Dish TV - Digitization benefit to come in H2FY13 - Centrum

Dish TV posted Q2FY13 in line with our expectations with sales at Rs5333mn on the back of Rs3 QoQ ARPU improvement, 0.47mn gross subscriber addition and reduction in churn level. Benefits of recent hikes in package prices and addition of new packages and subscribers on the back of digitization will accrue in H2FY13. Maintain BUY rating on the stock.

- Results in-line with expectations: Dish TV posted 10.6% YoY in revenues to Rs5333mn on the back of 0.47mn gross subscriber addition coupled with increase in ARPU. Operating revenue was up by 27.5% YoY to Rs1553mn on the back of 99bps operating margin expansion due to lower than expected programming cost. Change in accounting policy for exchange difference for foreign currency borrowings to the tune to Rs764mn boosted profitability while the adjusted loss was at Rs323mn.

Strong operating matrix: The company posted a strong Rs3 increment in ARPU on QoQ basis on the back of price hike taken in the month of July. We believe the ARPU increase could be higher in the H2FY13. Churn rate was lower at ~0.9% during the quarter as the entry level price point has been raised. During the quarter the company added 0.47mn gross subscribers while the net subscriber addition was 0.2mn taking the total subscriber base to 10mn. We believe the subscriber addition was subdued and we expect the boost to happen in Q3FY13 on the back of digitization in metros.

- Margin expansion to sustain: Dish TV posted 99bps YoY margin expansion on the back of lower sequential content cost as the company re-negotiated the contract with a sports broadcaster to change from fix pay to per sub model. Programming cost is expected to increase by 13-15% YoY as the contract with MediaPro is expected to get re-negotiated in Q3FY13. 22% increase in advertising cost on YoY basis and 20%YoY increase in admin expenses muted margin expansion. The management continues to guide for Rs1.2bn advertisement expenses and believes that as the digitization date nears, promotions will increase. We believe going forward these margins are sustainable and have modeled 29.9% margins for FY13E.

- Digitization to benefit: During the quarter the company did not benefit from digitization and the management believes that its benefit would be in Q3FY13 as subscribers tend to migrate only after the signal is cut and the company is seeing traction from the month of October.

- Other highlights: The company has taken a board approval to raise $200mn through preferential issue of shares for growth through digitization. It also plans to invest Rs700mn in its Sri Lankan subsidiary to start operations in that market.

- Maintain BUY: The stock currently trades at 13.1x and 9.6x FY13E and FY14E EV/EBIDTA. We value the stock at 11x FY14E EV/EBIDTA and arrive at a target price of Rs90 (previous target price 81) and maintain our BUY rating on the stock.

Source : Equity Bulls

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