Wednesday, July 7, 2010


Indian TV Distribution industry, world’s second largest with 105m cable & satellite (C&S) homes, is set for a makeover as the long-awaited ‘digitization’ becomes a reality. As of 2009, there are 22m digital homes with 18m of these on the DTH platform. Going forward, we expect digitization to gather pace not only in DTH but also in the ‘hitherto laggard’ cable space. While funded DTH players have invested Rs110bn so far, cable players too are now equipped to seed set-top-boxes (STBs) after the recent fund raise and would look to lock-in customers given the threat from DTH. We expect the total digital homes tally to rise 4x to 86m by 2015E, and address the biggest concern of ‘under-reporting’ in its wake. In the backdrop, we expect a 6.5x increase in the organized pie to Rs340bn even on a modest 14.5% CAGR in industry revenues to Rs480bn by 2015. As we expect C&S operators to retain the economic benefit of improved declarations and turn profitable, the sector makes a compelling case for re-rating. We recommend Outperformer on Dish TV, DEN Networks and Hathway Cable and expect 50% returns over an 18-month period.

Digital base to grow 4x…: India’s digital C&S base is set to expand to 86m by 2015E with 48m DTH (18m as of 2009) and 38m digital cable (4m) homes. While the six funded incumbents keep the momentum ticking in DTH, we believe digitization is no longer a ‘choice’ for cable operators and assumes a sense of urgency in the face of increasing threat from DTH. Importantly, national MSOs are now funded (Rs13bn of recent fund raise) to exert customer pull through subsidized STBs – a competitive edge of DTH players so far. Limited scope of ‘carriage fees-led economics’ from here and industry consolidation are the other drivers of cable digitization.

…and organized pie to swell 6.5x by 2015E: We expect a modest 14.5% CAGR in C&S industry revenues to US$10.8bn over 2009-15 as the C&S homes base expands to 140m and ARPU increases from $3.8 per month to $6.3. However, digitization is bound to reduce the incidence of under-reporting – the bane of the Indian C&S industry, and we expect the declared subscriber base to grow 4x from 23m to 89m by 2015. This, we believe, would drive a 6.5x rise in revenues of organized players.

Economic retention to drive value creation: With the net share of organized MSOs and DTH operators increasing from <10%>

To read the full report: TELEVISION DISTRIBUTION