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Research
Den Networks Limited - Strong start for the year - Antique Stock Broking
Posted On : 2012-08-21 20:45:30( TIMEZONE : IST )
Strong margin expansion
Consolidated revenues for 1QFY13 stood at INR1,943m led by growth in its cable business where revenues stood at INR1,846m (+2.3% QoQ). EBITDA for the cable business grew 27% QoQ to INR412m led by lower advertisement spends and non recurrence of one off costs during the quarter. Cable business EBITDA margin expanded 481bps QoQ to 22.3% which is likely to sustain. Den changed its accounting policy for recognition of Media Pro revenues from gross to net basis during the quarter. Consequently reported margins (including Media Pro) expanded from 9.5% to 21.4% on QoQ basis.
Digital implementation improves in 1Q
During the quarter Den seeded around 0.3m digital boxes taking the number of digital subs to ~1.3m. This compares with 0.1m boxes seeded in 4Q. Den currently has around ~2m subscribers in metros of which around ~0.8m are already digital. With cash equivalents of ~INR2bn and likely estimated capex of INR2.7bn for phase I, we believe management is on track to implement the same. Den is currently offering set top boxes at INR799 to its subscribers.
Lower seeding in July; should see pick up
Ministry of Information & Broadcasting (I&B) recently released an update on implementation of digital set top box in phase I. As per I&B ministry nearly 50 percent of cable TV homes in Mumbai have installed set top boxes (STBs) currently. Mumbai has an estimated cable TV base of ~3.5m out of which ~1.7m have already installed STBs. Hathway has installed around ~0.62m STBs followed by IMCL ~0.47m STBs, Digicable ~0.25m STBs, Den ~0.14m STBs and others ~0.2m STBs. While seeding of boxes have slowed down in month of July, I&B ministry has taken couple of initiatives to ensure compliance by MSOs. This includes fortnightly meeting with MSOs to assess preparedness, creation of website to facilitate MSO to upload data on daily basis.
Valuation and outlook
Post 1Q results we have raised our FY13e and FY14e. Our FY13e assumptions factor in Phase I implementation from Oct 31' 2012 and bakes in revenues from sale of hardware (assumed only for Phase I). We have also raised our DCF led target prices to INR150 (Vs INR 142) and see an upside of 21% from current levels. Key risk - delay in implementation than assumed by us.
