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DishTV (DITV)
Media
A mixed quarter. Dish TV reported 1QFY12 EBITDA of Rs1.12 bn (+248% yoy, +24%
qoq), marginally below our Rs1.2 bn expectation, led by lower-than-expected operating
performance (1) ARPU of Rs150 (flat qoq), (2) subscriber addition of 0.73 mn, (3) churn
rate of ~13% and (4) higher-than-expected content cost. (1) Reduced SAC (~Rs2,058)
and (2) lower other operating costs were the saving grace. Reiterate ADD with revised
FY2013E TP of Rs100 (Rs85 previously); Dish TV stock may be under pressure in the
near term as valuations correct in response to more ‘reasonable’ operating assumptions.
However, long-term drivers remain intact (1) robust growth in DTH segment, (2) stable
competition (inter-, intra- segment) and (3) improved case for pick-up in HD.
1QFY12 results analysis: Robust absolute EBITDA growth but marginally below expectations
�� Dish TV reported 1QFY12 EBITDA at Rs1.12 bn (+248% yoy, +24% qoq), robust growth on
absolute basis but marginally below expectations (KIE at Rs1.2 bn); the negative variance largely
resulted from lower-than-expected 1QFY12 revenues led by lower-than-expected ARPUs and
subscriber additions and higher-than-expected churn.
�� Dish TV reported 1QFY12 revenues at Rs4.6 bn (+51% yoy, +6% qoq) led by lower-thanexpected
DTH subscription revenues of Rs3.92 bn (+57% yoy, +7% qoq). 1QFY12 rental
income at Rs550 mn was also lower versus expectation; however, Dish TV is following a
prudent accounting policy of writing-off subscriber advances as well as capex in case it has
been inactive on the platform for >500 days (in line with IFRS).
Reiterate ADD: Near-term risks may overshadow long-term drivers for some time, however
We reiterate our ADD rating on Dish TV stock with FY2013E DCF-based TP of Rs100 (Rs85
previously); we have reduced the risk weight (WACC) to 12.5% from 13.0% (comfort on free cash
breakeven in FY2013E) and marginally increased our long-term ARPU assumptions (~7% CAGR
post ~10% growth in FY2012E). We highlight long-term drivers for Dish TV: (1) Robust growth in
DTH segment in India led by yet large non-C&S TV HHs, (2) stable intra- (no new DTH operators)
and inter-segment (dormant cable operators) competition and (3) improved case of pick-up in HD
services led by more content availability (ESPN, Star Cricket HD channels). The stock may remain
under pressure in the near term given miss on heightened expectations.
Our base case operating assumptions for Dish TV remain reasonable: (1) Gross subscriber addition
of 3.0 mn (lower end of Dish TV guidance of 3.0-3.5 mn), (2) FY2012E ARPU of Rs157 (Dish TV
expectation of Rs160-165) and (3) FY2011E-14E content cost inflation at ~18% (Dish TV guidance
of 12-15% inflation in FY2012E). The subscriber addition momentum has moderated versus
FY2011, which featured a strong sports calendar. However, the visibility on ~10% ARPU growth
has improved post rate hike in premium packages in June-2011. Additionally, we have increased
our churn rate expectation to 12-14% from 11-13% previously.
1QFY12 results analysis (continued)
�� Dish TV reported 1QFY12 gross subscriber addition of 0.72 mn, below our 0.86 mn
expectation; we expected 1QFY12 to remain strong on account of complete IPL Season 4
(sports quarter) but Dish TV’s relatively subdued subscriber growth served to further
reinforce the fact that IPL has likely peaked out.
�� Dish TV reported 1QFY12 net subscriber addition at 0.43 mn, below our 0.6 mn
expectation. Besides lower subscriber addition, subscriber churn of 0.29 mn was
marginally above 0.26 mn expectation (annualized churn rate of 13.3%). The high churn
likely resulted from strong subscriber addition in 3QFY11 (led by promotion scheme with
months with a view to manage its high churn rate.
�� Dish TV reported 1QFY12 ARPU of Rs150/sub-month (flat qoq) versus our expectation of
Rs154/sub-month. Dish TV had reported 6% qoq growth in 4QFY11 led by (1) rate hike
in entry level packages in September-10 but also (2) ICC CWC ‘2011, which likely resulted
in increased uptake of add-on sports packages. The latter trend reversed in 1QFY12 as IPL
is showcased on SET MAX, part of the basic package. Additionally, delayed renewals by
subscribers in rural areas are a perpetual challenge.
