Dish TV: KR Choksey Research Report

KR Choksey has recommended a HOLD on Dish TV with a target of Rs 88 on the following investment rationale.

Dish TV recorded total revenue of Rs 433ccr, a growth of 16% q-o-q and 43% y-o-y driven by higher subscriber number and increased ARPUs. Dish TV‘s EBITDA for the quarter was Rs 90.2cr which is higher by 35% q-o-q and whopping 153% y-oy. Dish TV‘s EBITDA margin was 20.8%. Dish TV reported loss of Rs 37cr. For FY11 net revenue was Rs 1437cr, a growth of 32% over FY10. Dish TV‘s EBITDA stood at Rs 240cr which is higher by 154% y-o-y. Dish TV‘s EBITDA margin for the year was 16.7%. For the full year losses of Dish TV reduced from Rs 262cr to Rs 198cr.

Dish TV’s top line showed healthy growth because of strong subscription revenue of Rs 355cr, higher by 14.5% over q-o-q. This was mainly on account of increased subscriber base and higher ARPU. Dish TV‘s favorable pack mix due to increasing traction in middle level subscription packs over base pack resulted in ARPU growing to Rs 150 in Q4 FY11. Dish TV‘s subscriber acquisition cost has gone up to Rs 2224 in Q4FY11 from Rs 2142 in Q3FY11 due to higher market spends around World Cup. Break up of SAC is Rs 1600 for hardware, Rs 200 for ad spends, Rs 375 for Sales and distribution. Dish TV has a strong base of 10.5mn gross subscribers and 8.5mn net subscribers at the end of the year. Dish TV‘s management is confident to increase this number by 3mn to 3.5mn subscribers in FY12. 7% of subscriber addition was on HD space this quarter. We believe that this will continue and will attract higher APRU customers.

Dish TV expects ARPU growth of 12% in FY12 which is around Rs 165. The improvement will happen because of Premiumization as subscribers upgrade from silver to silver Plus and Silver Plus to Gold; HD services. This will boost top line going forward. Dish TV has restructured its debt portfolio and opted for low cost debt. Interest rates are likely to be at 9-10% compared to ~12% in FY11. Dish TV had one time expense of Rs 9cr in this quarter. This will improve margins due to lower interest expense.

DTH market is growing rapidly. We believe Dish TV being a market leader with a market share of 28.6%, is expected to benefit in garnering high volume growth. We expect growth in subscriber addition on account of higher ad spend by Dish TV. The same along with ARPU improvement derived by increasing HD subscribers, favorable regulatory changes, and lower interest expense will reflect in improvement in overall profitability of Dish TV. At current price Dish TV stock is trading at 17.6x and 11.6x, EV/EBITDA. We retain our HOLD recommendation on the Dish TV stock and our target price to Rs 88 by assigning to 20x EV/EBITDA to FY12E earnings.