DISH TV INDIA LIMITED BSE: 543639 | Sector: MEDIA – DTH
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18th Oct 2015 DISH TV INDIA LIMITED BSE: 543639 | Sector: MEDIA – DTH View - BUY CMP : Rs. 106.75 Target Price: Rs. 208 BUSINESS BACKGROUND KEYFACE DATA VALUE Rs 1.00 Dish TV is India’s largest direct-to-home (DTH) company and part of the country’s DIVD YIELD % NA biggest media conglomerate the ZEE Group. As of December 31, 2014, net subscriber base was at 13.3mn. Dish TV has on its platform more than 470 channels 52 WK HI/LOW 122/53 and services. It uses the NSS-6 satellite platform which is unique in the Indian subcontinent owing to its automated power control and contoured beam which makes it suitable for use in ITU K and N rain zones ideally suited for India’s tropical NSE CODE DISHTV climate. Dish TV also has a vast distribution network of more than 2,080 distributors and 185,000 dealers spanning 8,736 towns in the country. It has six 24*7 call BSE CODE DISHYV centres catering to 11 different languages to take care of subscriber requirements at any point of time. MARKET CAP RS 11376 CRS INVESTMENT HIGHLIGHTS Strong improvement in Q1 FY16 Performance – SHAREHOLDING PATTERN On a cumulative basis,Dish TV’s net subscriber base stands at 13.33 mn. Incremental HD subscriber additions (of total additions) surged to 17% (15% in PROMOTERS - 65% Q1FY15). Operating revenues of Rs. 736.7 crs recorded a growth of 19.2% over the corresponding quarter last fiscal BANKS, MFs & DIIs - 5% Post consolidation, Average Revenue per User (ARPU) at Rs. 173 vs. Rs. 172 FIIs - 23% (like -to-like) in Q4 FY15. ARPU however would have been Rs. 180, as compared to Rs. 179 in Q4 FY15, without the effect of consolidation. EBITDA of PUBLIC - 7% Rs. 2,368 million higher by a significant 51.3% over the corresponding quarter last fiscal. EBITDA margin at an all-time high of 32.1%. The PAT on KEY FUNDAMENTALS consolidated basis stood atv Rs 54.2 crs as compared to a loss of Rs 15 crs in YE FY16 FY17 FY18 Q1 last year. vScore: vScore (Value Score) is our proprietary company rating system f Strong subscriber addition to continue Rev Gr% 11 12 15 Dish TV added 0.39mn net subscribers in Q1FY16 and management remains PBT Gr% 50 35 confident of achieving their guidance of 1.5-1.7mn net adds in FY16. Churn from digital cable and strong additions on Zing are driving net adds. Competition is PAT Gr% 50 35 yet to replicate product offering like Zing. Further digitization of Phase III in FY16 to give additional boost to subscriber additions EPS Gr% 50 35 Currently, Zing contributes 20-22% of overall subscriber additions. We maintain Roe % 247 85 our net subscriber addition estimate of 1.6/1mn subscriber for FY16/17. Management believes that post digitization also, there is scope to add 1mn net RoCE % 17 19 20 subscribers over the next couple of years Precise Advice Assured… EPS (Rs) 2.57 3.85 5.21 ARPU growth aided by package price hikes – EV/EBIDTA(x) 11 10 8 Management maintains guidance of 6% ARPU growth in FY16. The company has already initiated two package price hikes in current fiscal. Starting August 2015, Dish TV has increased package price by 4% for both - normal and differential pricing packages (DAS areas). HD add-on prices were also increased by 5-7%. Zing package prices were unchanged. ARPU growth in FY16 will be driven by 1) routine annual hike and 2) differential pricing for DAS areas. We expect a ARPU CAGR estimate of 4% over FY15-17E Zing ropes in Tamil Nadu, more states to be added in future – Dish TV’s sub brand Zing has ventured into Tamil Nadu, after West Bengal, Maharashtra, Andhra Pradesh, Telangana, Odisha and Tripura. It has introduced 4 packages in Tamil Nadu with base pack Vanakkam at INR99 with 21 Tamil channels. Other packs are Vanakkam+ Tamil Brahmandam, Anandham and Kondattam priced at RS 139, Rs 220 and Rs 350 (including taxes), respectively. Vanakkam+ Tamil pack will have Tamil entertainment channels besides the 21 channels offered in base pack. Hindi + English Movies + Sports + Others channels will be offered in Anandham pack. Kondattam being the highest pay pack will offer complete Hindi + English GEC + Lifestyle channels. In Tamil Nadu, Zing digital settop box is available for Rs 1,099 Long Term Potential of DTH Market in India looks very strong – DTH industry has come a long way in the last ten years. It all began on October 2, 2003 when Dish TV, the first company to launch DTH television services, decided to tread slowly. Instead of taking on cable operators head-on in metros and cities, where most subscribers were, Dish TV decided to focus on rural