Monday, February 13, 2012

>DISH TV INDIA LIMITED: Key concerns abating

■ Churn likely to trend down
Post an increase in churn to 1.6% (monthly) in 3Q, it has fallen to 1.1% for the month of January. Management highlighted it has taken measures to control subscribers in pre churn (inactive for 0-120 days) and expects churn to reduce further in 1Q.

■ ARPU expansion likely
Reiterated guidance of achieving Rs155-156 ARPU for 4Q led by price hikes effected in November. Structurally it believes ARPUs likely to trend up due to implementation of cable TV digitalization across the country.

■ Operating leverage to continue
Expect 13-15% increase in content cost during FY13E. Margin expansion story likely sustainable. Forecast over 500 bps EBITDA margins expansion during FY12-14E

■ FCF turn around on track
Expects cash flow to turn positive FY13. Reiterated that current subscriber base should be able to fund gross sub addition of 2.6-2.7mn p.a. Stock trades at 11x EV/EBITDA FY13E at lower end of trading band of 11-18x ,we regard this as attractive. Retain Buy with PO of Rs90.

Price objective basis &  risk
Dish TV India Ltd (XCETF)
We value Dish TV on a DCF basis given the investment required in subsidizing set-top boxes for new subscribers and the gestation period involved. Our DCF value is Rs90 and implies EV/EBITDA of 16x FY13E. Our valuations are at a premium to global DTH peers such as DirecTV and Dish Network. We believe this is justified given the high growth in EBITDA for Dish vs peers.

While global peers trade at 6-9x EV/EBITDA currently, we note that historically during their growth phase these peers have traded at valuations of 12-15x EV/EBITDA.

We see upside risk from a potential reduction in license cost from 10% to 6% of revenue based on the court judgment. Downside risk is from higher-than expected churn impacting valuations adversely.