�� Dish TV reported 1QFY12 content and other cost at Rs1.58 bn (+30% yoy, +23% qoq),
above our Rs1.4 bn expectation. The content cost was elevated in 1QFY12 on account of
annual escalation as part of fixed fee arrangements with broadcasters. However, 1QFY12
also included incremental payments for new HD channels. Dish TV maintained 12-15%
content cost inflation target for FY2012E.
�� Dish TV reported 1QFY12 SAC at Rs2,058 (-7% qoq, -4% yoy), the saving grace for the
quarter, led by (1) increase in entry pricing (Rs1,299 currently from
as discussed previously), (2) relative stable competitive intensity in the DTH segment (Tata
Sky and Airtel Digital TV have also increased their entry level scheme prices) and (3) robust
control over other operating costs.
�� Dish TV reported 1QFY12 advertising and distribution expenses of Rs156 mn (expectation
of Rs250 mn) and Rs449 mn (expectation of Rs600 mn), which was instrumental in lower
SAC and helped support EBITDA performance. Distribution costs were lower on account
of (1) lower subscriber addition but also (2) reduced recharge commission (~4% of ARPU
from ~6% of ARPU) and (3) lower new subscriber commission.
�� Dish TV reported 1QFY12 EBITDA margin of 24.4% (+13.8-ppt yoy, +3.5-ppt qoq),
despite the miss on revenue as well as content cost expectations. This further serves to
highlight (1) considerable operating leverage in the DTH business and (2) robustness of
1QFY12 results at an absolute level, even though they may have missed heightened
expectations. Dish TV is still on track to achieve our expected 26.2% EBITDA margin in
FY2012E and 32% EBITDA margin in FY2013E.
�� Dish TV reported 1QFY12 net interest expense of Rs197 mn, below our Rs250 mn
expectation, as restructuring of debt has reduced interest rate levels to ~9% from ~11%
previously; however, Dish TV is also taking higher foreign exchange risk going from
domestic debt to foreign currency debt. Dish TV reported gross cash of ~Rs4.3 bn by end-
1QFY12 (for addition of another 2.5 mn subscribers in rest of FY2012E before free cash
breakeven in FY2013E) and gross debt of ~Rs10.5 bn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DishTV (DITV)
Media
A mixed quarter. Dish TV reported 1QFY12 EBITDA of Rs1.12 bn (+248% yoy, +24%
qoq), marginally below our Rs1.2 bn expectation, led by lower-than-expected operating
performance (1) ARPU of Rs150 (flat qoq), (2) subscriber addition of 0.73 mn, (3) churn
rate of ~13% and (4) higher-than-expected content cost. (1) Reduced SAC (~Rs2,058)
and (2) lower other operating costs were the saving grace. Reiterate ADD with revised
FY2013E TP of Rs100 (Rs85 previously); Dish TV stock may be under pressure in the
near term as valuations correct in response to more ‘reasonable’ operating assumptions.
However, long-term drivers remain intact (1) robust growth in DTH segment, (2) stable
competition (inter-, intra- segment) and (3) improved case for pick-up in HD.
1QFY12 results analysis: Robust absolute EBITDA growth but marginally below expectations
�� Dish TV reported 1QFY12 EBITDA at Rs1.12 bn (+248% yoy, +24% qoq), robust growth on
absolute basis but marginally below expectations (KIE at Rs1.2 bn); the negative variance largely
resulted from lower-than-expected 1QFY12 revenues led by lower-than-expected ARPUs and
subscriber additions and higher-than-expected churn.
�� Dish TV reported 1QFY12 revenues at Rs4.6 bn (+51% yoy, +6% qoq) led by lower-thanexpected
DTH subscription revenues of Rs3.92 bn (+57% yoy, +7% qoq). 1QFY12 rental
income at Rs550 mn was also lower versus expectation; however, Dish TV is following a
prudent accounting policy of writing-off subscriber advances as well as capex in case it has
been inactive on the platform for >500 days (in line with IFRS).
Reiterate ADD: Near-term risks may overshadow long-term drivers for some time, however
We reiterate our ADD rating on Dish TV stock with FY2013E DCF-based TP of Rs100 (Rs85
previously); we have reduced the risk weight (WACC) to 12.5% from 13.0% (comfort on free cash
breakeven in FY2013E) and marginally increased our long-term ARPU assumptions (~7% CAGR
post ~10% growth in FY2012E). We highlight long-term drivers for Dish TV: (1) Robust growth in
DTH segment in India led by yet large non-C&S TV HHs, (2) stable intra- (no new DTH operators)
and inter-segment (dormant cable operators) competition and (3) improved case of pick-up in HD
services led by more content availability (ESPN, Star Cricket HD channels). The stock may remain
under pressure in the near term given miss on heightened expectations.
