>Dish TV India Ltd (MORGAN STANLEY)

First-Mover Advantage; Initiating at Overweight

Best way to participate in India’s rapidly growing Satellite TV industry: Our Rs55.90 price target for Dish TV shares implies 34% upside from the current market price. Given Dish TV’s first-mover advantage, we project healthy and sustainable earnings growth over the next
3-4 years. At 7.1x EV/EBITDA and EV/sub of US$118 on our F2012 forecast, DTIL is at substantial discounts to its global peers considering its EBITDA growth profile. Hence, we find DTIL’s valuation attractive.

Satellite TV subscriber base to expand at 37.9% CAGR in F2009-13E: Consumer demand for digitalquality reception and a wider array of TV channels should drive growth in Satellite TV, popularly known as DTH (direct-to-home) in India. As the fragmented LCO industry (Local Cable Operator, owner of the last mile in cable TV networks) responds slowly to this challenge,
Satellite TV’s penetration of pay TV households should grow from 14.4% at end-F09 to 30.7% at end-F13.

India’s No. 1 DTH operator, with ~36% market share: DTIL’s net subscriber base of 4.3mn at end-F09 should enable it to scale up to 9.4mn subscribers in the next four years, conservatively adding ~20ppt of incremental market share. We expect revenue to log a 41% CAGR through F13, supporting a jump in DTIL’s EBITDA to Rs9,894 mn from a loss of Rs1,233 mn in F09. Pressure on ARPU’s and subscriber acquisition costs should ease starting in F12 as large players achieve critical scale.

Market is unduly pessimistic, we believe, on competition, possible funding issues, and Dish TV’s profitability. These concerns should ease as Dish TV breaks even in 2HF11 and funds its capex adequately.

Where we could be wrong: Threats from DTH competitors, cash burn, and problems in raising funds for the next growth leg could all prove worse than we expect. Also, DTH’s progress may abate if the cable industry can consolidate quickly and start investing to maintain its share of the pay TV market.

To see full report: DISH TV