EFTA01457523.pdf

Deutsche Bank Markets Research Hoting Dare 27 May 2015 Buy Dish TV Forecast Change .4cia India 210:41-4:er, EN,17",n,a , Price at 26 May 201511NR) 97 65 DSIV BO DfRr IN SSE DSTV Price target - 12mth IINR) 105 00 Broadcasting / Movie & 52-week range 11NR) 97.65 51.15 Entertainment Bombay Stock Exchange 27.644 Back to the good old days of OISE 301 operating leverage COUP,: 40101a Mart0j FAancn Research Analyst Research Analyst I ov: inflation in content cost provides vinibilitv on siren() earninas growth 1+91)22 7183 4055 (+91122 718043% During FY10-12, Dish TVs EBITDA grew 4.2x as the company doubled its g.bhatiagdb.com [email protected] number of subscribers and entered into fixed content cost deals with the broadcasters. We believe operating leverage will play out for Dish again as its .K,.y 011.1111ff content costs are now largely fixed, at least for the next 1.5 years (with 5-6% Price target 84.00 to 105.00 25.0% annual increase), and it aggressively adds subscribers. EBITDA growth of 72% in 4QFY15 (22% ahead of estimates) is a testimony. Continuing strong Sales (FYE) 77.145 to 77.818 2.5% subscriber addition and an ARPU increase of INR 10 (4%) in May 2015 will be OD Prot 1.2 to 4.2 256.3% strong near-term catalysts. margin IFYE1 Net profit -272.6 to 37.3 I -113.7% Filed content cost deals resulted in a big beat in earnings (EYE) Dish TV reported sales/EBITDA growth of +19%/+72% (+2%/+22% vs. our San. riouna,... sink est.). Strong customer addition of 405k net subscribers (vs. our 180k est.) and flat content cost were key drivers for the beat. If one stripped off the impact of activation revenue (accounting change done in Q4FY14), EBITDA growth 105 would still have been 72%. Dish TV has content cost fixed for at least the next 50 20 months (management guiding for 5-6% annual inflation). The Star and Zee 15 content-cost deal expires September 2016, India Cast in March 2017, and Sony Co in March 2018. While fixed content costs will drive earnings growth over the es next six quarters, ARPU increases will drive long-term earnings growth. Cost 30 pass-through for cable (broadcasters push) gives DTH players headroom to 93 1103 5414 11/14 raise prices (see Figure 2 for ARPU trend). Dish also implemented differential 0_N pricing for metros, which is working well, but it may have to roll back the price eanbov Mock Eacha44)15•040441 increase if peers do not follow; otherwise, subscriber addition may be affected. Performance l%) lm 3m 12m DTH seems to be benefitting trout a delay in digitization Phase 3 and 4 Absolute 28.5 23.6 84.9 Despite 1.3mn gross subscriber additions in 2HFY15, Dish is still gaining 28% Bombay Stock Exchange 0.8 -3.8 11.8 incremental market share. It seems that the DTH companies are probably 1BSE 301 gaining market share in Phase 3 and 4 areas. Soiew Onsach• Sort Maintaining Buy; revising target price to INH105 (up 25%) We have increased our earnings estimates (19-21%) and target price to factor in strong customer addition of 1.4mn in FY16/17 (vs. 1.2mn earlier) and lower content cost increase of 8/10% in FY16/17 (vs. 12% earlier). Our estimates are below management guidance of 5-6% content cost increase and 1.4-1.7mn net subscriber adds in FY16. Our target of 11x September 2016 EV/EBITDA is intact. Key risk: slower-than-expected growth in ARPU. 1;::::,•:7 Year End Mar 31 2013A 2014A 2015E 2018E 2017E Sales (INini) 21,668.0 25089.8 27.818.2 31.887.9 37.032.6 EBITDA IINRm) 5,795.2 6261.3 7,296.7 8391.0 11,795.1 1:18 EPS FDIINFII -1.18 -0.36 0.04 3.26 5.47 01.0 DB EPS FDIINR1 -1.18 -0.36 -0.26 2.71 4.61 to Change -0.0% -0.0% -113.7% 20.5% 18.7% San* Dazsca• &At *mown Capin / 1 05 EPS s fury *Med ind includee nen-moaning nun Wuples em yelOscalculacces vie average nevioncal putts tor p.m wore eft/ sow Ines 51•Cvneol erg twin yarn. 444444 Pre +4.44d1 urea sew yter•nd 0014 Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0117098 CONFIDENTIAL SDNY_GM_00263282 EFTA01457523