Wednesday, January 27, 2010


Dish reported mixed 3Q results. Revenues matched our estimate, and the net loss was better than our expectation. However, operating metrics were uninspiring. We have trimmed our subscription ARPU estimate by about 5% for outer years post weak 3Q trends. This partially offsets the upward revision made to reflect reduced capex due to fall in set-top box prices and increased comfort in future growth potential following US$100m cash infusion from 11% equity sale via GDR. Retain OP with revised TP of Rs55 (from Rs45).

Story on track. We believe that DTH is best media subsector via which to participate in the domestic consumption growth story, and Dish TV is the only pure-play DTH operator. Although 3Q subscription ARPU and gross additions were below our estimates, we do not believe this alters the structural growth course for the company. We expect new subscriber addition momentum (industry adds expected at 8.5m subs for each of the next three years) and gradual improvement in subscription ARPU (5% YoY growth assumed in our model) to drive stock price performance.

Funding in place to meet growth requirement. Apollo Management picked up an 11% stake in Dish TV for US$100m (Rs4.6bn) in November 2009 via GDR issuance. In addition, Rs4bn of final tranche of rights issue (expected to be called in March) would enable Dish to participate in robust DTH industry growth over next three years without needing additional cash infusion.

3Q top line meets estimate, net loss lower than expected. Dish reported 3Q revenues of Rs2.8bn (up 7.7% QoQ and 43.8% YoY), meeting our estimate. However, EBITDA of Rs114m was significantly lower than our forecast of Rs158m due to higher cost of services. The negative surprise at the EBITDA level was mitigated by lower interest expense. As a result, the reported loss of Rs762m was lower than our Rs888m loss expectation.

Earnings and target price revision
We expect lower net losses in FY3/10 (1% lower) and FY3/11 (28% lower), as reduced interest burden should more than offset the negative impact of lightly lower EBITDA. Our new target price is Rs55.

Price catalyst
12-month price target: Rs55.00 based on a DCF methodology.

Catalyst: Sequential improvement in subscription ARPU.

Action and recommendation
Reiterate OP. Dish TV remains our top pick in the Indian media sector. We recommend that investors pare exposure to ZEEL (Z IN, Rs274, UP, TP: Rs130) and accumulate Dish TV. Competitive headwinds in the Hindi GEC (General Entertainment Channel) genre would hurt ad revenue growth for ZEEL’s flagship channel, Zee TV. Dish is currently trading at an EV/sub value of US$203 vs the global average of US$1,468.

To read the full report: DISH TV


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