Stock Review: DISH TV

 

Two things are going in favour of Dish TV: A shift in its subscriber base to HD services and lower content costs due to a new biz model

 

DISH TV, India's first direct-to-home satellite TV with the biggest market share, is seen benefiting from the shift in its subscriber base to high-definition services that will boost average revenue per user. Investors are recommended to accumulate the stock at current market price of 67.

BUSINESS:

Dish TV is part of business conglomerate Essel Group that has business interests ranging from media to packaging. The company was the first to enter the DTH industry in 2004. Currently, it has the largest market share of 31%, with a subscriber base of over 1 crore. It offers 250 video channels and 21 audio channels through a network of 1,400 distributors and 51,000 dealers.

GROWTH DRIVERS:

The growth prospect in DTH is likely to be one of the key drivers for Dish TV, which has a dominant market share in the segment. Cable and satellite subscription market size is seen growing at a compounded annual growth rate (CAGR) of 17% to 41,600 crore by 2015, a FICCI report said. User base in the DTH segment, one of the fastest growing in the cable industry in the past five years, is expected to more than double to 7.1 crore by 2015.

   The company is also seen benefiting from recommendations of the Telecom Regulatory Authority of India (Trai) to digitise all cities having a population of over 1 million by 2013. Its user base is estimated to increase to 1.5 crore over the next 2 years from the 95 lakh now.The company would also benefit from migration of subscribers to high-value packages. Among the six DTH operators, Dish TV has been consistently innovating product offerings. Apart from products such as payper-view movies, matrimonial service Shaadi Active and job-search service Monster Active, the company has launched 30 channels in the high-definition format against a mere six channels offered by its peers. Currently, average revenue per user (ARPU) for high-definition services is over 400 while for the regular DTH services, it is 142. More and more users are seen opting for high-definition services in the near future, thus boosting the ARPU. The company is also seen gaining from its shift in business model from persubscriber to fixed-fee model, which has led to a decline in content cost —the amount that is paid from subscription revenue. Content cost as a percentage of subscription revenue has fallen to 39% currently from 55% in FY09.

FINANCIALS AND VALUATION:

Dish TV reported net sales of 372 crore in October-December compared with 277 crore a year ago. The company has been making losses over the past 16 quarters. Being the only listed player in the industry, its valuations are not comparable. The next two fiscals are seen crucial. Long-term investors may accumulate the stock at the current market price.