Dish TV India Limited - Focus on ARPU, FCF to help rerate the stock - Antique

Dish TV 4Q results missed our estimates on ARPU and EBITDA. While quarter was a bit disappointing, we believe company focus on improving ARPUs, reducing churn and adding quality subscriber base should help increase FCF for the company. Subscriber acquisition cost was down 9% QoQ to INR1996 and likely to decline by further 10% over next two quarters. Churn declined to 0.8% the lowest in last 2-3 years. Adjusted ARPUs were flattish and likely to trend up given recent 10% hike in prices (including Southern Market). Overall expect strong FY14 with meaningful improvement in EBITDA margins and FCF.

While subscriber growth could moderate, cash flows and profitability clearly likely to improve going forward. We believe Phase III/ IV with nearly ~50mn subs does provide a good opportunity for Dish to improve its penetration levels. Retain BUY, with DCF led target prices of INR 90.

4Q... revenues lower than expected

Subscription revenues stood at INR5bn up 15% YoY and 5% lower than our estimates. EBITDA stood at 22%, 60bps lower than our estimate and helped by lower content cost. Net loss stood at INR437mn, vs our estimates of loss of INR662m and led by lower depreciation expenses.

ARPU lower than expected; likely to trend up

ARPU during the quarter stood at INR157, down 2% QoQ vs. our estimate of INR163 for the quarter. Management attributed decline to lower number of days (90 vs. 92 in 3Q) and down gradation of schemes by subscribers. However company took 10% price hikes in April 2013 for all markets including south and expect ARPU to trend up during FY14. ARPU likely to expand to INR167 during FY14E vs. INR 158 in FY13E, implying a strong exit for 4Q FY14E. Churn rates stood at 0.8% vs. 1% in previous quarter and continues to trend down.

Focus on profitability, FCF augurs well for the stock

Over last few quarters Dish TV has taken multiple steps to improve profitability for the company and the industry. Package prices were increased by 11% in July 2012 and 10%in April 2013, which should help improve ARPUs. Company has increased prices of set top boxes by INR600 over last 6 months, leading to lower subsidy and lower cost of subscriber acquisition. SAC cost is down 9% QoQ and likely to decline by 10-15% over next 1-2 quarter. Management indicated that it intends to reduce subsidy on set top boxes to nil over the next 15-18 months which will help drive FCF aggressively.

Valuations & Outlook

Our target price of INR90 is based on DCF and factors in ARPU expansion of 6% CAGR, gross sub adds of 2.3m pa and long-term churn of ~10%. Our target price implies EV/ EBITDA of 14x, in line with current valuations. Reiterate BUY.

Source : Equity Bulls

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