We maintain a buy call on Dish TV and assign sector performer rating to the stock. We continue to remain positive on Dish TV and expect it to be one of the beneficiaries of the digitisation process and the recent appreciation in rupee.
We set a target price of R88 (R94 earlier) assigning Dish TV a FY14e EV/ebitda target of 13x (unchanged). At current market price, the stock is trading at around EV/ebitda of 14.0x and 10.8x FY13e and FY14e, respectively.
However, we have revised our FY13e and FY14e ebitda assumptions downward due to increase in selling & distribution, employee costs and other operating costs. Also, we have revised our FY14e debt assumption upwards by 5%, in line with current debt levels. Also, as per the revised AS11 guidelines, we are considering only current investments in the calculation of enterprise value (instead of both current and non-current investments) which impacts target price by R3.
Though Dish TVs Q3FY13 revenue was in line with our expectations, there was disappointment on the ebitda margin front (24.7% in Q3FY13 vis--vis 29.2% in Q2FY13 and 26.7% in Q3FY12). Dip in margins was due to higher investments in sales and distribution infrastructure for digitisation (R13-14 crore) and 14.6% q-o-q increase in content costs. ARPU increased marginally q-o-q from R159 to R160.
On the positive side, Dish TV added robust 0.83 million gross subscribers (including 0.5 million net additions which has stepped up from 0.2 million in Q2FY13), incremental DTH market share of Dish TV improved by 100 bps q-o-q to 24% (28% share in phase I) and churn was maintained at 1%. The total gross subscriber base now stands at 14.7 million and net subscriber base, at 10.5 million. SAC dipped q-o-q to R2,201 compared with R2,273.
Subscription revenues grew 16.2% y-o-y to R490 crore. As a result of 14.6% q-o-q increase, content cost revenues jumped to 32.9% compared with 30% in Q2FY13. There was a R26 crore incremental impact of content cost, along with the R14 crore impact of investment in sales and distribution infrastructure.