INVESTMENT RESEARCH FUNDAMENTAL COVERAGE - DISH TV INDIA LIMITED Rudra Shares & Stock Brokers Ltd Dated : 01/07/2015 BUY Investment Rationale Business Profile:- The company regained its market share in FY15, which it had ceded the year Price` 105.9 before. Dish TV reported a robust set of numbers during the fourth quarter. Fair Value 152.78 Zing Digital, new addition of Dish TV, and high definition (HD) together contributed to it higher Upside 44% margins. Sustainable output growth in cable business along with pricing power helped the company Div Yield 0.0% to grow their profits to a certain level. The company expects margins to improve by 250 to 300 basis Tenure 1 Year points over the next 18-20 months. There is a potential margin improvement due to GST and the Sensex 28020.87 new license fee regime which is likely to come, but 250-300 basis points over the next 12-18 months Nifty 8453.05 without any external stimuli is certainly feasible. Dish TV achieved a strong, sector leading, Group/Index A/S&PBSE 200 subscriber growth of 1.5 million net subscribers during the year. Also, it is expected that the company's subscriber base would increase by 1.7 million this year to 14.6 million. The Company has an average ARPU of `177 for the year ended FY15. Whereas, the ARPU of quarter ended march was 183 (considering 28 days for feb month). It shows the sharp increase in ARPU due to new launch as well as companies pricing power for their quality services. Currently it is providing 425+ channels and services, [6] interactive TV and movies on demand. It shows the maximum number of HD channels (42). It Added 4.04 lakh subscribers during the quarter, reaching 12.9 million net at the end of the quarter and year ended March 31, 2015. Stock Details M.cap (in cr) 10848.90 Equity (In cr) 106.60 52 wk H/L` 117.25/52.25 Margin improvement led by operating leverage :- EBIDTA margin of the company should improve Face Value ` 1 going forward due to higher ARPU, moderate increase in content cost and lower license fee, once NSE code DISHTV TRAI recommendation of 8% of adjusted gross revenue is implemented. This will lower effective BSE code 532839 license fee to ~7.5% from current 10% of gross revenue. EBIDTA margin, post implementation GST and TRAI recommendation on license fee, should improve to ~35%. Dish TV currently pays cumulative tax of ~22% (Service tax - 14% and Entertainment tax -~8%) on its services. Post GST, this should comedown below 20%. Key Valuation Ratios RONW -1% Q4 & FY 14-15 Results :- Dish TV swings to Profit for Q4 and full year FY2015- first for any DTH P/E 3593.9 company in INDIA. P/BV (36.02) Profit after Tax (PAT) for the quarter ending March,2015 turned positive at `350 million as ROI 7.6% compared to a loss of `1,490 million in Q4 ,FY 2014 ,resulting in Free Cash Flow (FCF) of ` 702 EV/EBIDTA 13.1 million for the quarter. Churn for the quarter was maintained at 0.7% per month. The Standalone subscription revenues increased to `6,828 million( up 24.4%) in the current Quarter (Q4,FY2015). EBITDA for the quarter ending 2015 stood at `2,219 million(up by a solid 72.10%) compared to `1,289 million in the previous quarter i.e. FY2014. Operating revenues stood at `7,547 million in Q4,2015 (up 18.5%) as compared to `6369 million in Q4,2014. ARPU for Q4,2015 was `179 as Key Financial Data (IN `) compared to ` 177 for the prior quarter Q3,2015 despite the impact of 2 lesser days in Q4 vs. Q3 EV (in cr) 10468.20 FY15 (90 revenue days vs 92). ` ` BV (in cr) (2.94) Net profit for the year FY2014-15 stood at 31 million as compared to a loss of 1,576 million in the FY2013-14. Consolidated Operating revenues for FY15 stood at ` 27,816 million recording 10.9% NW(in cr) (313.38) growth as compared to `25,090 million during FY2013-14. Consolidated EBITDA for FY15 increased EPS (TTM) 0.029 17.5% to `7,331 million in the FY2015 as compared to `6240 million in the FY2014.
