Den Networks - Strong performance - ElaraCapital

Cable business sustains robust performance- up 43% YoY

Den Networks' reported ahead of estimates results for Q4FY13, led by robust traction in cable business (revenues, EBITDA, up 43% and 146% YoY) on revenues from set top box sale. It added 1.1mn subscribers during Q4FY13, taking its digital subscriber base to 5mn, with 2mn coming from phase 1 markets. The quarter saw billing for only ~60% of subscriber base in phase 1 markets at ARPU of INR52 which the management expects to take it up to 100% by Q3FY14E. We note that the robust FY13 cable business performance was driven more by the activation revenues, and FY14E growth momentum is likely to be driven by rise in subscription revenues, starting Q1FY14E itself.

Significant value creation to commence from FY14E

We note that while the process of monetizing the subscriber base may not be straightforward, the first step in value creation, i.e. seeding set top boxes is complete. Den holds 5mn digital subscribers currently, and expects to take it upto 11mn by FY15E once phase III commences. The subscription revenue potential for Den, post phase III and IV stands at ~INR9bn (assuming net ARPU at INR70), which is ~3x from its current subscription revenues, highlighting the significant value creation yet to happen for the company. We continue to expect ~20% revenue and ~30% EBITDA CAGR for Den over the next two years, assuming only partial success in monetizing its digital subscriber base.

Valuation - maintain positive stance

With revenues from phase 2 markets to commence from Q1FY14Eonwards, we believe that Den Networks' stock price is due for a further re-rating as till now, the value creation potential from digitization remains only partially built in the current valuations. Post phase II and revenue growth scale-up on gross billing from Q3FY14E, we expect valuations to gain further premium. We maintain our positive stance on the stock price and raise target price to INR270.

Source : Equity Bulls

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