Dish TV - Valuations getting stretched - HDFC Securities

Dish TV's 1QFY13 result was above estimates due to lower opex. We see operating costs growing faster than revenues for the rest of FY13 as content cost renegotiation and higher ad spends kick in, leading to margin pressure (post an expansion of 543bps in two quarters). Recent increase in entry cost and recharge pack is positive from business perspective, although in near term could affect subscriber additions. Valuations look stretched at 13.7x FY13E and 11.1x FY14E on ev/e basis. Reiterate Underperform.

- DITV's share price is up 19% in past three month led by recent tariff rise of Rs 20 across recharge packs (+10%), increase in entry cost by Rs 200 and better than expected 1QFY13 result.

- Price increase is positive from business perspective as would reduce subscriber acquisition cost and reduce the break-even period per subscriber; but impact the subscriber additions in the near term. Increase in recharge pack prices would take atleast two quarters to reflect in ARPU improvement.

- EBITDA margin in 1QFY13 was at all time high 29.9% (+244bps QoQ) due to lower operating cost (down 4.2% QoQ). However, with content cost renegotiation (+15% YoY) in the pipe (plus higher ad spend due to digitization), operating cost can outpace revenue growth for the rest of FY13.

- Business outlook remains positive for Dish TV, with digitization providing opportunity for higher subscriber additions and scope for ARPU growth. These are factored into our nos. DITV's valuations look stretched at 13.7x and 11.1x FY13E and FY14E EV/EBITDA. Reiterate UPF with DCF based TP of Rs 65.

Source : Equity Bulls

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