18 December 2017 Update Sector: Media Dish TV India BSE SENSEX S&P CNX 33,463 10,333 CMP: INR80 TP: INR106(+32%) Buy MIB approves merger of VD2H Expect significant synergies; stock attractively priced Stock Info Bloomberg DITV IN Equity Shares (m) 1,066 52-Week Range (INR) 111/68 1, 6, 12 Rel. Per (%) 4/-8/-31 M.Cap. (INR b) 85.3 M.Cap. (USD b) 1.3 Avg Val, INRm 481.6 Free float (%) 35.6 Financials Snapshot (INR b) Y/E Mar 2017 2018E 2019E Net Sales 30.1 31.5 34.6 EBITDA 9.7 9.7 11.7 PAT 1.1 2.3 EPS (INR) 1.0 0.6 2.2 Gr. (%) -84.2-40.0 258.1 BV/Sh (INR) 4.6 5.2 7.4 RoE (%) 25.1 12.5 34.9 RoCE (%) 18.0 11.4 17.9 P/E (x) 78.1 130.1 36.3 P/BV (x) 17.4 15.3 10.8 The Ministry of Information and Broadcasting (MIB) has approved the merger of Dish TV (DITV) and Videocon D2H (VD2H), paving the way for their combined operations. We expect the combined entity to derive synergies of INR2.4b in FY19 and INR4b in FY20. Also refer our note dated September 25, 2017 for details on merger synergies. DITV s ARPU has remained sluggish in the last few quarters partly due to high competitive intensity. We expect gradual improvement in ARPU, with the effects of demonetization waning, HD contribution rising, LCOs becoming increasingly tax compliant and competitive intensity reducing. The stock is trading at an EV of 6x and 4.6x EBITDA if we factor merger synergies of INR2.4b in FY19 and INR4b in FY20 (~50% below management s estimates). We remain positive on DITV, with a TP of INR106 (8x EBITDA of INR26.5b including merger synergies of INR2.4b). Merger to drive synergies of INR2.4b in FY19 and INR4b in FY20 The merger should drive synergies of INR2.4b (360bp synergy gains) in FY19 and INR4b (480bp synergy gains) in FY20, implying combined EBITDA of INR26.5b in FY19 and INR31.8b in FY20. VD2H s high content cost of 40% of total revenue (INR82/subscriber/month against DITV s 30% or INR51/subscriber/month) should get rationalized. Additionally, GST of 18% as against 15% service tax and 6-7% entertainment tax should help save an additional 400-500bp. Shareholding pattern (%) As On Sep-17 Jun-17 Sep-16 Promoter 64.4 64.4 64.4 DII 7.8 8.2 6.8 FII 18.8 17.3 19.8 Others 8.9 10.1 9 FII Includes depository receipts Stock Performance (1-year) Dish TV Sensex - Rebased 115 105 95 85 75 65 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 ARPU under pressure in the near term, but should recover gradually DITV s ARPU, which has been under pressure for 3-4 quarters, should gradually recover, as (a) the effects of demonetization wane, (b) HD contribution rises, (c) GST leads to better tax compliance by LCOs, and (d) competitive intensity diminishes with consolidation. We expect flat ARPU in FY18 and build a moderate 2% ARPU CAGR over FY17-20. Merger synergies not factored in valuations; attractively priced at <6x EV/EBITDA (including merger gains) For the combined entity, we expect 9% revenue CAGR and 17% EBITDA CAGR over FY17-20. This is on the back of 8%/1% CAGR in net subscribers/arpu and including EBITDA synergies of INR2.4b/INR4b in FY19/20. We believe merger synergies are not fully captured in valuations. DITV is valued at an EV of 6.6x merged EBITDA of INR24.1b, excluding synergies. The stock is trading at an EV of 6x and 4.6x EBITDA if we factor merger synergies of INR2.4b in FY19 and INR4b in FY20 (significantly lower than the management s expectation of INR5.1b synergies in FY19). We remain positive on DITV, with