Dish TV

Q4FY10 Result Highlights

Dish TV reported good Q4 results while they were not in line with our

expectations. The company reported healthy 46.35% YoY growth in its

top line, with total revenues of INR 3031.50 mn up 9.26% QoQ largely

driven by volumes from addition in subscribers. Revenue was higher

than Unicon’s estimate. ARPU for the company had been declining in

the past due to highly subsidized offerings given to new subscribers and

a high proportion of incremental subscribers in the total subscriber base.

This trend has reversed and ARPU was marginally up to INR 138 from

INR 135 in the previous quarter. EBITDA margin in Q4 FY10 increased

significantly to 11.55% from 4.18% QoQ, due to lower content and

advertisement costs. Content costs decreased due to fixed content fee

agreements signed with major broadcasters. Advertisement cost

decreased unlike last quarter which witnessed higher advertisement

spends for re-branding Dish TV. The company’s capability to barter with

channel providers further brought down advertisement costs. The

margin was higher than Unicon’s estimate. Interest cost reduced to INR

106.20 mn down by 44.8% YoY from INR 192.40 mn, which helped in

reduction of reported loss at INR 597.70 mn as compared to a reported

loss of INR 785 in the corresponding quarter last year.

Outlook & Valuation

Dish TV acquired 0.44 mn subscribers in Q4 FY10, reflecting continuous

strong demand for its services. The company maintained leadership with

over 33% share in the pay DTH market. Once subscribers upgrade and

start contributing to ARPU the subscription revenues will get a boost.

A significant sports calendar in the coming fiscal is expected to offer

significant incremental opportunity for the DTH operators and Dish TV is

well positioned to monetize this event. Not only is the subscriber base

expected to increase but also ARPU from existing subscribers is set to

grow on account of the sporting events.

Dish TV plans to introduce High Definition service in June 2010, which

will enable the subscribers to receive HD feed and record content from a

single set-top box, which would contribute to top-line growth going

forward.

As the company keeps on building its subscriber base, new customers

as percentage of total subscribers would keep declining. Thus subsidies

given to attract new subscriber would not dent overall ARPU, resulting in

an ARPU growth. The ARPU on the net subscriber base going forward

should go up from INR 138 to INR 155 by March 2011. Subscribers

upgrading from lower packs to higher packs should also contribute to

ARPU growth. And consequently, management expects positive cash

flow by Q1 FY12.

The television industry is expected to grow from USD 5.71 bn in 2009 to

USD 11.58 bn in 2014. Digital penetration which is currently in nascent

stages has huge growth potential going forward which would drive Dish

TV’s growth momentum.

Trading at INR 39, the stock is valued at EV/EBITA of 49.47x, which

seems a bit expensive. However, looking at the future prospects of the

sector (low penetration and high demand for DTH) and keeping in view

that the company is funded adequately and revenues are poised to grow

at a healthy pace, we recommend the investors to ACCUMULATE the

stock.