Dish TV:: Centrum

Long term levers in place
We maintain Buy rating on Dish TV with a target price of Rs65 on the back of
healthy Q2FY14 results in a challenging environment where it was able to manage
debt re-payment, maintain SAC and face irrational competition. With net
subscriber addition of ~1mn and ARPU guidance of Rs167, we believe the company
could turn profitable in Q4FY14 along with sequential margin expansion going
forward on the back of strong operating leverage. We believe its focus on
profitable growth and gaining market share with new products, increasing channel
capacity and widening distribution could augur well in the medium to long term.

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 Q2FY14 results in-line with expectations: Dish TV posted a healthy 11% YoY growth in
revenues on the back of 13.6% YoY (1.7% QoQ) growth in subscription revenues led by
3.7% improvement in ARPU (Rs165, in line with expectations) and 10% YoY growth in
net subscribers (164K addition). Operating profit declined by 5% YoY (up 21.5% QoQ) on
the back of 31.2% increase in programming and other costs and 23% increase in
commissions. A&P spends in the quarter were at a 6 year low at Rs113mn which helped
the company post operating margins at 25%, in-line with expectations. Losses declined
to Rs160mn with management guiding for a positive PAT from Q4FY14 onwards.
 Subscriber addition to gain prominence from H2FY15: Management believes net
subscriber addition for FY14 would be ~1mn (earlier guidance of 1-1.2mn) while strong
growth would happen only on the back of Phase-III/IV digitization in H2FY15. Steady
increase in STB prices did impact subscriber addition while churn remained under
control at 0.6%. Management believes the competition undercutting prices was a
temporary phenomenon and now the pricing was at par. Despite flat ARPU sequentially,
management expects to review package pricing post festive season. With 1.4mn STB
inventory, it expects the SAC to remain in Rs1700-1900 band.
 Strong focus on profitable growth: Management expects to post maiden profits from
Q4FY14 and has repaid debt of Rs2.3bn during the quarter and also expects to re-pay
$90mn in H2FY14 which would lead to ~Rs7bn in net-debt by FY14. Focussing on HD
subscribers (~11% of incremental sub adds), new products to enhance ARPU & customer
stickiness, increasing distribution reach to 750 towns from 300 towns for Phase-III/IV
coupled with raising transponder capacity in the next 1 year would give Dish TV an edge
over competition to gain market share.
 Valuations & Risks: We maintain BUY rating on the stock with a target price of Rs65 and
continue to value it at 8x Sept 2015 EV/EBIDTA. We believe the company has been able
to sail through near term challenges in terms of debt re-payment, maintaining SAC and
irrational competition. We believe the company is well set to capitalize on its
distribution reach to benefit from digitization coupled with free cash to fund future
growth from FY16 onwards. Key risk could be further delay in digitization and inability to
increase ARPU.