a TP of INR106 (8x EBITDA of INR26.5b including merger synergies of INR2.4b). Aliasgar Shakir Research Analyst (Aliasgar.Shakir@motilaloswal.com); +91 022 6129 1565 Hafeez Patel Research Analyst (Hafeez.Patel@motilaloswal.com); +91 22 3010 2611 Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/institutional-equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Exhibit 1: Valuation summary (INR b) Dish + Videocon EBITDA (excl. synergies) 24 Market Cap 145 Net Debt 12 Enterprise Value 157 EV/EBITDA (x) 7 EBITDA Synergies 2 EBITDA (incl. synergies) 26 Enterprise Value 157 EV/EBITDA (x) 6 Target Multiple (x) 8 Enterprise Value 215 Net debt 12 Market Cap 203 No of Shares (m) 2 Target Price (INR) 106 CMP (INR) 80 Upside (%) 32% Source: Company, MOSL Exhibit 2: Pro forma income statement of the merged entity (INR m) Dish TV Videocon Synergies Merged Dish TV Videocon Synergies Merged Net Subscriber base (m) 17.7 15.5 33.3 18.9 16.8 35.7 Monthly ARPU (INR) 155 187 170 159 191 174 Income from operations Subscription revenue 31,871 33,300-65,165 34,905 36,951-71,845 Other operating revenue 2,740 2,928-5,668 3,135 3,090-6,225 Total 34,611 36,228-70,839 38,040 40,041-78,081 % YoY growth 10% 11% 10% Expenditure Content cost 9,924 13,404 1,151 22,178 10,421 14,615 2,069 22,967 as % of sales 29% 37% 31% 27% 37% 29% License fees 2,454 2,898-5,352 2,688 3,203-5,891 as % of sales 7% 8% 8% 7% 8% 8% Transponder cost 2,195 1,650-3,844 2,260 1,699-3,960 as % of sales 6% 5% 5% 6% 4% 5% Other operating exp. 1,719 680 71 2,328 1,805 714 197 2,322 as % of sales 5% 2% 3% 5% 2% 3% Employee Cost 1,630 1,449 213 2,866 1,760 1,602 394 2,968 as % of sales 5% 4% 4% 5% 4% 4% Other expense (SG&A) 4,999 3,779 992 7,786 5,463 4,118 1,370 8,212 as % of sales 14% 10% 11% 14% 10% 11% Total 22,921 23,860 2,426 44,356 24,397 25,951 4,030 46,319 EBITDA 11,690 12,368 26,483 13,642 14,090 31,762 % YoY growth 17% 14% 20% EBITDA margin (%) 34% 34% 37% 36% 35% 41% Depreciation 7,650 6,372-14,023 7,725 6,358-14,083 EBIT 4,039 5,996 12,461 5,917 7,732 17,679 Other Income 890 95-985 1,579 146-1,725 Interest 1,371 2,428-3,799 1,371 2,298-3,669 PBT 3,558 3,663 9,647 6,125 5,580 15,735 Tax 1,210 1,099 3,280 2,082 1,674 5,350 Tax Rate (%) 34% 30% 34% 34% 30% 34% PAT 2,348 2,564 6,367 4,042 3,906 10,385, Videocon D2H 18 December 2017 2
Story in charts Exhibit 3: DITV: Margins witnessing some solace Revenue (INR b) Margin (%) Exhibit 4: DITV: Trend in subscription revenue and growth Subscription revenue (INR b) QoQ growth (%) 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 5.8 5.9 6.2 6.4 6.4 6.7 7.1 7.3 7.4 7.5 7.7 8.0 7.8 7.8 7.5 7.1 7.4 7.5 5.3 5.4 5.6 5.6 5.9 6.2 6.5 6.8 6.8 6.5 6.7 7.0 7.3 7.3 6.9 6.2 6.9 7.0 21.0 25.0 23.3 2 24.5 24.1 26.8 28.4 32.0 33.9 34.4 32.6 34.0 34.1 33.4 26.9 27.2 28.9 6.8 0.9 4.7 0.0 4.6 4.3 6.3 4.2 0.1-4.6 2.8 4.2 4.3 0.1-5.0-10.3 11.5 1.9 Exhibit 5: DITV: Trend in net subscribers and ARPU Net subs (m) ARPU (INR) 165 165 169 166 170 172 177 179 173 171 172 164 165 162 152 134 148 149 Exhibit 6: DITV: Net adds up QoQ at 188k; Churn at ~0.8% Net adds (m) Monthly Churn (%) 0.5 0.6 0.6 0.5 0.8 0.6 0.8 0.9 0.9 1.0 0.8 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 10.8 11.0 11.2 11.4 11.7 12.1 12.5 12.9 13.3 13.7 14.0 14.5 14.9 15.2 15.3 15.5 15.7 15.8 0.1 0.3 0.3 0.3 0.5 0.3 Exhibit 7: DITV: Net subs to increase steadily Exhibit 8: DITV: ARPU to witness revival Net subs (m) Net adds (m) ARPU (INR) ARPU YoY growth (%) 1.1 1.1 1.5 1.6 1.0 1.0 1.3 1.1 10 4 5 6-7 -5-2 2 2 9.6 1 11.4 12.9 14.5 15.5 16.5 17.7 18.9 150 157 164 174 162 154 152 155 159 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY12 FY13 FY14 FY15 FY16 FY17 FY18E Exhibit 9: DITV: Margins to rise Exhibit 10: DITV: Subscription revenue to rise led by HD push Consol Revenue (INR b) EBITDA margins (%) 33.5 32.3 33.8 35.9 30.9 25.6 26.7 27.3 22.7 16 Subscription revenue (INRb) YoY growth (%) 16 14 10 10 5 4 5 19.6 21.7 24.3 26.9 30.6 30.1 31.5 34.6 38.0 19.2 21.9 25.5 26.6 27.7 29.1 31.9 34.9 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY13 FY14 FY15 FY16 FY17 FY18E 18 December 2017 3
Exhibit 11: Merged entity s ARPU to get a fillip Exhibit 12: Merged entity s subscription revenue to increase Net subs (m) ARPU (INR) Subscription revenue (INRb) Yoy growth (%) 174 1 10.3 170 170 5.9 5.6 166 28.4 3 33.3 35.7 FY17 FY18E, Videocon D2H 55.8 58.9 65.2 71.8 FY17 FY18E, Videocon D2H Exhibit 13: Content cost as % total revenue to come down gradually 48 Dish TV (%) Videocon (%) 40 34 36 38 40 38 37 37 31 30 32 30 28 30 31 29 27 FY12 FY13 FY14 FY15 FY16 FY17 FY18E, Videocon D2H Exhibit 14: DITV 1-year forward EV/EBITDA trend EV/EBITDA (x) Avg (x) Max (x) Min (x) 43 4 33 23 13 14.4 3 7.3 Dec-08 Feb-10 Mar-11 May-12 Jun-13 Aug-14 Sep-15 Oct-16 Dec-17 Source: Bloomberg, MOSL, Company 8.0 18 December 2017 4
Financials and Valuations Dish TV India (ex-merger) Income Statement (INR Million) Y/E Mar 2013 2014 2015 2016 2017 2018E 2019E 2020E Net Sales 21,668 24,258 26,880 30,599 30,144 31,479 34,611 38,040 Change (%) 1 12.0 10.8 13.8-1.5 4.4 9.9 9.9 EBITDA 5,795 5,513 7,331 10,249 9,729 9,719 11,690 13,642 EBITDA Margin (%) 26.7 22.7 27.3 33.5 32.3 30.9 33.8 35.9 Depreciation 6,276 5,973 6,138 5,907 6,631 7,432 7,650 7,725 EBIT -480-460 1,194 4,342 3,098 2,287 4,039 5,917 Interest 1,284 1,327 1,754 2,087 2,239 1,714 1,371 1,371 Other Income 512 660 635 640 475 325 890 1,579 Extraordinary items 594-415 0 0 0 0 0 0 PBT -658-1,542 75 2,895 1,334 898 3,558 6,125 Tax 0 0 42-4,029 241 243 1,210 2,082 Tax Rate (%) 0.0 0.0 56.4-139.2 18.1 27.0 34.0 34.0 Reported PAT -658-1,542 33 6,924 1,093 656 2,348 4,042 Adjusted PAT -1,252-1,127 33 6,924 1,093 656 2,348 4,042 Change (%) -20.1-10.0-102.9 21,139.0-84.2-40.0 258.1 72.1 Balance Sheet (INR Million) Y/E Mar 2013 2014 2015 2016 2017 2018E 2019E 2020E Share Capital 1,065 1,065 1,066 1,066 1,066 1,066 1,066 1,066 Reserves -2,618-4,191-4,199 2,741 3,840 4,496 6,844 10,886 Net Worth -1,553-3,126-3,134 3,807 4,906 5,562 7,910 11,952 Debt 16,330 14,095 14,839 12,313 11,428 11,428 11,428 11,428 Deferred Tax 0 0 0-4,360-5,100-5,100-5,100-5,100 Total Capital Employed 14,777 10,969 11,705 11,760 11,234 11,889 14,238 18,280 Gross Fixed Assets 35,788 40,989 48,160 57,627 65,359 72,912 80,098 86,937 Less: Acc Depreciation 21,448 27,418 33,621 39,527 46,156 53,588 61,239 68,964 Net Fixed Assets 14,340 13,571 14,539 18,100 19,203 19,323 18,859 17,973 Capital WIP 6,535 4,226 4,972 6,100 7,868 7,868 7,868 7,868 Investments 2,782 2,000 2,000 2,320 1,644 1,644 1,644 1,644 Current Assets 7,891 7,905 10,153 8,513 8,793 7,747 12,907 20,406 Inventory 86 75 99 126 131 172 190 208 Debtors 304 415 637 725 869 690 759 834 Cash & Bank 3,645 3,427 4,287 3,392 2,923 1,968 6,554 13,423 Loans & Adv, Others 3,856 3,989 5,131 4,271 4,871 4,916 5,405 5,940 Curr Liabs & Provns 16,773 16,733 19,958 23,274 26,274 24,693 27,041 29,611 Curr. Liabilities 10,099 8,230 9,221 10,950 11,807 11,756 12,817 13,978 Provisions 6,674 8,503 10,737 12,324 14,468 12,937 14,224 15,633 Net Current Assets -8,882-8,828-9,805-14,761-17,481-16,946-14,134-9,205 Total Assets 14,776 10,969 11,705 11,760 11,234 11,889 14,238 18,280 18 December 2017 5
