Accumulate DEN Networks - Elara Capital

• Rating : Accumulate
• Target Price : INR210
• Upside : 6%
• CMP : INR197 (as on 1 May 2010)

Digital expansion to wire up growth

JV with Star lifts consolidated numbers

Den Networks reported a topline growth of 3.9% on a QoQ basis with an EBITDA of INR276mn for Q4FY10, which was largely in line with our expectations. While the company reported a lower than expected EBITDA from cable operations, this was largely compensated by a higher growth in its distribution JV - Star-DEN - at 7.3% on a QoQ basis. For FY10, the company reported a consolidated topline of INR9.1bn, a YoY growth of 29.5%. The EBITDA for FY10 stood at INR978mn as compared to (an EBITDA loss of) INR3mn in FY09.

Potential acquisition to boost analog base

The company has demonstrated a commendable performance on its analog business front, growing its subscription and placement revenues by 36% and 21% respectively. Den further plans to add 4-5mn subscribers on the analog side through a big ticket acquisition, and continues to focus on increasing the analog subscription and placement revenues as its footprint grows bigger. On the digital cable side, the company has seeded 400,000 set top boxes so far and collects INR30 per box every month from local cable operators. Going forward, it plans to add 1mn subscribers annually on the digital side and also increase its revenues per set top box as the operations gain scale.

Valuation

The company's stock price continues to trade around or below its IPO price of INR195 despite its cable business turning profitable at a record pace of less than two years. As we have maintained, we expect the stock price to find higher levels as the company posts progress on its digital business since the value creation potential in analog business is limited. We anticipate the company to report aggressive digital conversions going forward and till then, we keep our Accumulate rating on the stock with a DCF based target price of INR210.

Source : Equity Bulls

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