>DISH TV: Indian pay TV subscription story strong, led by increasing digitization; DTH at the forefront of digitization wave

■ Re-initiating coverage with Neutral rating and TP of INR65: We re-initiate coverage on Dish TV (DITV), with a Neutral rating and target price of INR65. DITV is well positioned to benefit from the ongoing digitalization further boosted by government regulations to phase-out analogue broadcasting which should drive 22% revenue CAGR and 30% EBITDA CAGR over FY12-14E. However we are cautious due to 1) likely increase in competitive activity as six DTH operators and several MSOs might see digitalization as an opportunity to grab subscribers, 2) lower room to squeeze content cost percentage further down, and 3) already high consensus expectations. Our FY13/14 EBITDA estimates are 9/6% lower than consensus. Valuation at 9.3x FY14 EV/EBITDA (11.6x adjusting for lease rentals) and ~USD110/subscriber is not inexpensive.


■ Strong leadership position in DTH; high churn and potential increase in competitive intensity remain concerns: DTH technology is leading the digitization wave, with industry subscriber base of ~40m or one-third of the total cable and satellite base of ~120m. The DTH industry has been riding a tailwind of (1) weak competition from the fragmented cable industry, (2) preferred treatment from broadcasters (in the form of fixed-fee payment structures), who have been combating under-declaration by cable operators, (3) better execution capabilities, (4) strong balance sheet support, resulting in ability to withstand significant cash burn, and (5) the government's fresh deadline for sunset of analog broadcasting by December 2014. DITV enjoys a leadership position, with ~30% subscriber share in the fast-growing 6-player Indian DTH market. However, we expect subscriber churn to peak in FY12 and remain at elevated levels going forward (14-15% p.a. of net subs) as compared to FY09-11 levels (9-10%) due to increase in competition from DTH as well as cable operators.


■ Expect 19% subscriber CAGR, 6% ARPU CAGR over FY12-14: Subscriber additions
have weakened since 3QFY11 due to (1) one-off demand in the earlier period related to cricket World Cup and IPL, (2) general economic slowdown, and (3) increase in connection costs and tariffs by the DTH industry. We model gross subscriber addition of 2.7m in FY12 (v/s 3.5m in FY11), 3.5m in FY13 and 4m in FY14, which will drive ~19% CAGR in average net subscribers over FY12-14. We model 6% CAGR in DITV's ARPU over FY12-14, which will be driven by increase in renewal ARPU as well as lower proportion of subscribers on activation plans.


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