DISH TV Buy Target Price: Rs83 CMP: Rs65 Upside: 28%:: centrum,

DISH TV

Buy

Target Price: Rs83

CMP: Rs65             

Upside: 28%

Concerns Overdone

We upgrade Dish TV to BUY as we believe the current price does not capture the upside from changing industry dynamics due to digitization, steadily increasing ARPU and high subscriber additions. Concerns over $200mn fund raising plans are overdone and we continue to value the stock at Rs83 (12x FY13E EV/EBIDTA).

m  Price hike to meet ARPU guidance of Rs160-165: Dish TV has raised prices in mid November by Rs10 (6% increase) in the base pack which accounts for ~40% of the subscribers. This price hike is the third in the last 15 months by the management. Constant re-vamping of packages and providing more value to customers is helping the company upgrade customers to higher price points and steadily increase the ARPU. We believe the company is on track to achieve its year-end exit ARPU target of Rs160-165.

m  High Definition to provide further fillip to ARPU and subscriber addition: 6% of its incremental subscribers opt for HD and Dish TV plans to further scale this up to 10%. ARPU for HD subscribers in Q2FY12 was Rs454 compared to Rs152 for SD subscribers. Hence HD would provide ample scope for ARPU expansion going forward.

m  Taking measures to reduce subscriber acquisation cost : Over the last few quarters, Dish TV has taken steps to reduce the SAC by Rs300-400 by increasing the price of the Set Top Boxes, reducing dealer commission and at the same time reducing the free viewing period with entry price at Rs1390 from Rs990 previously. This would also help in reducing the churn rate.

m  Equity dilution concerns – overdone: We believe Dish TV is set to be FCF positive by early FY13 and does not need funding for normal ~3mn gross subscriber addition run rate. However, the mandatory digitization of ~90mn potential analog subscribers in next 3 years is a significantly large opportunity for DTH / MSOs together and would need capital of ~Rs60-70bn. We believe Dish TV would raise ~$100mn for incremental subscriber addition due to digitization and at the same time market HD STBs which need higher capital to gain traction.

m  Upgrade to BUY: Post our downgrade to Hold in August 2011 on the back of stiff valuations, lower subscriber addition and high churn, the stock has fallen 27%. We believe now the company is on track for high subscriber addition on the back of mandatory digitization. Churn rate is set to reduce or in the worst case remain at current levels on the back of measures taken to increase STB price, lower dealer commission and reduced free viewing. The recent price hike will increase ARPU. Dish TV is currently being valued at 9.6x FY13E EV/EBIDTA. We continue to value the stock at Rs83 (12x FY13E EV/EBIDTA) and upgrade the stock to BUY.