Share Holding Pattern % Quarter & Financial Results Other's Particulars Quarterly Results(Q4) Consolidated Annual Results 15.2% (` in Million) 2015 2014 % Change 2015 2014 % Change Bodies Operating Revenues 7,547.00 6,369.00 18.50% 27,816.00 25,090.00 10.90% Corp, 3.80% EBITDA 2,219.00 1,289.00 72.10% 7,331.00 6,240.00 17.50% Net Profit 350.00 (1,490.00) - 31.00 (1,576.00) - DII, 3 .73% Promot Dish TV Lanka-This is a new challenge upheld by Dish TV to inaugurate satellite television services in FII, 1 ers, 2.82 Sri-Lanka mostly to compete with the island's main Satellite TV provider, "Dialog TV", which holds 64.46% nearly a 250,000 subscriber base in Sri-Lanka.The company commenced its operations in the region from the 27th of March 2015.
1 www.rudra.ooo Many Firsts to its Credit P/L Structure- FY2015 First DTH in India. Revenue First to negotiate content on a fixed fee basis. First to launch Live TV for moving vehicles. Subscription First to achieve operational break-even in the DTH industry. 91% Revenue First to launch High Definition(HD). First to offer unlimited recording. Box Rent 3% First to be FCF positive. Bandwidth income 3% First to launch online TV for DTH viewers –‘Dish Online’ Advertising income 2% First to launch a sub-brand targeting regional language markets–‘Zing’ Other income 1% Expenses 3 HIGH DEFINATION (HD) ADD-ONS Programming and Dish TV Tata sky videocon d2h 27.56% other cost Sports Channels Super Family + Game on DhamalMix + HD Super Gold + HD Access
Employee benefit HD Rs.375 Access Fee Rs.355 Fee Rs.356 4% Expenses Star Sports HD1 License Fees 10% Star Sports HD2 Selling & distribution Sony Six HD 16% Expenses Ten HD Other operating costs 11% Therefore, as evident from above, Dish TV Provides the HD channels at remarkable Prices, giving Other expenses 4% benefit to its viewers. It has launched 3 HD channels. We can see that Dish TV provides packages at just `375,which though higher in amount from those provided by Tata Sky and Videocon D2h , but provides greater facilities, as seen that the other brands do not provide the same package, even at EBITDA 26.36% an equivalent price paid by its customers. Source :- Company presentation
Key Highlights Distribution Industry- DTH It is 100% Digital Owns last mile subscribers Subscription driven top-line Fully prepaid, no bad debts DTH contributes ~ 60% of the broadcaster’s domestic subscription revenue Fully tax compliant Heavily taxed: • License fees –8% AGR instead of 10% GR (TRAI recommendations on issues related to new DTH licenses). •Entertainment tax & Service tax -likely to be subsumed post rollout of GST
Market Share Outlook & Valuation Sun Through this milestone to the next and thereafter, Dish TV remains committed to outperform the Airtel Big Tv Tata Direct industry growth rate and create shareholder value while continuing to entertain its subscribers with Digital 2% Sky 8% 20% 23% rich content and compelling value added services using updated modes of delivery.” Dish TV has: Average ARPU of `179, Churn at 0.7% per month The company has the highest transponder capacity and maximum tie ups. It has the maximum Video number of HD Channels with widest dealer distribution Network. we believe that strong subscriber con Dish D2h Tv addition, higher ARPU and lower content cost will help Dish TV to report strong growth in earnings. 20% 27% Also, with the implementation of GST, the tax burden would reduce from 22%( currently) to 20% and even below, in years to come. DTH continues to expand in India as well as globally. In India its market share is ~27% in FY15 which is expected to increase in future. Globally its share is expected to increase from 23% in 2014 to 26% in 2020P.
