180bps in FY14e versus FY13.
We maintain our UW on Dish TV, with a new DCF-based target price of INR55
(previously INR59) as we cut our FY14e EBITDA estimates by 9% and FY15e estimates by
22%. Our target price implies a FY14e EV/EBITDA of 11.6x (c9% higher than the two-year
average). Key upside risks are: (1) higher-than-estimated increase in cable TV ARPUs;
(2) consolidation within the DTH space, and (3) churn picking up in the cable TV space in
Phase 1 markets.