Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dish TV reported a muted performance (marginally below our
expectations) in Q3FY12 because of the negative impact of rupee
depreciation and reduced subscriber additions due to a hike in set top
box prices and drop in consumer sentiments. Key positives were a fall in
subscriber acquisition cost (SAC) by INR100 QoQ and lower interest
expenses by 24% QoQ. Key negatives were slow subscriber growth,
higher content costs, flat ARPU and an increase in churn rate (by ~15bps
QoQ to 1.25%). Major triggers for the stock could be benefits from the
digitization mandate and the strengthening of the rupee. We maintain
‘BUY’.
Jump in content costs dents margins
Dish TV’s revenues increased by ~31.4%YoY from INR3732mn in Q3FY11 to INR4905mn in
Q3FY12. ARPU remained flat on a QoQ basis at INR152 due to a sluggish uptake in a‐lacarte
subscriptions and the macro environment. However, an increase in content cost
resulted in a QoQ decline in EBITDA margin to 24.5% in Q3FY12 from 25.3% in Q2FY12.
The content cost increased due to renewal of deals with Sony and Neo Sports. The aftertax
loss for Q3FY12 stood at INR430mn which included forex loss of INR156mn.
Rupee depreciation, price hike hamper performance
Dish TV continued to be adversely impacted by 8% rupee depreciation during Q3FY12.
The total forex loss for the quarter was ~INR560mn, out of which ~INR156mn was
routed into the income statement. As pointed in our reports ‘DTH subscriber additions
to fall in Q3FY12’ dated December 27, 2011 and ‘Edel Pulse’ dated January 11, 2012,
subscriber additions have slowed down substantially for DTH players. Dish TV could
add only 0.74mn subscribers in Q3FY12 vis‐à‐vis 1.1mn additions in Q3FY11. Subscriber
additions slowed down because of a hike in set top box prices from INR1190 to
INR1590 and reduction in the free viewing period.
Outlook and valuation: Positive over long term, maintain ‘BUY’
We expect Dish TV to benefit during the digitization process due to its pricing power
and huge brand. At CMP of INR61, the stock is trading at EV/EBITDA of 15.1x and 10.3x
FY12E and FY13E respectively. We maintain ‘BUY’ recommendation and assign ‘Sector
Performer’ rating to the stock.
Dish TV: Key takeaways from Q3FY12 concall
Subscriber addition slows: Subscriber additions slowed in November and December 2011
due to a hike in prices of set top boxes, reduction in the free viewing period and lower
consumer sentiments. In Q3FY12, the DTH industry added ~3mn subscribers. The prices of
set top boxes were increased by ~INR400 (from INR1190 to INR1590) to offset the impact of
rupee depreciation. The management has revised its earlier guidance of 3‐3.5mn subscriber
additions in FY12 to 2.6mn subscriber additions in FY12. Dish TV expects to add further ~2.5‐
3mn subscribers from internal accruals. Dish TV added 0.74mn new subscribers in Q3FY12,
achieving a 12.5mn gross and 9.5mn net subscribers.
Market share: In Q3FY12, Dish TV’s incremental market share was maintained at ~24%
(same as earlier quarters).
Revenue break up: Subscription revenue for Q3FY12 was at INR4254mn, up 37% YoY (~
INR4130mn in Q2FY12, INR3922mn in Q1FY12, INR3100mn in Q3FY11, INR2700mn in
Q2FY11), Lease rental of INR449mn (INR550mn in Q2FY12, Q1FY12, Q4FY11, INR520mn in
Q3FY11), Bandwidth revenues of INR112mn (INR70mn in Q2FY12, INR95mn in Q1FY12,
INR65mn in Q4FY11, INR75mn in Q3FY11). Teleport and trading income came at INR49mn.
Ad revenues: Dish TV earned ad revenues of ~INR40mn in Q3FY12 (INR40mn in Q2FY12,
INR15mn in Q1FY12, INR20mn in Q4FY11, INR5mn in Q4FY10).
ARPU remains flat because of higher base: ARPU remained flat due to the sluggish overall
environment and reduced uptake in a‐la‐carte cricket subscriptions. The impact of the INR10
price hike in the base pack in the third week of November 2011 was not felt in Q3FY12 due a
lag effect. The base pack constitutes ~50% of Dish TV’s subscribers. On the back of this price
increase, the ARPU is likely to increase to ~INR155 at FY12 end.
Mandatory digitization: DTH is well placed to benefit from this and could potentially add
50‐60% market share due to strong brand equity (collectively DTH companies have spent
INR 10 bn on ad spends) and HD services. However, pick up for phase 1 is likely in May‐June
2012 and there are uncertainties.
Content Costs: Content cost was ~33% of subscription revenues and increased due to
signing of new deals with Sony and Neo Sports. In FY13, content deals of Star and ZEE will
come for renewal.
