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Research
Accumulate DEN Networks - Favourite to ride digitization wave - Elara Capital
Posted On : 2010-08-11 09:42:10( TIMEZONE : IST )
- DEN Networks
- Rating : Accumulate
- Target Price : INR250
- Upside : 10%
- CMP : INR228 (as on 10 August 2010)
Quiet first quarter on digital front
DEN Networks reported a 15% and 0.6% growth in topline for Q1FY11, on a YoY and QoQ basis respectively. Digital subscriber addition during the quarter was muted, but is expected to pick up aggressively from Q3FY11E onwards, according to the management. The company is waiting for the shipment of 1mn set top boxes, which would come at a reduced price of USD28 (as against USD35 earlier) starting October this year, to start expanding its digital base. On the analog front, DEN acquired a major Mumbai based MSO during the quarter, increasing its analog base to 11mn.
Gearing up for step up in digital growth
In a radically game changing move, TRAI recently recommended that all analog video households in India should be converted to digital by March 2013. If accepted, this recommendation holds the potential to trigger massive consolidation in the space, creating a few giant cable companies in India with a digital subscriber base of 20mn plus (higher than the US video players). We believe that this move would significantly help the national MSOs like DEN Networks win the second round of digitization in the country, after loosing to DTH players in the first round.
Valuation – Maintain Accumulate
We continue to believe in the long term digital cable growth story in India, and hold on to our thesis that the impending consolidation and digitization wave in the Indian cable space would favor bigger MSOs like DEN Networks with the capacity to digitize cable networks. DEN Networks staged a smart rally post TRAI's recommendations on digital front. However, we believe that the real valuation reset would commence only once it becomes a law. Rolling our model to FY11E, our DCF based target price on the stock is revised upwards to INR250. Post the recently rally, our recommendation on the stock is maintained at 'Accumulate'.
