Friday, September 14, 2012

>MEDIA SECTOR: Cable TV digitization is accelerating

Gearing Up for Digitization;
Assume with Attractive View

Cable TV digitization is accelerating, with MSOs and DTH companies promoting the effort with ads and by seeding STBs. We expect Hathway to benefit most, followed by Zee, while more intense MSO competition could limit Dish’s EBITDA growth.

We forecast a 26% subscription revenue CAGR, F2012-15, for the industry. We believe MSOs will benefit most, achieving a 33% revenue CAGR as cable subscribers turn digital. We forecast a 21% revenue CAGR for DTH companies. A June 2012 survey by TAM Media Research showed high DTH penetration in Delhi and Chennai, and high cable STB penetration in Mumbai and Kolkata. For all four cities, it also revealed consumers’ ‘overwhelming intent’ to buy cable STBs.

Hathway’s earnings and cash flow could rise, in our view, as more of the company’s subscriber universe is captured as ‘paying’ customers. We estimate a 32% EBITDA CAGR, F2012-15, versus 19% for Dish.  Hathway is trading at par with Dish on F2015 EV/EBITDA, on our estimates. Valuation may offer more upside for Hathway; we see scope for margins to widen,
and the pace of digitization could increase.

Zee is likely to benefit from digitization, too, on rising subscription revenue. We expect a 12% total revenue CAGR, F2012-15, led by 14% subscription revenue growth and 11% ad revenue growth. We project a 17% EBITDA CAGR, surpassing 11% for F2009-12. Dish should also benefit, but not as much as MSOs. We expect analog cable subscribers to migrate to digital
cable given the lower entry price and better value for money on monthly subscriptions.

Where we could be wrong: Any slowdown in the digitization process could hurt investor sentiment. Also, INR depreciation against the USD could hurt MSO and DTH company cash flows because of higher capex on STBs, since these costs are USD-denominated.

To read full report: MEDIA SECTOR