Corporate Governance Transparency Ratio's VALUATION (` In Cr except per share) Year End 201503 201403 201303 201203 FY 18Est. EBIDTA 1266.20 Tax Rate % 0.0 0.0 0.0 0.0 EV (15 x of EBIDTA) 18993.00 Receivable days 6.91 6.75 5.09 4.73 Est. Net Debt 1084.89 Dividend Payout % - - - - Market Cap Est. 17908.11 Share Holding Trend % No. of Shares 106.56 Quarter End 201503 201412 201409 201406 Present Value(Discount rate 10%) 16280.10 Promoters HLD % 64.46 64.50 64.50 64.50 Fair value/share 152.78 FII HLD % 12.82 13.14 11.86 11.11 DII HLD % 3.73 3.48 3.11 2.33 2 www.rudra.ooo The Sub Brand of Dish TV
Has Contributed ~22% of the net incremental addition to profits.(FY2014-15) Regional first; regional language channels , regional look and feel Regional first national second; unlike mainstream brands Customized regional content in digital picture quality and stereophonic sound Value for money offering; Digital quality picture at cable price Healthy gross margin After successful launch in seven states, Zing introduced in ‘Tamil Nadu
Company Overview Dish TV is Asia Pacific’s largest direct-to-home (DTH) company and part of one of India’s biggest media conglomerate – the ‘Zee’ Group. Dish TV is enabling millions of customers With world class TV viewing experience while providing innovative products and value added services. Dish TV has on its platform more than 490 channels & services including 22 audio channels and over 43 HD channels & 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 climate. The company also acquired transponders on the Asia sat 5 platform and recently on the SES-8 platform which increased its total bandwidth capacity to 720 MHZ, the largest held by any DTH player in the country. The Company has a vast distribution network of over 2,168 distributors & over 1,93,600 dealers that span across 8,736 towns in the country. Dish TV customers are serviced by thirteen 24* 7 call centers catering to 11 different languages to take care of subscriber requirement at any point of time.
Future Investments & Acquisitions Dish TV recently transferred its non-core business (including set-top boxes, dish antenna and related services) to its wholly owned subsidiary viz. Dish Infra Services Private Limited (formerly known as Xing media Distribution Private Limited) on April 1, 2015 on a going concern basis. The company has clarified that it will be reporting consolidated quarterly financials going forward.
Swot Analysis Strengths (a) It has better picture/ sound quality and better customer service, (b) 100% prepaid and therefore, has less receivable days and high payable days (c ) Has penetration potential (d) The growing middle class with higher disposable income (e) Technological innovations like online distribution channels, introduction of new channels(HD), offer unlimited recording, first to launch Live TV for moving vehicles. (f) consumer connectivity and door step availability of the product.
Weakness (a) Multiple taxation continues to be an area of concern for the entire DTH sector. (b) With most brands ramping up their products in both hardware and software offerings, product differentiation has become increasingly challenging, giving rise to a parity situation among all brands.
Opportunity (a) The changing consumer attitudes of today’s discerning consumers and increase in spending patterns, specially towards embracing new technology products, presents an opportunity for adoption of new formats such as recorders and hi-definition. (b)The incidence of Multiple TV sets in the same home is now a common phenomena. This expands the potential for market for multiple subscriptions per household and opportunity for stickiness for the same brand as well as upside in ARPU.