markets, remote areas and the outskirts of some cities where cable network wasn't available or very poor. Ten years later, with a little over 37 million customers and 23% of TV households, DTH has successfully challenged the might of cable television with superior quality of broadcasting and a clear technological edge. And, they have provided the much needed revenue for broadcasters (half of their subscription revenues), enabling them to reinvest and expand their channels and offer better programming. DTH is adding about 8.5 million customers a year, four times more than cable additions. Media Partners Asia (MPA), the Hong Kong-based consultancy, says by 2020, 42% of TV homes will be on DTH. With DTH now taking digital cable operators head-on after a digital addressable system (DAS) has been implemented in 42 cities, the competition will become even fiercer. DTH unknowingly also played a key role in helping the government to push through DAS, despite stiff resistance from hundreds of thousands of small cable operators. Under DAS, the government had set deadlines for conversion of analog to digital, which began with the four metros. This would bring transparency for multi-system operators (MSOs) and broadcasters, who'd know how many paying subscribers they actually have. Earlier, local cable operators under-reported the subscriber base so that they did not have to share the subscription fee with broadcasters and MSOs. Going ahead India’s DTH pay-TV sector is expected to generate revenues of $ 4.04 billion by 2018, a CAGR of 19% from $ 1.71 billion in 2014 and by 2023 the sector will generate revenues of $ 5.6 billion. Digital TV (DTV) has started to gain widespread acceptance across consumer households in India, driven largely by the growth of DTH satellite pay-TV platforms. Data from MPA indicates that DTV penetration, including digital cable and digital free and pay DTH platforms, has grown from less than 1 per cent in 2006 to 46 per cent as of 31 December 2013. Presently out of the six DTH players Dish Tv continues to be the market leader with a market share of over 30%, followed by Tata Sky at around 20% and Airtel at around 15% with the rest 35% spread between the other market players. More importantly this is a perpetuity business model. Once you have a cable connection in your house you don’t end up withdrawing it or removing it. The ARPU that Dish TV generates right now is about Rs 170-180. A cable TV connection does not cost less than Rs 300-350 minimum. So, the ARPU can only go up. In terms of the opportunity a lot of digitisation will now happen in the tier II towns and all of those places. Putting physical wire there is difficult. Dish TV specialises in the rural, semi-urban areas. So, the opportunity for Dish TV as compared to other players is far higher. GST is the next catalyst for DTH Players including Dish TV – Most DTH operators believe that they may be able to pass part of the current entertainment tax of 7-8% to consumers after implementation of GST (Goods and Services tax) as it will rationalize the tax regime. Also a part of the tax may be subsumed under GST, as per these companies. We yet await clarity on GST before quantifying the impact for Dish TV but the implementation of GST from April 2016 will have a significant positive impact on the operating profitability of all DTH players including Dish TV. Dishflix- A premium offering Dish TV recently launched push video-on-demand (VOD) service for Dish TV subscribers (not applicable for Zing subscribers). The new service, DishFlix, enables to watch advertisement free movies and TV shows at the click of a button. The company is testing market with the current price of the box, if need arise they would reduce the cost of the box for subscriber by foregoing margin that is currently earned. It is not going to subsidize Dishflix box. New service is launched to counter the threat from OTT players and broadband service providers, but high cost of the box could be detrimental. Dish TV has been the first mover in the industry with innovation and yet again, it has proven itself with this new service offering. In our view, this service is targeted to attract high ARPU subscribers and to add value to existing HD subscribers to retain them on network. Content hungry subscribers in metros and other large cities would be attracted towards this offering of Dish TV. Business Outlook & Stock Valuation Dish TV offers the best way to play the digitization theme in India, in our view. The company is at a critical inflection point in terms of turning net profit positive over the next couple of quarters.