Dish TV: Signals to get stronger

Subscriber growth, rise in ARPUs to improve operating performance

Dish TV’s December quarter results were better than expectation, with the company recording growth in most key parameters. Overall revenues were up 16.5 per cent year-on-year (y-o-y) to Rs 714 crore on the back of growth in subscription revenues, up 17.4 per cent to Rs 655 crore, better product mix and price rises. It added 400,000 net subscribers in the quarter, which, combined with the 700,000 in first half of FY14, takes the net additions to 1.1 million at the end of December (total subscriber base 12.5 million). It expects to meet its 1.5 million net subscriber addition target for FY15. Notably, the firm has seen strong additions on high definition user and higher average revenue per user (ARPU) per month (Rs 434 versus overall ARPU of Rs 177). A five per cent price hike in July also helped.

On the operating profit level, the company has kept costs under control which, coupled with higher revenue growth, helped improve earnings before interest, depreciation, taxes and amortisation (Ebidta) margins. The metric was at 26.8 per cent, up 470 basis points, against a year ago. The content deals the company has entered into has helped keep the content costs flattish at Rs 198 crore, both on sequential and y-o-y basis. Importantly, the margins are expected to move up with the company looking to limit content cost growth to mid single-digit levels, while ensuring the revenue growth is in the teens. Further, the firm does not have any major content deals in the immediate future with the next major deal expected to come up only in September 2016.

Given the good operational performance, Dish TV managed to bring down its losses from Rs 38 crore in the year-ago quarter to only Rs 3 crore in the December quarter. Net profit would have been higher but for the sharp 59 per cent y-o-y jump in interest costs to Rs 48 crore. The firm adopted an aggressive hedging policy, given the sharp emerging, as well as developed currency movement. This led to a hit of Rs 5-6 crore, inflating interest costs.

While the digitisation deadlines have been pushed back to the end of this calendar year and the next, analysts believe subscriber additions will get a push in calendar year 2016, helping the company improve its net additions to about two million a year. With multi system operators raising prices given the aggressive stance on content deals adopted by broadcasters such as Star, Dish TV will have flexibility to increase prices further. This should improve ARPUs. The stock, up 4.5 per cent after the results, is now trading at 10 times its FY16 enterprise value / Ebidta estimates.