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Sending the right signals

Source : BUSINESS_STANDARD
Last Updated: Wed, Sep 05, 2012 19:37 hrs

Dish TV India Ltd’s scrip was up over six per cent on Tuesday after a series of analyst upgrades on the back of twin price hikes over the last year and better prospects of strong subscriber growth on mandatory digitisation. After hiking prices in November 2011, Dish TV has hiked prices in July which indicates the company’s focus on profitability. These moves are also likely to improve average revenue per user (or Arpu), a key operational metric, from Rs 156 now to Rs 160-164 at the end of FY13. Further, analysts expect digitisation to help the company grow its subscriber base by 12-14 per cent over FY12-FY15.

Over the same period, driven by mandatory digitisation, rate increase and economies of scale, the company is likely to report revenue and Ebitda (earnings before interest, taxes, depreciation and amortisation, or operating profit) growth of 19 per cent and 29 per cent, respectively, says BNP Paribas analyst Kunal Vora in a recent report. In addition to business positives, the buy call from the analysts was on the back of a 13 per cent fall in the stock price during the second half of August which had made valuations attractive. At Rs 70.45, the stock trades at 14 times FY13 enterprise value/Ebitda versus 12-18 times in the last three years. Most research houses peg their target prices ranging from Rs 78 to Rs 90.

Easing concerns
Given the competitive intensity in the seven-player market, there were concerns of stagnant or declining Arpu, higher churn and cost of customer acquisition. However, the two price hikes on service packs and increase in price of set-top box have eased analyst concerns. Vora says higher (set-top) box price and digitisation would lead to higher exit cost (for customers)/lower churn and thus reduce long-term capital expenditure (capex) requirement. Analysts expect churn rates (1.05 per cent in the June quarter) to continue to decline (below one per cent) for the rest of FY13. The reasons among others according to JP Morgan analysts are higher set-top box prices and an increase in focus on quality of subscribers.
 

ON THE RIGHT TRACK
In Rs crore FY11 FY12 FY13E
Net sales  1,436.00 1,957.00 2,290.00
% change y-o-y 32.4 36.3 17.0
Ebitda  238.0 496.0 632.0
% change y-o-y 113.2 108.4 27.5
Net profit  -192.0 -133.0 11.0
% change y-o-y NA -30.7 LTP
E: Estimates
LTP : Loss to Profit
Source: Edelweiss Securities

New products
The company has been introducing innovative products such as Dish+ which allow users to record unlimited TV content on a standard definition (SD) set-top box at Rs 1,690. The closest competition is offering the high definition (HD) version, which costs Rs 6,000. In addition to this facility, which is offered at an Rs 100 premium over the regular box, the company also has a high definition DVR (digital video recorder) as well as an increasing portfolio of high definition channels. Aggressive pricing (just Rs 100 higher than the SD box, which does not have any recording facility) has helped Dish TV ramp up subscribers considerably in spite of the price hike, say Edelweiss Research analysts.

Outlook
On the back of high capex, Dish TV has been reporting negative free cash flow (FCF) in FY11 and FY12 to the tune of Rs 650 crore and Rs 180 crore, respectively. Dish TV’s FCF turned positive on the back of higher margins and slowing subscriber additions. Direct-to-home operators like Dish TV subsidise the set-top boxes to bring down the initial cost for users. This means subscriber acquisition costs at Rs 2,200 are about 15 times their monthly Arpu of Rs 150. However, given the rise in set-top box prices and service packs amid reducing competitive conditions (multi-system operators have also hiked installation prices) as well as improved margins, the company reported FCF of Rs 40 crore in the June quarter. This, coupled with value-added services (HD, video-on-demand), is likely to help improve Arpus further, feel analysts.




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