Dish TV - Results broadly in line with expectations; Hold - Anand Rathi

Steady revenue growth. Dish TV's standalone revenues in 2Q FY14 were up 11% yoy (similar to growth seen in 1Q) and just a shade (1.4%) below our estimate. Net subscriber additions were lower, at 0.16m (versus 1Q additions and our 2Qe of 0.2m), hit by the hike in STB charges. ARPU, at Rs. 165, was flat qoq (vs our estimate of Rs. 167). As a result subscription revenue (up 13.6 yoy) was 2.5% less than we estimated. Management is confident of 1m subscriber additions (despite only 0.35m in 1H) on seasonal uptake and promotional initiatives lined up in 2H.

EBITDA margin normalized. In the last five quarters the EBITDA margin has been volatile due to lumpiness in content-charges paid. The 2Q EBITDA margin of 25% (up 390bps qoq, down 620bps yoy) reflects true underlying profitability. EBITDA was down 11% yoy (up 22% qoq) and 1.9% below our estimate.

Operations turn FCF-positive. In 1H the company generated cash profit of Rs. 1.2bn and is expected to generate Rs. 1.5bn more in 2H. On the lower subscriber growth and churn levels, capex declined. The company is using FCFs and cash on its balance sheet to repay debt. (It has already repaid Rs. 2.4bn in 1H and plans to repay US$90m in 2H. Management expects to exit FY14 with Rs. 7bn net debt (vs Rs. 10bn in Mar '13)

Revising estimates. The weak trend in subscription revenue leads us to cut our revenue/EBITDA estimates slightly. Also, we have cut our capex assumptions (lower subscriber growth, churn.

Our take. On the revision in earnings, our target is a snippet down, from Rs. 57 (9x FY15e EV/EBITDA) to Rs. 55 (9x). The FCF turnaround and valuation cushion (one-year-forward EV/EBITDA at 9x vs the average of 12x for the past one year) are positive. However, we look ahead for revenue buoyancy (especially on healthier subscriber growth) for a more constructive outlook.

Risks: Upside More subscriber additions/ARPU. Downside Delays in cable-TV digitisation.

Source : Equity Bulls

Keywords