Ad expenditure guidance: Ad expenses in FY12 will be ~INR850mn‐900mn (~INR530mn in
9MFY12). Thus, marketing expenses are likely to go up, primarily due to the digitization
mandate and rebranding.
Subscriber Acquisition Cost (SAC): SAC has gone down to INR2124 (INR2232 in Q2FY12,
INR2058 in Q1FY12, INR2224 in Q4FY11, INR2142 in Q3FY11, INR2083 in Q2FY11). Break up
of SAC in Q3FY12 is: INR1550 for hardware, INR250 for ad spends and INR325 for sales and
distribution. SAC has gone down due to a price increase in set top boxes
Churn remains a concern: Estimated churn rate for Q3FY12 was ~1.25% (up from 1.1% in
previous quarters). Company feels that churn is high due to lower quality of subscriber
addition in earlier quarters because of low entry price of the set top box. However, churn is
expected to come down due to the recent price increase in set top boxes.
Debt: Gross debt stands at INR12bn, out of which ~INR7.5bn constitute foreign loans. The
average cost of debt is ~9%. The cost of debt is lower by ~150 bps in FY12 as the company
has refinanced lower interest rate debts. Forex loss of ~INR400mn has been reported in the
balance sheet. Dish TV is likely to turn free cash positive in Q4FY12. However, rupee
depreciation and sluggish revenue growth could delay free cash flow target.
Lease rental revenue decreases: Lease rental revenues reduced by INR101mn QoQ because
some old rentals (prior to year 2007) were replaced by newer rentals. Company earlier used
to charge ~INR2200 to subscribers which now got reduced to ~INR475 for new subscribers.
Lease rental revenue is expected to be stagnant for the next 2‐3 quarters.
HD: ~4.5%‐5% of incremental subscribers took HD connection. ARPU level of HD subscribers
remained above INR400. As per the management, lesser channels are upgrading to HD than
expected which should improve in the next two quarters.
Inventory: Dish TV has 1.3mn boxes in the distribution chain, out of which 0.4mn boxes are
with the company. This is a war chest for impending digitization.
Infrastructure status, tax breaks: There will not be any impact due to the grant of
infrastructure status or tax breaks to DTH players. This will benefit cable players to get
cheaper funds.
Hedging policy: Dish TV is not hedging the imported equipment. Forex loan has been
hedged for a year.
Digitization mandate – Huge positive for Dish TV
We believe that, in the post‐digitization scenario, DTH companies will potentially add ~40‐
50% market share due to their strong brand equity and better access to funds as compared
to cable companies. However, with cable companies like Hathway and DEN offering set top
boxes at ~INR800 and launching joint advertisement campaigns to promote digitization,
there might be a possibility of a price war.
DTH industry hit by a slowdown in Q3FY12
According to the international media research agency, Media Partners Asia (MPA), the
Indian DTH industry is set to add ~3.2mn subscribers in Q3FY12 vis‐à‐vis ~4.5mn subscribers
in Q3FY11 – down ~30% YoY. In Q1FY12 and Q2FY12, the industry had added ~2.9mn and
~2.3mn subscribers respectively. Major reasons attributed to the slowdown are hike in
prices of set top boxes, slowdown in TV sales, reduced promotions, lowering of trade
margins and hike in price of basic channel packages. However, a likely silver lining could be
incremental subscriber additions in Feb and March in Q4FY12 due to the digitization
mandate.
Investor concerns on fund raising addressed
The Foreign Investment Promotion Board (FIPB) has approved Dish TV’s application to raise
~INR9.8bn. As per Mr. Venkateish, CEO, Dish TV the company expects to turn free cash flow
positive from Q4FY12 or Q1FY13 (same as earlier guidance) for current operations. Dish TV
does not need additional funds for the existing business; funds are needed only when
mandatory digitalization happens. Dish is yet to finalize investors, timelines, and quantum of
fund raising. Phase 1 and 2 of mandatory digitization will have the potential of ~27mn
customers for digitization. The funds raised will act as a war chest to help the company get
ready for digitization and HD. Also, with the increasing number of HD channels (Zee and
Sony’s impending launch) and dipping cost of HD TV sets, HD penetration is bound to
accelerate.
Change in positioning to help strengthen relation with subscribers
Dish TV has changed its positioning from ‘Ghar Aayi Zindagi’ to ‘Dish Sawar Hai’ in order to
strengthen its relationship with subscribers. According to the management, the DTH
industry being very dynamic in nature, it is important to consistently build a rapport with
the consumers. Campaigns for promotion of the new positioning will be launched in a
phased manner. For the initial phase, INR250mn of marketing budget has been allocated.
