The big regulatory thrust and, to some extent, changing lifestyles allowed analog cable systems to give way to the digital mode of viewing television. Digital cable operators and DTH (direct-to-home) players have been the beneficiaries of this change.

As the largest DTH operator in India by market share, Dish TV has been able to add subscribers at an impressive pace and improve its average revenue per user (ARPU) over the past few years. Investors with a two-year horizon can consider buying the shares of the company, given its strong position in the DTH space and reasonable valuations.

It is also a play on the expected economic revival and increased consumption in the foreseeable future.

At ₹78, the share trades at an EV/EBITDA (enterprise value to operating profits) multiple of 10 times based on its likely FY16 numbers.

This is lower than the historic 11-12 times at which it trades and cheaper than digital cable peers such as Hathway Cable that trades at a valuation multiple of 13-14. The discount may not be justified as Dish TV operates on a fairly large scale and enjoys better operating margins of 25-27 per cent.

It was expected to turn profitable at the net level in the December quarter, but slipped mildly. Dish TV is likely to report its first profits in FY16.

For the first nine months of 2014-15, the company’s revenues rose 8.3 per cent over the same period in the previous fiscal to ₹2,027 crore, while EBIT grew 42.5 per cent to ₹510.6 crore.

In a market where there are as many as six DTH operators (Tata Sky, Airtel Digital TV, Sun Direct etc) Dish TV has managed to take the top position with a market share of 27 per cent.

Better reach

Dish TV has a base of 12.5 million customers as of December 2014. Subscriber addition has been quite healthy for the company, with 2.2-4.2 million customers added in each of the last four quarters.

Digital cable operators though have an advantage in large cities as they have an existing infrastructure in place.

With the telecom regulator mandating conversion from analog to digital cable system in cities by December 2014 and in most parts of the country by this year, there is a trigger for DTH operators to increase revenue through additional market share.

Even as competition heats up from digital cable operators and strong DTH players, Dish TV has been able to hold its market share and even increase it mildly on incremental subscriber additions.

Key factors improve

The company has been able to effect price increases in its packages at regular intervals due to its reasonable pricing power.

As a result, its ARPU has been rising steadily from ₹166 levels in December 2013 to ₹177 currently.

Increasingly, Dish TV is also focusing on selling more of its HD set-top boxes and charging higher rates to these customers. Around 16-17 per cent of its incremental additions in recent quarters are from HD customers and a regional-languages-focused package ‘Zing’.

The ARPU from HD customers stands at a healthy ₹434. Another key phenomenon that could drive up ARPU is the trend of offering newly-released movies in DTH by film producers.

DTH presents a cheaper alternative to subscribers wishing to watch movies that are launched recently at a fraction of the cost of buying movie tickets. Operationally, Dish TV has managed to contain costs under various heads.

So, programming and sales and development costs, as a percentage of revenue, are down by 2-3 percentage points each.

Meanwhile, at ₹1,725 per customer, Dish TV’s subscriber acquisition cost has declined by over ₹500 in the last two years, indicating that the company is not having to spend more on enhancing its customer base.

Any steep depreciation of the rupee would increase the cost of importing set top boxes for Dish TV. This can hurt margins if the cost hike is not passed on.

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