Threats (a) cable operators scramble to acquire customers by reducing entry prices and/or undercutting monthly subscription prices, thus pose a threat. (b) 4G is making an appearance in the near future, and the clubbed offering of voice, data and video holds the potential of competing in the DTH landscape. (c ) High incidence of taxation and regulatory intervention will continue restricting the growth and profitability of the DTH sector. 3 www.rudra.ooo Income Statement and Estimates ( ` in Cr except per share) Particulars 201203 201303 201403 201503 2016E 2017E 2018E Sales from Subscribers 1957.69 2164.47 2499.04 2773.20 3472.98 3883.37 4271.40 Other Operating Income 0.24 2.33 9.93 8.44 9.28 10.21 11.23 Other Income 89.99 110.58 64.89 63.50 77.47 94.51 115.31 Total Sales 2,047.92 2,277.38 2,573.86 2,845.14 3,559.73 3,988.10 4,397.94 EBITA 64.13 62.42 (24.81) 182.77 475.15 650.73 769.80
PROFIT & LOSS Total Sales 2,047.92 2,277.38 2,573.86 2,845.14 3,559.73 3,988.10 4,397.94 Raw Material Cost 4.93 7.47 7.48 5.67 7.12 9.97 10.99 Employee Expenses 74.81 82.17 89.16 101.75 142.39 159.52 175.9 Selling & Administrative Expenses 484.76 529.34 620.57 733.48 889.93 957.14 1055.51 Other Expenses 897.44 968.4 1284.1 1207.63 1423.89 1595.24 1759.18 TOTAL EXPENDITURE 1461.94 1587.38 2001.31 2048.53 2463.34 2721.88 3001.59 EBITDA 585.98 690.00 572.55 796.61 1,096.40 1,266.22 1,396.35 Depreciation (521.85) (627.58) (597.36) (613.84) (621.25) (615.49) (626.54) Reported EBITA 64.13 62.42 -24.81 182.77 475.15 650.73 769.80 Goodwill amortisation ------Reported EBIT 64.13 62.42 -24.81 182.77 475.15 650.73 769.80 Net financials Interest expenses (197.27) (128.42) (132.75) (175.41) (203.48) (159.58) (133.09) Net Financial Items (197.27) (128.42) (132.75) (175.41) (203.48) (159.58) (133.09) Reported Pre-tax profit (133.14) (66.00) (157.56) 7.36 271.67 491.15 636.72 Reported Tax charge - (0.01) (0.05) (4.22) (54.33) (98.23) (127.34) Reported Net profit (133.14) (66.01) (157.61) 3.14 217.33 392.92 509.37 Extra ordinary items - 59.44 - - - - - Reported Net Income before (133.14) (125.45) (157.61) 3.14 217.33 392.92 509.37 extra ordinary items Dividend ------Retained earnings (133.14) (66.01) (157.61) 3.14 217.33 392.92 509.37
EPS and Dividend Reported EPS (1.25) (0.62) (1.48) 0.03 2.04 3.69 4.78 DPS - originally declared ------Payout ratio ------
NUMBER OF SHARES Total Share Capital 106.36 106.48 106.5 106.56 106.56 106.56 106.56 Face Value per share 1 1 1 1 1 1 1 No. of Shares 106.36 106.48 106.5 106.56 106.56 106.56 106.56
4 www.rudra.ooo BALANCE SHEET Particulars 201203 201303 201403 201503 2016E 2017E 2018E Equity & Liabilities Shareholders' Fund Share Capital 106.36 106.48 106.5 106.56 106.56 106.56 106.56 Reserves and Surplus (200.22) (262.06) (419.10) (419.94) (202.61) 190.31 699.68 Minority Interests ------Total Shareholders' Fund (93.86) (155.58) (312.60) (313.38) (96.05) 296.87 806.24 Non-Current Liabilities Long-term Borrowings 1019.35 846.02 779.11 - - - - Other Long term Liabilities 179.84 150.42 91.82 18.26 18.26 18.26 15.20 Long term Provisions 10.52 12.74 14.19 6.56 6.56 6.56 6.56 Total Non-Current Liabilities 1,209.71 1,009.18 885.12 24.82 24.82 24.82 21.76 Current Liabilities Short term Borrowings 195.00 30.00 65.79 47.95 60.16 65.80 72.57 Trade Payables 127.49 213.8 135.68 126.8 177.99 199.40 219.90 Intt. Bearing Current Liability 706.29 1402.66 1160.07 2212.97 1712.97 1412.97 1012.97 Short term Provisions 489.35 654.7 836.12 1067.1 1335.12 1495.78 1649.49 Total current Liabilities 1518.13 2301.16 2197.66 3454.82 3286.23 3173.96 2954.93 Total Equity & Liabilities 2,633.98 3,154.76 2,770.18 3,166.26 3,215.00 3,495.65 3,782.93
