Den Networks - Monetisation on course - Phillip Capital

Den Networks' (Den) Q3FY14 results was marginally ahead of estimates as cost inflation was contained well within guidance. However, yet again we incorporate the delayed monetisation as well as our conservatism in our numbers. We remain optimistic on Den's business as monetisation appears imminent now.. Below are key takeaways of the company's results and conference call:

Subscription pick-up in line with expectations - The Company saw a sharp 15% YoY and 2% QoQ growth in its cable business income, as it booked revenue in accordance with gross customer billing in Delhi and also saw increase in realizations from Mumbai, Kolkata and phase II areas. Den continued to actively seed its reach as it deployed 0.45mn STBs during the quarter. The company has guided for gross billing to be implemented in Kolkata during Q4FY14 while Mumbai remains in limbo as the issue of entertainment tax isn't yet resolved. For phase II, the company remains optimistic of achieving gross billing in Q1FY15.

EBITDA beat on account of lower than expected cost inflation - The Company's cable business EBITDA improved 3% QoQ and 60% YoY due to improving subscription income and stabilizing cost. Content cost increased by 5% QoQ, but was up only 15% YoY, lower than management guidance. This led to EBITDA beat & surprised us positively. The company added that its content cost contracts are largely fixed fee based, which can be looked at from a cost per subscriber perspective in phase I & II areas considering that the subscriber count is known and packages have been chosen. Management has guided for front-loading of costs in respect to the broadband business as the company intends to pass 0.5mn homes and launch services in April 2014.

PAT also in-line with estimates- Den's Q3FY14 consolidated PAT stood at Rs 70mn down 59% YoY and 37% QoQ, in line with our estimates. Tax rate during the quarter was higher on account of certain one-off settlements. The company booked a one-off investment impairment cost of Rs 92.5mn pertaining to a subsidiary in Gujarat.

Reduce estimates while maintaining BUY rating - we reduce our estimates incorporating monetisation delays while building in conservatism for phases III & IV. We roll-forward our DCF and thus maintain our price target of Rs 185/share & maintain BUY rating considering the 32% upside from current levels.

Source : Equity Bulls

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