Dish TV India: Adding to the Zing

The stock of DTH (direct to home) operator, Dish TV India has fallen 19 per cent so far this year. Flat average revenue per user (ARPU) and the relatively lower subscriber addition in the December 2015 quarter compared with the same period last year, seems to have weighed down the stock. Thanks to a subdued increase in expenses though, Dish TV posted profit at the net level in the latest quarter versus loss in the year-ago period.

Higher revenue along with a check on operating costs helped the company post profit at the net level in 2014-15, the first time since its debut in the capital-intensive DTH market in 2003. In 2015-16 too, it has posted profit in all three quarters, compared with loss in the year-ago periods.

At ₹83, the stock trades at an EV/EBIDTA (enterprise value to operating profit) multiple of 13 times its trailing 12-month earnings. This is lower than the five-year historical average of about 17 times.

Dish TV is well placed to expand its subscriber base as more areas get covered under the ongoing cable TV digitisation (phase III and Phase IV). It is in a sweet spot on the programming and content cost fronts too, given its strong bargaining position with broadcasters. It can hope for some tax relief too. Investors with a long-term perspective can buy the stock.

Of India’s 168 million households with a TV, analog cable subscribers account for a little over half the market. The remaining comprisesDTH (28 per cent) and digital cable subscribers (20 per cent). According to the company, it enjoys 25-26 per cent share in the DTH market.

The initial phases of digitisation covered the four metros and 38 large cities. With the ongoing digitisation, the market for digital TV distribution — which comprises digital cable operators and DTH operators — will expand further. Given their technology advantage over digital cable operators, DTH players are expected to garner a larger share here.

Given its large market share, Dish TV is well positioned to grow its subscriber base; it has done so in the past too; the number rose from 10.7 million in 2012-13 to 14 million by end-December 2015. Zing, a regional channel offering, launched by Dish TV last year to cater to customers in smaller towns has been contributing about 20 per cent of the company’s additional subscribers every quarter.

While Dish TV has been adding subscribers, its ARPU has not grown much. It has been within the ₹162-173 range over the past several quarters. This is despite the company increasing its higher-ARPU high definition (HD) subscribers; the lower ARPU from the Zing subscribers is averaging out the increase.

The company, however, expects its overall ARPU to improve gradually overtime as subscribers gradually upgrade from the standard definition (SD) channel packages to the HD packages. Dish TV posted net profit of ₹210 crore for the nine months ended December 2015 compared with a loss of ₹32 crore in the same period last year.

A sharp rise in revenue (up 15 per cent year-on-year) even as operating expenses inched up moderately (up 3.7 per cent year-on-year), helped the company report 49 per cent increase in operating profit to ₹758 crore during the latest nine-month period. But, high fixed costs took away a chunk of the operating profit.

Dish TV’s programming and content costs (40 per cent of operating expenses) are expected to grow at single-digit rate, given the company’s strong bargaining position with broadcasters, thanks to its large market share. The lower content cost in the phase III and IV digitisation areas too should help.

As on September 2015 Dish TV had a debt of ₹772 crore on its books but this has been brought down by ₹300 crore since then. The interest coverage ratio too has improved — from 0.8 times in the year-ago period to 2.3 times for the nine months ended December 2015.

There has been some relief in licence fee too. With subscription revenue being reported net of commission charges and transfer of the non-core business to Dish Infra Services, a subsidiary, the annual licence fee is being applied on a lower base.

There could be further relief if TRAI’s recommendation of 8 per cent licence fee on gross adjusted revenue (adjusted for the entertainment tax paid) instead of the current 10 per cent on gross revenue, is accepted. A shift to GST from the multiplicity of taxes too should be beneficial.

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