Niraj Dalal of 3A Capital Advisors has made his debut by being featured in Business Outlook’s “Ten Top Stock Picks For 2015”. His stock pick is Dish TV.
Dish TV has the dubious distinction of being a stock that has always flattered to deceive. There has always been a build up of great excitement around the stock, which fizzles out in due course.
In a piece that I wrote in June 2014, I asked the question “Why Is Everyone Gung-Ho About Dish TV?” I pointed out that all the ace stock pickers, from Ashish Chugh of Hidden Gems to the mighty Goldman Sachs, had come out with all guns blazing in favour of Dish TV.
However, predictably, the stock ended in a damp squib because its losses continued to mount and the much-anticipated turnaround was nowhere in sight.
In his piece in Outlook as well as in an interview he gave to CNBC TV18, Niraj Dalal candidly acknowledges that Dish TV has been a rank under-performer over the past several years. However, he argues with conviction that the Company is “getting its act together now” and that it is an “inflection point”. He also states that “if you just do basic numbers it is impossible for Dish TV not to breakeven and start generating cash flows in the coming year”. “If you are an investor this is a great time to buy a stock” he adds.
|Dish TV’s Q3FY15 Financial Results|
|(Rs cr)||Dec 2014||Dec 2013||YOY|
|Adjusted Net Profit||-2.87||-38.25||N.A|
Dish TV’s Q3FY15 results suggest that Niraj Dalal may be correct in his theory. Its overall revenues are up 16.5% YOY to Rs 714 crore. The subscription revenues are up 17.4% to Rs 655 crore. It added 416,000 net subscribers in the quarter, which, combined with the 700,000 in the first half of FY14, takes the net additions to 1.1 million at the end of December (the total subscriber base 12.5 million). The operating profit surged 43% on yearly basis to Rs 189 crore. The margin expanded by 500 basis points to 26.6 percent in the quarter. The strong operational performance led Dish TV to reduce the net loss to Rs 2.8 crore from Rs 38 crore in the same quarter of last year.
As expected, all the leading brokerages have come out with strong buy recommendations in favour of Dish TV.
HDFC Sec has recommended a buy with a target price of Rs. 92 (22%+ upside) on the logic that:
“Dish TV’s (DITV) Q3FY15 results were ahead of estimates on account of higher than expected revenue growth as well as cost control. Management commentary on the business outlook is positive and we concur with the same. We see high visibility of growth in the near-term as well as medium–term. Subscriber adds will continue to remain robust due to (1) The 2015 cricket world cup, followed by (2) consistent gains in Phase-III/IV markets, and finally, (3) mandatory digitization of phases III/IV. We believe there is increased visibility on ARPU growth as well, on account of initiatives from MSOs (following reference interconnect offer – RIO, arrangements with a leading broadcaster, more such deals to follow) to raise customer rates by enforcing content packaging and billing. Dish TV has no significant renegotiations with broadcasters till September 2016, which lends visibility to margin expansion as well. Further to these, Dish TV stands to gain from regulatory initiatives on GST/ reduction in license fees.”
ICICI-Direct has also recommended a buy with the same price target. Their logic is that “The robustness in subscriber additions coupled with robust growth in ARPUs owing to the differential pricing adopted by the company and ramp up in HD boxes indicate towards higher operating leverage. We believe the company will report profits from the next quarter onwards and value the company at Rs. 90 per share using the DCF methodology”.
Motilal Oswal has also recommended a buy with the same price target on the basis that there is “significant margin expansion ahead”.
So, Niraj Dalal’s stock pick appears to be on a strong footing. We also need to keep an eye on two of his other stock picks, Cipla Ltd and Delta Corp.