>DEN NETWORKS: Q1FY13 results

Den Networks’ (Den) reported Q1FY13 results were in-line with estimates. Below are key takeaways of the results and our interaction with the management.

Revenue isn’t comparable with prior reporting due to accounting policy change: Den’s Q1FY13 total revenue stood at Rs 1.95bn. This isn’t comparable with prior reported revenues, as the company has now started reporting MediaPro revenue on a net basis (Gross revenues less cost of distribution rights paid to broadcasters). Earlier Media-Pro income was reported on a gross basis and content cost was included in operating expenditure. This move will however have no impact on EBITDA and profitability.

Cable income and EBITDA driven by STB sales: Den’s Cable business revenue stood at Rs 1.9bn, up 1% QoQ and 21% YoY. The company seeded 0.29mn Set Top Boxes (STBs), earning Rs 180mn of activation revenue. This led to overall business EBITDA margin improving to 19.8%, from 10.5% in Q4FY12 and 6.8% in Q1FY12.

STB seeding sluggish, but Den believes that phase I deadline will be met: Den has seeded ~70,000 STB’s in July 2012. Management acknowledged a slight dip in rate of seeding since the announced delay, but maintains that digitization will happen on time as the government is serious about digitization and is regularly monitoring stakeholders (demanding status reports during weekly and ad-hoc task force meetings). We highlight that Den has digitized ~0.7mn of its 2mn phase I subscribers, and now needs to seed 0.4mn subscribers/month to meet the deadline.

Digitisation progress on-track, maintain BUY: Considering the pack and STB rate increases by DTH peers, we upgrade our estimates for Den, factoring in ARPU increases and STB subsidy reduction going forward. Our DCF implied target price of Rs 150 implies an upside of 23% over the current price. Maintain BUY.

To read report in detail: DEN NETWORKS