Expect DTH industry to add 10 million subscribers in each of the next three years. Based on our interaction with the managements of various DTH operators, we remain confident of our industry wide subscriber addition forecasts. We expect Dish to remain the market leader for the next five years, despite an assumed decline in net adds market share from 25.6% in FY3/09 to 22% in FY3/10E and thereafter. Dish has delivered positive EBITDA for three consecutive quarters, clearly surprising us and the Street positively. We now forecast EBITDA margins to double to 20.1% in FY3/11 from 9.3% in FY3/10E. Despite assuming no major up tick in margins in FY3/12 (20.5%), we forecast EBITDA to increase by over 3x to Rs3.7bn from Rs1bn in FY3/10E. Positive investment view based on strong improvement in operating cash flows, led by strong growth in subscriber base and tight cost control. We expect Dish TV to add 4.4m subscribers over the next two years, implying a CAGR of 27.4% in the subscriber base for FY3/10–12. Dish TV management has done a commendable job in capping the content cost as a percentage of subscription revenues by entering into fixed-price contracts; we view this as the key reason for the sharp rise in EBITDA. Funding overhang removed. Sixty-four percent of the money raised in a rights issue has been infused into the company, and we do not view funding as a bottleneck to growth.
Dish TV gadget to help switch DTH operator Dish TV, the country's largest DTH operator, proposes to launch Conditional Access Modules (CAM) in May that would help subscribers of other DTH players to switch over to the company's platform at a lower price. The proposed move by Dish TV, the first time in the country by any operator, could indirectly trigger inter-operability in the DTH sector. The company also proposes to launch High Definition TV (HDTV) services in the next three months. CAM is a card-like gadget that can be inserted in the STB, which will enable the subscriber to shift from the current DTH provider to another.
The licensing norms of the Telecom Regulatory Authority of India (TRAI) mandate that the STBs offered by the DTH players should be CAM-compliant or have an empty space where the card could be inserted.
At CMP of Rs 36.6, the stock trades at 5.1x TTM EV/sales of Rs 987 crore. We believe the industry is looking attractive mainly on back of digitalization growth with HITS policy approved by cabinet. To capture the growth coming ahead we believe Dish TV is better placed than its peer group. We recommend ‘BUY’ on the stock with a price target of Rs 50 representing upside potential of 36%.
Source: Internet (Valuenotes by KRChoksey)