India Equity Research: Dish TV

Rating: Buy; Target Price: Rs75; CMP: Rs59; Upside: 27.1%

Healthy subscriber & ARPU growth expected

We maintain BUY rating on Dish TV and believe the company is well
posititioned to take advantage of the 25% growth in the DTH industry
in FY15 with Dish TV’s incremental market share back on track at 24%.
Increasing traction in the Zing brand will help penetration in
Phase-III/IV markets with lower operating/marketing cost while focus
on HD subscribers in Phase-I markets coupled with further price hike
in August 2014 will help in steady ARPU increase. Marginal increase in
content cost will aid margin expansion as seen in Q1FY15 while
triggers such as implementation of GST and license fees on AGR basis
will benfit over the long term.

$ Q1FY15 result highlights: Dish TV posted 10.8% YoY growth in
revenues on the back of 11.5% YoY (7% QoQ) growth in subscription
revenues led by 1.8% YoY improvement in ARPU and 8.6% YoY growth in
net subscribers (332K addition). Operating profit grew by 29% YoY (up
21% QoQ) on the back of mere 5% increase in programming cost while A&P
declined by 58% YoY. Hence, operating margin was at 24.5%, 342bps
above expectations. Losses reduced to Rs161mn during the quarter
against Rs304mn in Q1FY14.

$ Healthy subscriber addition: The company increased its incremental
market share to 24% during the quarter with 332K net subscriber
additions. Focus on HD subscribers (13% of net adds) in Phase-I
markets and Zing brand’s availability in Odisha, West Bengal, Tripura,
parts of Assam and most parts of Maharashtra further aided subscriber
addition. Management expects the industry to grow by 25% this year
with opportunity of 40mn subscribers for DTH companies under
Phase-III/IV digitization. Hence the company has guided for 2-2.5mn
gross subscriber additions and 1.2-1.5mn net subscriber additions in
FY15.

$ Further price hike expected: The company has taken 5-7% price hike
in the middle and top level packs from June 2014 which partly helped
increase ARPU on a sequential basis. It further plans to increase
prices by 5% across packs including base packs from August 2014 with
full impact visible in Q3FY15. Management has also guided for a single
digit increase in content cost which would boost margins despite
contracts with Star and ZEEL coming up for renewal in July 2014.
Subscriber acquisition cost was flat on a sequential basis at Rs1800.
The company currently has gross debt of Rs13bn.

$ Valuations & Risks: We have increased our subscriber estimates for
FY15E/FY16E along with increasing operating margins on the back of
lower programming cost. We maintain BUY with a target price of Rs75
and value it at 9x June’16E EV/EBIDTA. We believe recent price hikes,
focus on HD subscribers in Phase-I markets, increasing traction in the
Zing brand along with future triggers with implementation of GST and
license fees on AGR basis will augur well for the company in the
medium to long term. Key risks could be delay in digitization and
increasing content cost.

Thanks & Regards

--

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15 June 2014

J.P. Morgan - Dish TV

Dish TV (DITV IN) Earnings disappoint on content cost inflation. Positive FCF is the main improvement in financials		Overweight Price Target: Rs60.00 PT End Date: 31 Mar 2015

DITV’s earnings (loss of Rs 1.4/Share) disappointed vs. expectations. Earnings had few accounting adjustments (Net Impact reported EBITDA higher by Rs 0.7B). Key positive read through was that through F14 DITV has generated positive FCF of Rs 3.1B (Rs 2.9/Share) thus putting the stock at a 5% FCFE yield. Net addition has improved for the company in Q4 and as digitization moves into tier 3/rural areas DTH will likely perform better. At current market price we believe that risk reward is positive given limited benefit being attributed either to a) The company’s initiatives on margin improvement in F15 or b) Longer term optionality on ARPU improvement in a post digitization scenario.