Our base case operating assumptions for Dish TV remain reasonable: (1) Gross subscriber addition
of 3.0 mn (lower end of Dish TV guidance of 3.0-3.5 mn), (2) FY2012E ARPU of Rs157 (Dish TV
expectation of Rs160-165) and (3) FY2011E-14E content cost inflation at ~18% (Dish TV guidance
of 12-15% inflation in FY2012E). The subscriber addition momentum has moderated versus
FY2011, which featured a strong sports calendar. However, the visibility on ~10% ARPU growth
has improved post rate hike in premium packages in June-2011. Additionally, we have increased
our churn rate expectation to 12-14% from 11-13% previously.
1QFY12 results analysis (continued)
�� Dish TV reported 1QFY12 gross subscriber addition of 0.72 mn, below our 0.86 mn
expectation; we expected 1QFY12 to remain strong on account of complete IPL Season 4
(sports quarter) but Dish TV’s relatively subdued subscriber growth served to further
reinforce the fact that IPL has likely peaked out.
�� Dish TV reported 1QFY12 net subscriber addition at 0.43 mn, below our 0.6 mn
expectation. Besides lower subscriber addition, subscriber churn of 0.29 mn was
marginally above 0.26 mn expectation (annualized churn rate of 13.3%). The high churn
likely resulted from strong subscriber addition in 3QFY11 (led by promotion scheme with
months with a view to manage its high churn rate.
�� Dish TV reported 1QFY12 ARPU of Rs150/sub-month (flat qoq) versus our expectation of
Rs154/sub-month. Dish TV had reported 6% qoq growth in 4QFY11 led by (1) rate hike
in entry level packages in September-10 but also (2) ICC CWC ‘2011, which likely resulted
in increased uptake of add-on sports packages. The latter trend reversed in 1QFY12 as IPL
is showcased on SET MAX, part of the basic package. Additionally, delayed renewals by
subscribers in rural areas are a perpetual challenge.
�� Dish TV reported 1QFY12 content and other cost at Rs1.58 bn (+30% yoy, +23% qoq),
above our Rs1.4 bn expectation. The content cost was elevated in 1QFY12 on account of
annual escalation as part of fixed fee arrangements with broadcasters. However, 1QFY12
also included incremental payments for new HD channels. Dish TV maintained 12-15%
content cost inflation target for FY2012E.
�� Dish TV reported 1QFY12 SAC at Rs2,058 (-7% qoq, -4% yoy), the saving grace for the
quarter, led by (1) increase in entry pricing (Rs1,299 currently from
as discussed previously), (2) relative stable competitive intensity in the DTH segment (Tata
Sky and Airtel Digital TV have also increased their entry level scheme prices) and (3) robust
control over other operating costs.
�� Dish TV reported 1QFY12 advertising and distribution expenses of Rs156 mn (expectation
of Rs250 mn) and Rs449 mn (expectation of Rs600 mn), which was instrumental in lower
SAC and helped support EBITDA performance. Distribution costs were lower on account
of (1) lower subscriber addition but also (2) reduced recharge commission (~4% of ARPU
from ~6% of ARPU) and (3) lower new subscriber commission.
�� Dish TV reported 1QFY12 EBITDA margin of 24.4% (+13.8-ppt yoy, +3.5-ppt qoq),
despite the miss on revenue as well as content cost expectations. This further serves to
highlight (1) considerable operating leverage in the DTH business and (2) robustness of
1QFY12 results at an absolute level, even though they may have missed heightened
expectations. Dish TV is still on track to achieve our expected 26.2% EBITDA margin in
FY2012E and 32% EBITDA margin in FY2013E.
�� Dish TV reported 1QFY12 net interest expense of Rs197 mn, below our Rs250 mn
expectation, as restructuring of debt has reduced interest rate levels to ~9% from ~11%
previously; however, Dish TV is also taking higher foreign exchange risk going from
domestic debt to foreign currency debt. Dish TV reported gross cash of ~Rs4.3 bn by end-
1QFY12 (for addition of another 2.5 mn subscribers in rest of FY2012E before free cash
breakeven in FY2013E) and gross debt of ~Rs10.5 bn.
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