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Help Buy Dish TV; target of Rs 73: KRChoksey
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KRChoksey is bullish on Dish TV and has recommended buy rating on the stock with a target of Rs 73 in its November 1, 2010 research report.

“Dish TV reported strong Q2FY11 results better that our expectations on the back of strong volume growth. EBITDA margin improved primarily due to lower subscriber acquisition cost (SAC) related to lower cost of STB and advertising expense. Going forward, we expect increasing DTH penetration and the company’s leading incremental market share to drive long term growth. Dish TV reported strong growth on the back of robust growth in additions in DTH subscribers. By the end of Q2FY11 industry wide DTH subscribers stood at ~26 million, adding 2.8 million during Q2 FY11 wherein Dish TV commanded an incremental market share of 27% higher than our expectation of 25%. Dish TV’s gross subscriber base stood at 8.3 million while the net subscriber base was at 6.8 million. Subscriber churn remained at 0.7% which the company believes to remain at the same level in future.”

“Factors such as lower STB cost, and advertising cost led to decline in SAC from which in turn improved EBITDA margin to 15.3% in Q2FY11. ARPU with Rs 139 and content cost remained flat during the quarter sequentially. The company expects yearly subscriber base to increase by 3.2 mn and believes ARPU to be in the range of Rs 150 - 152 by Q4FY11E. The company has already taken a price hike in its base pack. As Dish TV has entered into fixed content cost deals with 5 out of 6 major broadcasters, its around 90% of the content cost is fixed in nature and is not linked with subscribers. Hence going forward content cost standing at 39% of the subscription revenues in Q2FY11 is expected to go down to 35% by FY11. These contracts have inflationary clause of 7-8%. We believe in the scenario of increasing subscriber base, if these contracts remain in force for next 2-3 years and renews even at more than 15-20% of inflation, Dish TV will benefit largely in terms of margin improvement.”

“Indian DTH industry has witnessed a strong growth, adding more than 10 million subscribers annually to reach over 26 million subscriber by Q2FY11. DTH penetration is expected to increase to reach 43 million by FY12. We believe Dish TV being a market leader with an incremental market share of ~27% is expected to benefit in garnering high volume growth. We expect Dish TV’s subscriber base to reach ~9.5 million by the end of FY11E and 12.2 million by FY12E. The same along with ARPU improvement, decreasing SAC and content cost will reflect in improvement in overall profitability of Dish TV. Considering higher than expected Q2FY11 results we have revised our estimates upwards. By assigning an EV/EBITDA multiple of 18x we arrive at a target price of Rs 71 and using DCF valuation, we arrive at a target price of Rs 73. Our weighted average target price comes to Rs 72 and hence we maintain our STRONG BUY rating with a potential upside of 28% for the next 12 month horizon,” says KRChoksey research report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management.Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Attachments : DishTV_KRC_201110.pdf

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