Assets Non-Current Assets Fixed Assets Tangible fixed Assets 1808.76 2087.53 1779.68 1951.04 1863.75 1846.47 1879.62 Non-current Investments 150 - 150 200 200.00 200.00 200.00 Long term loans & Advances 34.8 64.62 88.11 83.88 80.00 75.00 70.00 Other Non current Assets 6.95 9.7 7.33 16.68 25.20 38.50 45.90 Total Non-Current Assets 2000.51 2161.85 2025.12 2251.60 2168.95 2159.97 2195.52 Current Assets current Investments - 278.18 50 - - - - Inventories 6.88 8.61 7.48 9.87 12.35 15.95 17.59 Trade Receivables 28.61 30.36 41.49 63.68 71.19 79.76 87.96 Cash and cash Equivalents 391.89 364.49 342.63 428.61 274.43 393.87 480.75 Short Term Loans and Advances 197.81 305.98 302.91 390.94 663.20 818.20 970.30 Other current Assets 8.28 5.29 0.55 21.56 24.92 27.92 30.79 Total current Assets 633.47 992.91 745.06 914.66 1046.09 1335.70 1587.38 Total Assets 2633.98 3154.76 2770.18 3166.26 3215.04 3495.67 3782.91
Cash and cash equivalents 392 364 343 429 274 394 481 Other interest bearing assets ------Interest-bearing debt 1,921 2,279 2,005 2,261 1,773 1,479 1,086 Net interest-bearing debt 1,529 1,914 1,662 1,832 1,499 1,085 605 Change in net debt 385 (251.85) 170 (333.61) (413.80) 1,013 Net gearing (%) (16.29) (12.30) (5.32) (5.85) (15.60) 365% 21.76%
INVESTMENTS Tangible Assets Gross capex (655.93) (698.25) (298.89) (785.20) (533.96) (598.21) (659.69) Sale of fixed Assets 52.11 0.21 0.30 - - - - Net capex (603.82) (698.04) (298.59) (785.20) (533.96) (598.21) (659.69) Depreciation Tangibles (521.85) (627.58) (597.36) (613.84) (621.25) (615.49) (626.54) Depreciation rate 25.04% 25.03% 23.93% 25.00% 25.00% 25.00%
5 www.rudra.ooo CASH FLOW ANALYSIS Particulars 201203 201303 201403 201503 2016E 2017E 2018E EBIT 64 62 (24.81) 183 475 651 770 Depreciation - property & machinery 522 628 597 614 621 615 627 Amortisation of other intangibles ------Depreciation (ex goodwill) 522 628 597 614 621 615 627 Movement in Stocks / Inventories - (1.73) 1 (2.39) (2.48) (3.60) (1.64) Movement in Debtors - (1.75) (11.13) (22.19) (7.51) (8.57) (8.20) Movement in Creditors 86 (78.12) (8.88) 51 21 20 Change in working capital - 83 (88.12) (33.46) 41 9 11 Operating Cash Flow 773 484 763 1,138 1,275 1,407 Net interest (197.27) (128.42) (132.75) (175.41) (203.48) (159.58) (133.09) Tax paid - - (0.05) (4.22) (54.33) (98.23) (127.34) Cash Earnings (197.27) 644 352 584 880 1,018 1,147 CapEx (603.82) (698.04) (298.59) (785.20) (533.96) (598.21) (659.69) Sale of fixed assets 52.1 0.2 0.3 - - - - Net CapEx (551.71) (697.83) (298.29) (785.20) (533.96) (598.21) (659.69) Free Cash Flow pre dividend (748.98) (53.43) 53.34 (201.68) 345.82 419.44 487 Dividend ------Free Cash Flow post Dividend (748.98) (53.43) 53.34 (201.68) 346 419 487 Net cashflow (748.98) (53.43) 53.34 (201.68) 346 419 487
RATIO ANALYSIS Return on assets - -4.3% -5.3% 0.1% 6.8% 11.7% 14.0% Return on equity - 100.6% 67.3% -1.0% -106.2% 391.3% 92.4% ROCE - 41.5% 69.0% -24893.5% -369.6% 383.3% 128.1%
EBIT Margin - 2.7% -1.0% 6.4% 13.3% 16.3% 17.5% Pre tax margin - -2.9% -6.1% 0.3% 7.6% 12.3% 14.5% Net Profit Margin - -5.5% -6.1% 0.1% 6.1% 9.9% 11.6%
Total asset turnover - 0.79 0.87 0.96 1.12 1.19 1.21 Fixed asset turnover - 1.17 1.33 1.53 1.87 2.15 2.36 Equity turnover - -18.26 -11.00 -9.09 -17.39 39.72 7.97
Current Ratio - 0.4 0.3 0.3 0.3 0.4 0.5 Quick Ratio - 0.4 0.5 0.3 0.3 0.5 0.5 Cash Ratio - 0.2 0.2 0.1 0.1 0.1 0.2
Receivable Days - 4.73 5.09 6.75 6.91 6.91 6.96 Inventory Days - 1.78 1.47 1.55 1.65 1.90 2.04 Payable Days - 39.20 31.89 23.36 22.56 25.27 25.48 Conversion Cycle (Days) - -32.69 -25.33 -15.06 -14.00 -16.46 -16.48
Financial Leverage Effect - -5.5 -3.6 253.7 5.0 3.2 2.7 Debt to Capital - 1.1 1.2 1.2 1.1 0.8 0.6 Debt to Equity - -14.6 -6.4 -7.2 -18.5 5.0 1.3
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