Den Networks - On course - Q3FY12 Update - Buy, TP INR130, Upside: 33% - Elara

B>On course

Consolidated revenues low on lower stake in distribution JV

Den Networks reported 5% YoY growth in its consolidated revenues for Q3FY12, driven by a robust 19% YoY growth in its cable business and a 10% YoY fall in its distribution JV Star:Den (now Media Pro). The fall in revenues from the JV was due to Den Networks now consolidating effectively 25% of the revenues of Media Pro, in-line with its effective stake in the entity. As the distribution JV is more of a pass through entity only, profitability of the company didn't got hit and was largely in-line with estimates.

Den readies for the imminent digitization

With mandatory digitization in place, Den Network management has imported ~400,000 set top boxes and has tied up supplies of 2.5 million more set top boxes. To create awareness about its offering among consumers and local cable operators, it has launched an ad campaign about its digital offerings in all the tree metros, on all the media platforms. Further, in association with its peer Hathway Cable, it also ran an awareness campaign among consumers about the analog switch off date and the price of the set top box on offer (INR699). It has set up a toll free call center for consumer queries and has started training local cable operators on how to interact with the consumer for the need of a set top box.

Valuation – maintain 'Buy'

Den Networks stock price has found a renewed life post mandatory digitization bill getting approved in the parliament, rising 39% during the last 3 months, We believe there are further upsides to be had purely from the consolidation theme playing out in the cable space, with an option to participate aggressively in the impending digitization of the cable networks. We maintain our 'Buy' recommendation on the stock, with a DCF based target price of INR130.

Source : Equity Bulls

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