· Key negatives – 1. DITVs Q4 earnings had a number of accounting adjustments (Net result reported EBITDA higher by Rs 0.7B). New accounting norm of upfront activation revenue may be concerning but seems to be in line with industry practice. 2. EBITDA margin at 25% for F14 (restated basis) has been under pressure due to heavy content cost increase (+19%) through the year vs. ARPU improvement of 7.6%. 3. Capex will likely increase as rollout of phase 4/5 markets start.

· Key positives – 1. Company has turned FCF positive (5% yield on F14 basis) with net debt correspondingly reduced 2. Initiatives on content cost management being put in place. Co expects 150bps reduction on content cost to revenue over F15 thus regaining some part of lost margins. 3. Co has regained lost market share in Q4 in net adds (0.22MM) and 4. Tariff hikes of 10% being taken in June (except entry packs).

· Outlook for F15- Given a low base formed in F14, we think comps will be easier for the company to beat going into F15. Operating initiatives taken in terms of content cost management, tariff hikes, churn containment and volume growth in phase 4/5 provide multiple levers for showing improved growth ahead. Risk remains in terms of high competitive intensity in the industry, which could keep tariff hikes under check.

Table 1: DITV - Q4F14 earnings table

Rs M, year end March	Dec-13	Mar-14	% Q/Q
Net Revenues	6,207	6,348.5	2%
Other Operating Income	30.9	20.6	-33%
Total Income	6,238.1	6,369.1	2%

Expenditure
Purchases of stock in trade	15.3	3.6	-76%
Change in stock	2.4	10.8	350%
License Fees	645.8	669.8	4%
Other operating costs	742.4	823.8	11%
Commission	503.7	506.5	1%
Other expenses	323.4	512.7	59%
Employees cost	215.2	210.2	-2%
Total	4,783.8	5,079.7	6%

EBITDA	1,454.3	1,289.4	-11%
EBITDA Margin (%)	23.3	20.2	(3.1)

Depreciation	1,534.0	1,490.8	-3%
EBIT	(79.7)	(201.4)	153%
Other Income	97.1	200.9	107%
Interest	301.0	326.3	8%
Profit before exceptional	(283.6)	(326.8)	NM
Exceptional	0.0	1,163.7
Profit before tax	(283.6)	(1,490.5)	NM
Profit after tax before minorities	(283.6)	(1,490.5)	NM
Net profit	(283.6)	(1,490.5)	NM

Source: Company reports

Investment Thesis

We think shares of Dish TV are attractively valued from a risk-reward perspective at the current market price. Capex rationalization, initiatives on content cost / churn management and increasing share of value added service offerings should result in positive FCF sustaining hereon. Longer term, we believe ARPU increase potential is mostly undiscounted in the price. At FY15E EV/EBITDA of 8.8x (average range 14x over CY10-13), we think the stock discounts most of the risks.

Valuation

Our Mar-15 price target of Rs60 implies a 9.2x forward EV/EBITDA as against last 3 year average range of 14x and at a 10-15% discount to regional peers. While the stock is currently trading at a discount to the peers, we believe valuations should catch up as progress on debt reduction comes though given improving cash flow position.

Risks to Rating and Price Target

Key near term risks will be industry discipline, longer than anticipated (2 year) delay in digitization implementation, higher than expected capex resulting in negative FCF and risk on pledged shares.

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08 June 2014

Dish TV India: Buy Target RS 70: Motilal Oswal

 4QFY14 EBITDA below estimates led by higher opex: DITV’s 4QFY14 EBITDA

declined 11% QoQ to INR1.29b (vs estimate of INR1.55b). Subscription revenue

remained flat QoQ at INR5.64b, impacted by lower no of days in the quarter. Opex

grew 6% QoQ on year-end adjustments towards set-top box write-off etc.