Financials and Valuations Dish TV India (ex-merger) Ratios Y/E Mar 2013 2014 2015 2016 2017 2018E 2019E 2020E Basic (INR) EPS -1.2-1.1 0.0 6.5 1.0 0.6 2.2 3.8 Cash EPS 4.7 4.5 5.8 12.0 7.2 7.6 9.4 11.0 Book Value -1.5-2.9-2.9 3.6 4.6 5.2 7.4 11.2 Valuation(x) P/E 2617.3 12.3 78.1 130.1 36.3 21.1 Price / Book Value -27.2 22.4 17.4 15.3 10.8 7.1 EV/Sales 3.6 3.1 3.1 3.0 2.6 2.2 EV/EBITDA 13.1 9.2 9.6 9.8 7.7 6.1 Profitability Ratios (%) RoE NM NM NM NM 25.1 12.5 34.9 4 RoCE 1.6 7.0 85.7 18.0 11.4 17.9 23.2 Turnover Ratios (%) Asset Turnover (x) 1.5 2.2 2.3 2.6 2.7 2.6 2.4 2.1 Debtors (No. of Days) 5 6 9 9 11 8 8 8 Inventory (No. of Days) 1 1 1 1 2 2 2 2 Creditors (No. of Days) 145 110 123 123 131 125 125 125 Leverage Ratios (%) Net Debt/Equity (x) -6.4-2.8-2.7 1.7 1.4 1.4-0.3 Cash Flow Statement (INR Million) Y/E Mar 2013 2014 2015 2016 2017 2018E 2019E 2020E Adjusted EBITDA 5,795 5,513 7,331 10,249 9,729 9,719 11,690 13,642 Non cash opr. exp (inc) 1,035 1 425 408 226 325 890 1,579 (Inc)/Dec in Wkg. Cap. 526 1,964 404 1,211-160 -1,490 1,774 1,940 Tax Paid -82-60 -99-199 -1,240-243 -1,210-2,082 Other operating activities -1,179-363 -386-346 -352-325 -890-1,579 CF from Op. Activity 6,095 7,055 7,675 11,324 8,204 7,987 12,254 13,500 (Inc)/Dec in FA & CWIP -6,980-2,986-7,057-9,081-8,612-7,552-7,187-6,839 Free cash flows -886 4,069 617 2,243-408 435 5,067 6,661 (Pur)/Sale of Invt -1,241 831 24-287 729 0 0 0 Others 2,858 1,993 3,425 3,760 2,837 1,514 2,079 2,768 CF from Inv. Activity -5,363-162 -3,608-5,608-5,045-6,038-5,107-4,071 Inc/(Dec) in Net Worth 18 3 35 17 6 0 0 0 Inc / (Dec) in Debt 1,896-3,987 364-2,870-495 0 0 0 Interest Paid -691-625 -761-666 -657-1,714-1,371-1,371 Divd Paid (incl Tax) & Others -1 0 0 0 0 0 0 0 CF from Fin. Activity 1,222-4,610-362 -3,519-1,145-1,714-1,371-1,371 Inc/(Dec) in Cash 1,953 2,283 3,705 2,197 2,013 235 5,775 8,058 Add: Opening Balance 1,692 1,144 582 1,195 909 1,733 779 5,365 Closing Balance 3,645 3,427 4,287 3,392 2,923 1,968 6,554 13,423 18 December 2017 6
N O T E S 18 December 2017 7
Disclosures: The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations). Dish TV India Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed public company, the details in respect of which are available on www.motilaloswal.com. MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Metropolitan Stock Exchange Of India Ltd. 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Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. Disclosure of Interest Statement Dish TV India Analyst ownership of the stock No A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com. Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOSL or its associates maintains arm s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to subject company for which Research Team have expressed their views. 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The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id: na@motilaloswal.com, Contact No.:022-30801085. Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MSE); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products 18 December 2017 8