Analyst Corner: For Dish TV, Trai’s new order likely to be a positive trigger

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New Delhi | Updated: February 9, 2019 4:42:06 AM

JIO’s combined offering of cable/ broadband (through FTTH) remains a medium term threat, but DITV is well placed given 65 percent of its subscribers are in semi-urban/rural areas, wherein JIO’s expansion won’t be economically viable.

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Dish TV’s core business performance is reasonable with 0.6 mn net subscribers addition (21.6 mn) and Rs 16 billion/5.6 billion EBITDA/FCF in 9MFY19. The management targets to be debt-free (net debt at Rs 23 billion) by FY21, which seems achievable.

JIO’s combined offering of cable/ broadband (through FTTH) remains a medium term threat, but DITV is well placed given 65 percent of its subscribers are in semi-urban/rural areas, wherein JIO’s expansion won’t be economically viable.

Also, Trai’s channel pricing order, when implemented, is expected to be earnings accretive – a positive trigger in waiting.

While high promoter pledge remains key hangover on the stock, worst seems to be priced in post the 45 percent fall in last 1 month. The stock is available at 15 percent FCF/EV yield (including all contingencies) and 25 percent FCF yield FY21E. (5x FY21E EV/core EBITDA vs `50 earlier; 6x) as we factor in (a) 10 percent reduction in combined EBITDA in FY21E on slower subscriber addition (0.6 mn annual addition vs 1 million earlier), (b) 100 percent contingent liability of Rs 28.5 billion for licence fee due including interest outstanding (SC verdict awaited), and (c) overhang of high promoter pledge (remains the biggest risk to our ‘buy’ call).

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Q3 EBITDA at Rs 5.2 billion was marginally lower than our estimate (Rs 5.5 bn). Direct costs cost/other overheads declined 4/24 percent YoY, while interest cost was down 9 percent YoY on post-merger synergies. STB procurement cost also declined (15 percent saving in capex); benefits from IT/ CRM integration to be visible in medium term.

DITV implemented Trai’s channel pricing from Feb 2019 (4 mn subs on a-la-carte channel pricing since last 3-4 months); expects DTH + cable industry to follow.

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