 Change in accounting policy boosts reported EBITDA: DITV amended its revenue

recognition policy towards customer premise equipment activated up to March

2012. This resulted in higher revenue/EBITDA by INR370m/INR333m in 4QFY14

(part of reported revenues) but a one-time prior period exceptional loss of

INR1.16b. DITV also changed its accounting policy for activation revenue

recognition which boosted 4QFY14 revenue/EBITDA by INR111/INR100m.

Excluding the EBITDA impact of change in accounting policy and ~INR180m cost

impact due to higher set-top box write-offs, 4QFY14 EBITDA would have been

~INR1.04b as per our estimates. Our FY14 revenue/EBITDA numbers exclude the

impact of prior period items but include the positive impact due to accounting

policy change in activation revenue for the current year (which is recurring item).

 Subscriber momentum strong; ARPU increase to be driven by rate hikes: DITV

added 0.23m net subscribers in 4QFY14, up 3% QoQ despite seasonal weakness.

Management indicated that monthly gross additions have accelerated to

200k/month in the current quarter as compared to ~INR120k/month during FY14.

Announced rate hikes for high-end packs lend visibility to ARPU increase in FY15.

Estimates largely unchanged; maintain Buy

 Our EBITDA and PAT estimates are largely unchanged despite the 4QFY14 miss as

change in accounting policy would boost the FY15/16 revenue by ~INR500m.

 We expect EBTDA growth to rebound from 5% decline in FY14E to 23% CAGR over

FY14-16E led by 10% net subs CAGR, 6% ARPU CAGR, and 350bp EBITDA margin

expansion (primarily content cost leverage).

 DITV trades close to multi-year low valuations with EV/EBITDA of 10.3x FY15 and

7.6x FY16. Maintain Buy with a DCF based target price of INR70/sh (unchanged).

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24 January 2014

Low subscriber addition, high cost impact margins We upgrade Dish TV to Buy:: Centrum

Low subscriber addition, high cost impact margins
We upgrade Dish TV to Buy from Hold as we believe the company is taking right
steps towards maintaining a balance between growth and lean balance sheet. It is
well set to capitalize on its distribution reach to benefit from digitization and free
cash to fund future growth. Triggers of increasing ARPU post MSO billing in PhaseI/II cities, reduction in content cost following sustained efforts and reduction in
license fees could help in margin expansion. 22% correction in stock price after
our downgrade to Hold offers further comfort despite disappointment in Q3FY14
results on subscriber additions and margins.
Q3FY14 results below expectations: Dish TV posted 10% YoY growth in revenues
on the back of 11.8% YoY (2.9% QoQ) growth in subscription revenues led by 3.75%
YoY improvement in ARPU (Rs166, in line with expectations) and 7.4% YoY growth
in net subscribers (220K addition). Operating profit declined by 1.6% YoY (down
8.4% QoQ) due to 22% YoY increase in programming & other costs and higher
transponder cost on the back of rupee depreciation. Hence, operating margin was
at 22.1%, 415bps below expectations. Losses increased to Rs383mn against
Rs226mn expected.
Subscriber addition remains low: Management believes net subscriber addition
was the lowest in the industry in the past 3 years during the recent festive season
with Dish TV maintaining 20% incremental market share. We have reduced FY14
net subscriber addition to 0.8mn (guidance of 0.85-0.9mn). Management estimates
the demand to pick up on the back of Phase-III/IV digitisation with relevant market
of 40-45mn subscribers with DTH companies expected to have 60% market share.
Despite churn remaining under control at 0.6%, ARPU was flat QoQ on the back of
free viewing offered to the customers due to high competition.
Focus on healthy balance sheet: Company has repaid debt of Rs3.3bn during the
quarter and also expects to re-pay $42mn in Q4FY14 which would lead to ~Rs6bn
in net-debt by FY14. On-request offering of Indiacast channels could help the
company reduce its content cost over medium term while it would have an
opportunity to increase ARPU once MSO billing starts in Phase-I/II cities leading to
margin expansion. Further reduction in license fees to 6-8% against current 10%
could act as a trigger.
Valuations & Risks: We have cut our subscriber estimates for FY14/FY15 along
with lower operating margins on the back of fixed cost model. We upgrade the
stock to BUY with a target price of Rs62 and value it at 8x Dec 2015 EV/EBIDTA as
the stock has fallen by 22% post our downgrade to Hold on 1st January 2014. We
believe the company is taking right steps towards maintaining a balance between
growth and lean balance sheet. It is well set to capitalize on its distribution reach to
benefit from digitization and free cash to fund future growth internationally. Key
risk could be further delay in digitization and inability to increase ARPU.