Dish TV had earlier changed its positioning in 2009
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dish TV reported a muted performance (marginally below our
expectations) in Q3FY12 because of the negative impact of rupee
depreciation and reduced subscriber additions due to a hike in set top
box prices and drop in consumer sentiments. Key positives were a fall in
subscriber acquisition cost (SAC) by INR100 QoQ and lower interest
expenses by 24% QoQ. Key negatives were slow subscriber growth,
higher content costs, flat ARPU and an increase in churn rate (by ~15bps
QoQ to 1.25%). Major triggers for the stock could be benefits from the
digitization mandate and the strengthening of the rupee. We maintain
‘BUY’.
Jump in content costs dents margins
Dish TV’s revenues increased by ~31.4%YoY from INR3732mn in Q3FY11 to INR4905mn in
Q3FY12. ARPU remained flat on a QoQ basis at INR152 due to a sluggish uptake in a‐lacarte
subscriptions and the macro environment. However, an increase in content cost
resulted in a QoQ decline in EBITDA margin to 24.5% in Q3FY12 from 25.3% in Q2FY12.
The content cost increased due to renewal of deals with Sony and Neo Sports. The aftertax
loss for Q3FY12 stood at INR430mn which included forex loss of INR156mn.
Rupee depreciation, price hike hamper performance
Dish TV continued to be adversely impacted by 8% rupee depreciation during Q3FY12.
The total forex loss for the quarter was ~INR560mn, out of which ~INR156mn was
routed into the income statement. As pointed in our reports ‘DTH subscriber additions
to fall in Q3FY12’ dated December 27, 2011 and ‘Edel Pulse’ dated January 11, 2012,
subscriber additions have slowed down substantially for DTH players. Dish TV could
add only 0.74mn subscribers in Q3FY12 vis‐à‐vis 1.1mn additions in Q3FY11. Subscriber
additions slowed down because of a hike in set top box prices from INR1190 to
INR1590 and reduction in the free viewing period.
Outlook and valuation: Positive over long term, maintain ‘BUY’
We expect Dish TV to benefit during the digitization process due to its pricing power
and huge brand. At CMP of INR61, the stock is trading at EV/EBITDA of 15.1x and 10.3x
FY12E and FY13E respectively. We maintain ‘BUY’ recommendation and assign ‘Sector
Performer’ rating to the stock.
Dish TV: Key takeaways from Q3FY12 concall
Subscriber addition slows: Subscriber additions slowed in November and December 2011
due to a hike in prices of set top boxes, reduction in the free viewing period and lower
consumer sentiments. In Q3FY12, the DTH industry added ~3mn subscribers. The prices of
set top boxes were increased by ~INR400 (from INR1190 to INR1590) to offset the impact of
rupee depreciation. The management has revised its earlier guidance of 3‐3.5mn subscriber
additions in FY12 to 2.6mn subscriber additions in FY12. Dish TV expects to add further ~2.5‐
3mn subscribers from internal accruals. Dish TV added 0.74mn new subscribers in Q3FY12,
achieving a 12.5mn gross and 9.5mn net subscribers.
Market share: In Q3FY12, Dish TV’s incremental market share was maintained at ~24%
(same as earlier quarters).
Revenue break up: Subscription revenue for Q3FY12 was at INR4254mn, up 37% YoY (~
INR4130mn in Q2FY12, INR3922mn in Q1FY12, INR3100mn in Q3FY11, INR2700mn in
Q2FY11), Lease rental of INR449mn (INR550mn in Q2FY12, Q1FY12, Q4FY11, INR520mn in
Q3FY11), Bandwidth revenues of INR112mn (INR70mn in Q2FY12, INR95mn in Q1FY12,
INR65mn in Q4FY11, INR75mn in Q3FY11). Teleport and trading income came at INR49mn.
Ad revenues: Dish TV earned ad revenues of ~INR40mn in Q3FY12 (INR40mn in Q2FY12,
INR15mn in Q1FY12, INR20mn in Q4FY11, INR5mn in Q4FY10).
ARPU remains flat because of higher base: ARPU remained flat due to the sluggish overall
environment and reduced uptake in a‐la‐carte cricket subscriptions. The impact of the INR10
price hike in the base pack in the third week of November 2011 was not felt in Q3FY12 due a
lag effect. The base pack constitutes ~50% of Dish TV’s subscribers. On the back of this price
increase, the ARPU is likely to increase to ~INR155 at FY12 end.
Mandatory digitization: DTH is well placed to benefit from this and could potentially add
50‐60% market share due to strong brand equity (collectively DTH companies have spent
INR 10 bn on ad spends) and HD services. However, pick up for phase 1 is likely in May‐June
2012 and there are uncertainties.
Content Costs: Content cost was ~33% of subscription revenues and increased due to
signing of new deals with Sony and Neo Sports. In FY13, content deals of Star and ZEE will
come for renewal.
