Dish TV India 1Q: Growth trajectory on track ::Macquarie Research

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Dish TV India
1Q: Growth trajectory on track
Event
 Dish reported 1Q FY12 results that were marginally below expectations. 1Q
revenues of Rs4.6bn and EBITDA of Rs1.1bn were both 4% below
expectations. Even so, lower depreciation helped the company to report net
loss that was in line with our forecast. We recognise the concerns on higher
churn and stagnant ARPU in the quarter but do not expect these to derail the
growth momentum for the company. Retain our TP and OP recommendation.
Impact
 Set-top box price hike benefit to reflect in lower SAC in 2H FY12. Dish
reported another quarter of sequential decline in Subscriber Acquisition Cost
(SAC) to Rs2,058. The key reason for this decline is lower set-top box subsidy
at Rs1,600 vs the Rs1,700 we saw up until six months ago. Management also
clarified on the call that dealer commission per gross add was lower by Rs75
vs 4Q11 since there was no promotional subs addition campaign run during
the quarter. We also note that full impact of set top box price hike has yet to
completely pass through the SAC.
 Secular to trump price hike impediment. The company maintained that it
has yet to see any slowdown in gross adds due to raised set top-box prices.
We believe the move would dampen the momentum but would not materially
alter the secular growth profile for the company. We have maintained our
FY12 gross addition target at 3.5m (vs company guidance of 3 to 3.5m).
 Step jump in ARPU unlikely in near term. After the 6% QoQ jump seen in
4Q, the ARPU for 1Q remained flat at Rs150. Dish would not need to do step
jump in ARPU to meet our FY12 estimates and our subscriber mix analysis
provides us comfort in the company’s ability to raise its ARPU to Rs160–165
by 4Q FY12.
 Tight cost control helps the company to turn EBIT positive. Dish reported
another quarter of 360bp sequential improvement in margins. 1Q FY12 had
seen higher ad spend and dealer commissions to capture subscriber share
during the Cricket World Cup. As anticipated, Dish tightly controlled these
costs in 1Q to remain on track to meet our FY12 EBITDA growth of ~150%.
Earnings and target price revision
 Less than 2% change at EBITDA level post 1Q update. Maintain TP.
Price catalyst
 12-month price target: Rs90.00 based on a DCF methodology.
 Catalyst: Sustained subs momentum and ARPU uptick.
Action and recommendation
 OP maintained. We continue to like Dish TV for the secular growth in the
DTH end market and retain our OP recommendation. We recognise the
limited upside in the stock over the next six months and recommend
accumulating the stock on correction.