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28 October 2013

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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13 August 2013

Dish TV:: HSBC research

Dish TV India Ltd (DITV IN)
UW: Lack of catalysts prevents near-term upside
 1QFY14 results were below estimates, but ARPU showed a
sequential improvement of 5%
 Muted volume growth remains a concern
 Maintain UW, and cut target price to INR55 (from INR59)

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03 August 2013

Dish TV India Ltd (Dish) : Microsec Research

Dish TV India Ltd (Dish) announced its Standalone Q1 FY2014 results on 26 July 2013. While the company’s top line came in line with our as well as Bloomberg consensus estimates, it reported higher than expected losses during the quarter. A glimpse of the same is as follows:

Regards,

Team Microsec Research

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03 June 2013

ARPU disappoints Dish TV :: Centrum

ARPU disappoints
Dish TV posted Q4FY13 results below expectations with 7.5%YoY growth in revenues (2.3% below expectations) on the back of 0.2mn net subscriber addition with ARPU declining by Rs3 sequentially to Rs157 as subscribers downgraded to lower price point packages along with fewer number of days during the quarter. Operating margin declined by 22bps on the back of higher programming cost due to renegotiation of contract with MediaPro. We believe the recent increase in STB prices along with hike in package rates will augur well in the medium term as this will reduce churn along with subscriber acquisition cost though marginally impacting subscriber addition. With increasing focus on value & profitability, we maintain BUY rating on the stock.

Results below expectations: Dish TV posted 7.5% revenue growth to Rs5554mn on the back of 15.3%YoY growth in subscription revenues. Operating profit was at Rs1200mn up by 6.4%YoY with margins declining by 22bps. PAT loss was at Rs436mn. Exchange differences from foreign currency borrowing accounted as per AS-16 is now being accounted as AS-11. This change has resulted in net gain of Rs594mn which has been shown as exceptional item in FY13. The company has also reclassified its Q4FY12 results based on audited financials.

Subscriber addition in-line: In Q4FY13 the company added 0.4mn gross subscribers while net subscribers were 0.2mn with churn reducing to 0.8%. In FY13, total net subscriber addition was 1.1mn while gross subscriber addition was 2.2mn. Total net subscribers stand at 10.7mn. Subscriber addition during the quarter was low as the company increased STB prices by Rs300 in February. Going forward, management expects the net subscriber addition at ~1.1mn with marginal upside from Phase-II digitization. STB price hike has resulted in lowering SAC to Rs1996 during the quarter from Rs2201 in Q3FY13. Management expects this to further decline to ~Rs1600 over the next 2/3 quarters

ARPU disappoints: During the quarter the company posted Rs3 drop in ARPU on a sequential basis on the back of lower days in Q4FY13 compared to Q3FY13 and customers downgrading to lower price point packages. Average blended ARPU for FY13 was at Rs158 with management guiding Rs166 ARPU for FY14 on the back of the price hike in April 2013. HD ARPU for the quarter was at Rs414.

