Net adds continue to rise… • Dish TV:: ICICI Securities, PDF link

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Net adds continue to rise…
• Revenue growth of 13.5% YoY at | 672.4 crore was slightly higher
than our expectation on account of higher subscriber addition and
lease rental
• The EBITDA came in at | 162.4 crore vs. our expectation of | 146.1
crore, up 9.8% YoY due to higher-than-expected revenue even as
total operating cost remained in line
• The company reported a loss of | 15.1 crore (down 5.9% YoY) in line
with our expectation as higher EBITDA was offset by higher interest
outgo on account of provisions made in respect of license fees
Share in net subscriber addition increasing……
Dish TV, the largest DTH operator with 11.4 million net subscribers, saw
lower subscriber addition of 0.7 million in FY14 after an average addition
of 1.6 million subscriber in the past five years till FY13. Even though
Phases I and II of digitisation started in FY13, with ~24 million cable
households, the company could add only 1.8 million subscribers in the
past two years. However, with the launch of the ‘Zing’ brand that targets
Phase III & IV cities with an inclination towards regional content, the
company aims at faster subscriber growth. We have already seen net
adds in the first half of the fiscal with net adds of 0.7 million vs. 0.7 million
net adds in whole of FY14. The company remains upbeat on the
subscriber additions in the coming fiscals. We expect it to add 1.5 and 1.6
million subscribers in FY15E & FY16E, respectively, to reach 14.5 million.
Company takes price hikes; ARPU expansion to still remain subdued
Dish TV’s ARPU has expanded from | 153 in FY12 to | 163 in FY14 (like to
like basis). However, with a change in accounting methodology, wherein
activation revenue is recognised upfront vs. earlier practice of booking
evenly over five years, current year’s reported ARPU stands at | 172. The
company has taken 5-7% price hikes across its packages, which have
impacted only 25% of its subscriber base as the rest is yet to recharge
under the new scheme. The complete benefit of price hikes would be
visible in the coming quarters. However, since the addition would be
mainly at lower price points in the Phase III and IV markets, the blended
ARPU may be limited to | 171 in FY15 and | 174 in FY16E, growing at a
CAGR (FY14-16E) of 3%.
Host of positive recommendations by Trai…
Trai has proposed an extension of DTH licenses from 10 years to 20
years, renewable by 10 years at a time with one time entry being retained
at | 10 crore. Dish’s DTH license had expired last year and this ruling
comes in as a positive for it. In addition, Trai has recommended license
fee as 8% of adjusted gross revenues from 10% of gross revenues being
levied currently. This could lead to significant savings for the company.
We would, however, factor in the same only once the recommendations
are accepted. This could lead to the case related to license fee dues of
| 624.2 crore from Trai to come in Dish’s favour.
Maintain HOLD with target price at | 61
Though subscriber addition has revived in this quarter, the ARPU growth
is expected to remain subdued given high price elasticity in the Phase III
and IV markets. Management had earlier guided for breakeven within
FY15. However, profitability at PAT level may elude the company this
year as well. We value the stock at | 61 using DCF methodology.

LINK
http://content.icicidirect.com/mailimages/IDirect_DishTV_Q2FY15.pdf