Ad expenditure guidance: Ad expenses in FY12 will be ~INR850mn‐900mn (~INR530mn in
9MFY12). Thus, marketing expenses are likely to go up, primarily due to the digitization
mandate and rebranding.
Subscriber Acquisition Cost (SAC): SAC has gone down to INR2124 (INR2232 in Q2FY12,
INR2058 in Q1FY12, INR2224 in Q4FY11, INR2142 in Q3FY11, INR2083 in Q2FY11). Break up
of SAC in Q3FY12 is: INR1550 for hardware, INR250 for ad spends and INR325 for sales and
distribution. SAC has gone down due to a price increase in set top boxes
Churn remains a concern: Estimated churn rate for Q3FY12 was ~1.25% (up from 1.1% in
previous quarters). Company feels that churn is high due to lower quality of subscriber
addition in earlier quarters because of low entry price of the set top box. However, churn is
expected to come down due to the recent price increase in set top boxes.
Debt: Gross debt stands at INR12bn, out of which ~INR7.5bn constitute foreign loans. The
average cost of debt is ~9%. The cost of debt is lower by ~150 bps in FY12 as the company
has refinanced lower interest rate debts. Forex loss of ~INR400mn has been reported in the
balance sheet. Dish TV is likely to turn free cash positive in Q4FY12. However, rupee
depreciation and sluggish revenue growth could delay free cash flow target.
Lease rental revenue decreases: Lease rental revenues reduced by INR101mn QoQ because
some old rentals (prior to year 2007) were replaced by newer rentals. Company earlier used
to charge ~INR2200 to subscribers which now got reduced to ~INR475 for new subscribers.
Lease rental revenue is expected to be stagnant for the next 2‐3 quarters.
HD: ~4.5%‐5% of incremental subscribers took HD connection. ARPU level of HD subscribers
remained above INR400. As per the management, lesser channels are upgrading to HD than
expected which should improve in the next two quarters.
Inventory: Dish TV has 1.3mn boxes in the distribution chain, out of which 0.4mn boxes are
with the company. This is a war chest for impending digitization.
Infrastructure status, tax breaks: There will not be any impact due to the grant of
infrastructure status or tax breaks to DTH players. This will benefit cable players to get
cheaper funds.
Hedging policy: Dish TV is not hedging the imported equipment. Forex loan has been
hedged for a year.
Digitization mandate – Huge positive for Dish TV
We believe that, in the post‐digitization scenario, DTH companies will potentially add ~40‐
50% market share due to their strong brand equity and better access to funds as compared
to cable companies. However, with cable companies like Hathway and DEN offering set top
boxes at ~INR800 and launching joint advertisement campaigns to promote digitization,
there might be a possibility of a price war.
DTH industry hit by a slowdown in Q3FY12
According to the international media research agency, Media Partners Asia (MPA), the
Indian DTH industry is set to add ~3.2mn subscribers in Q3FY12 vis‐à‐vis ~4.5mn subscribers
in Q3FY11 – down ~30% YoY. In Q1FY12 and Q2FY12, the industry had added ~2.9mn and
~2.3mn subscribers respectively. Major reasons attributed to the slowdown are hike in
prices of set top boxes, slowdown in TV sales, reduced promotions, lowering of trade
margins and hike in price of basic channel packages. However, a likely silver lining could be
incremental subscriber additions in Feb and March in Q4FY12 due to the digitization
mandate.
Investor concerns on fund raising addressed
The Foreign Investment Promotion Board (FIPB) has approved Dish TV’s application to raise
~INR9.8bn. As per Mr. Venkateish, CEO, Dish TV the company expects to turn free cash flow
positive from Q4FY12 or Q1FY13 (same as earlier guidance) for current operations. Dish TV
does not need additional funds for the existing business; funds are needed only when
mandatory digitalization happens. Dish is yet to finalize investors, timelines, and quantum of
fund raising. Phase 1 and 2 of mandatory digitization will have the potential of ~27mn
customers for digitization. The funds raised will act as a war chest to help the company get
ready for digitization and HD. Also, with the increasing number of HD channels (Zee and
Sony’s impending launch) and dipping cost of HD TV sets, HD penetration is bound to
accelerate.
Change in positioning to help strengthen relation with subscribers
Dish TV has changed its positioning from ‘Ghar Aayi Zindagi’ to ‘Dish Sawar Hai’ in order to
strengthen its relationship with subscribers. According to the management, the DTH
industry being very dynamic in nature, it is important to consistently build a rapport with
the consumers. Campaigns for promotion of the new positioning will be launched in a
phased manner. For the initial phase, INR250mn of marketing budget has been allocated.
Dish TV had earlier changed its positioning in 2009
No comments:
Post a Comment