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12 May 2013

Dish TV: BUY ::Business Line

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20 October 2012

Dish TV India Ltd :: Microsec Research

Dish TV India Ltd (Dish) announced its standalone Q2 FY2013 results today, 18 October 2012. Both the company’s top line and EBIDTA performance came in line with our as well as consensus estimates. On the net income front as well, barring exceptional gain of `76.4 Crores, Dish reported losses as expected. A glimpse of the company’s quarterly results is as follows:

While Dish’s top line inched up 2.6% sequentially to `533.6 Crores, its losses shrunk to `21.3 Crores in Q2 FY2013 compared with `32.3 Crores in Q1 FY2013. The growth in revenues was largely driven by addition of 0.48 Mn new subscribers, and Average Revenues Per User (ARPU) remaining stronger at `159 during the quarter. Although the company reported slight q-o-q increase in EBIDTA, the EBIDTA margins dipped 72 basis points (bps) sequentially to 29.2% due to higher subscriber acquisition costs. Despite slight reduction in EBIDTA margins and high depreciation, Dish was able to trim in losses. Decline in Finance Expenses remained the prime factor for the same.However, on a reported basis the company posted a profit of `55 Crores for Q2 FY2013 incorporating exceptional gains of `76.4 Crores. The company changed the treatment of foreign exchange fluctuations, which resulted in gains of the foresaid amount.

Driven by government’s push for digitization – deadline to digitize operation in four metros falls during the next quarter, healthy ARPU, continued extension of services – launch of first SD recorder in Q2 FY2013 and wide range of channel offerings, Dish is likely to report healthy performance in upcoming quarters as well. Furthermore, the company was free cash positive for the third consecutive quarter. With this, we continue to rate Dish a BUY with a target price of `96.80.

Regards,

Team Microsec Research

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10 October 2012

Dish TV - Offers a free ride on digitisation highway :: Edelweiss, PDF link

As the deadline for digitisation inches closer, in a move that clearly defines Dish TV’s aggressive target to acquire subscribers in Phase 1 cities, it will offer 70 channels (mostly FTA) free for life. We believe that Dish TV is targeting subscribers at the bottom of pyramid for whom the high cost of STB can be negated by zero monthly charges. This will help further reduce DishTV’s churn rate as there will not be any blackout due to non-payment of monthly subscription fees. We do not expect any significant pressure on ARPU since most Indian viewers are habituated to watching pay channels. We continue to remain positive on Dish TV and expect it to be the key beneficiary of digitization and recent INR appreciation. Maintain ‘BUY’.

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25 September 2012

Annual Report Analysis - Dish TV:: Edelweiss PDF link

Dish TV’s FY12 annual report highlights reduced losses for the year which led to higher cash profits (w/o considering cost of set top boxes). Reduced capex due to lower gross subscriber addition led to better FCF. Customer churn rate was on an uptick which may lead to higher w/offs of CPEs while debt analysis indicates financing of capex requirements largely through short-term buyer’s credit which is low coupon but carries the forex risk. Adjusted net debt surged from INR7.9bn in FY11 to INR9.6bn in FY12. Provision for regulatory dues is up at INR4.9bn.

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04 September 2012

Dish TV India - Leading by innovation; visit note; Buy:: Edelweiss, PDF link

Dish TV India (DITV IN, INR 66, Buy)

We recently met Mr. R. C. Venkateish, CEO, and Mr. Rajeev Dalmia, CFO, Dish TV. The company expects its innovative SD-DVR offering and aggressive advertising to address concerns of slowdown post the price hike on July 1. Subscriber additions in Q2FY13 so far have been in line with Q1FY13. Management expects FY13E exit ARPU to be in the INR162-165 range. With the government again remaining firm on Phase 1 deadline and 60% inter-connect agreements in place, we expect the digitisation process to speed up considerably over the coming two months. We continue to remain positive on Dish TV and expect it to be one of the major beneficiaries of the digitisation process. Maintain ‘BUY’.

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26 August 2012

DishTV: FY2012 annual report analysis: balancing act:: Kotak Sec, PDF link

DishTV: FY2012 annual report analysis: balancing act
` FY2012 annual report analysis: negative FCF, but this is a moot point going
forward
` Balancing act: focus on FCF (given large debt) at the cost of some growth
opportunity

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