DIsh TV 130701 Nomura Reiterate Buy Focus on Value-focused Subscribers and FCF,Industry Dynamics...

7/28/2019 DIsh TV 130701 Nomura Reiterate Buy Focus on Value-focused Subscribers and FCF,Industry Dynamics Improving Buy Tgt 108 Upside 77%

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Key company data: See page 2 for company data and detailed price/index chart.

Dish TV India DSTV.NS DITV INMEDIA

EQUITY RESEARCH

Reiterate Buy, TP revised to INR108

Focus on value-focusedsubscribers and FCF, industrydynamics improving

July 1, 2013

RatingRemains

Buy

arget price

Increased from 107 INR 108

Closing price

June 28, 2013 INR 61

Potential upside +77%

Action: Maintain Buy with a revised DCF-based TP of INR108

We raise our TP to INR108. While our FY14F EBITDA is up by 2%, our

avg EBITDA FY14-15F are down by ~5% (our FY14-15F FCF are higher),

which are offset by lower cost for equity that reflects the ~60bps YTD

reduction in risk-free rate and roll forward our TP base to FY14F.

Increase in STB price focus on value-focused subscribers, FCFDTH companies, including Dish, have increased set top box (STB) prices

to reduce subsidy, attract quality customers and improve their FCF and

balance sheet. While cable operators have also raised STB prices, the

higher price differential between cable operators and DTH should imply

relatively lower subscriber addition for DTH in the short term, even as it

may have a positive impact on the churn rate. We lower our subsidy

forecast on STB by INR200/yr but scale back our DTH market share

estimates from 35%/40%/45% to 20%/30%/30% in phases 2/3/4, which

leads to lower subscriber additions of 2.2/5.0mn (vs 4.1/6.4mn earlier) in

FY14/FY15F.

Better content negotiation; gu idance of 8%-10% growth in FY14F

Dish being the market leader, according to management, has been able to

extract better terms on content cost with broadcasters. Content cost rise in

FY13 was at ~5.1% vs. managements earlier guidance of 12-15%. Dish

has guided for 8-10% y-y rise in FY14. We estimate a 10% rise in FY14F

vs. 15% y-y earlier.

Valuation: Inexpensive given improving FCF, growth prospects

The stock currently trades at EV/EBITDA multiple of 9.3x FY14F (6.4x

FY15F EBITDA) which is ~28% discount to its three-year average trading

multiple of 13.8x.

31 Mar FY12 FY13F FY14F FY15FCurrency (INR) Actual Old New Old New Old New

Revenue (mn) 19,580 22,484 21,668 27,831 25,537 37,893 33,146

Reported net profit (mn) -1,331 -1,459 -660 -1,093 632 598 1,841

Normalised net profit (mn) -1,331 -1,459 -1,254 -1,093 632 598 1,841

FD normalised EPS -1.25 -1.37 -1.18 -1.03 59.40c 56.26c 1.73

FD norm. EPS growth (%) na na na na na na 191.3

FD normalised P/E (x) na N/A na N/A 102.6 N/A 35.2

EV/EBITDA (x) 15.1 N/A 13.1 N/A 9.3 N/A 6.4

Price/book (x) na N/A na N/A na N/A na

Dividend yield (%) na N/A na N/A na N/A na

ROE (%) 98.8 53.4 28.6 27.3 -27.4 -14.1 -172.3

Net debt/equity (%) -1,081.8 -379.6 -697.7 -277.9 -817.7 -348.9 193.1

Source: Company data, Nomura estimates

Anchor themes

We believe that the Indianmedia industry is at aninflection point as digitization is

now a reality. We believe thatMSO's transition to digitalpackages will positively impactARPU.

Nomura vs consensus

We have the highest TP on theStreet, as we expect that theheightened focus on free cashflow and pick up in subscriberaddition, especially in Phases3-4, have not been completelyfactored in by consensus.

Research analysts

India Media

Ank ur A garw al, CFA - NFASL

[email protected]+91 22 4037 4489

Lalit Kum ar - NFASL

[email protected]+91 22 4037 4511

See Appendix A-1 for analystcertification, importantdisclosures and the status ofnon-US analysts.


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Nomura | Dish TV India July 1, 2013

2

Key data on Dish TV IndiaIncomestatement(INRmn)Year-end 31 Mar FY11 FY12 FY13F FY14F FY15F

Revenue 14,367 19,580 21,668 25,537 33,146

Cost of goods sold -5,058 -6,115 -6,599 -7,259 -8,711

Gross profit 9,309 13,465 15,069 18,277 24,435

SG&A -10,163 -12,975 -14,729 -15,722 -20,698

Employee share expense -761 -748 -822 -903 -991

Operating profit -1,614 -258 -482 1,653 2,746

EBITDA 2,381 4,960 5,794 7,757 10,430

Depreciation -3,996 -5,219 -6,276 -6,104 -7,684

Amortisation

EBIT -1,614 -258 -482 1,653 2,746

Net interest expense -1,534 -1,780 -1,284 -1,336 -1,220

Associates & JCEs

Other income 1,226 707 511 315 316

Earnings before tax -1,922 -1,331 -1,254 632 1,841

Income tax 3 0 0 0 0

Net profit after tax -1,919 -1,331 -1,254 632 1,841

Minority interests

Other items

Preferred dividends

Normalised NPAT -1,919 -1,331 -1,254 632 1,841

Extraordinary items 0 0 594 0 0Reported NPAT -1,919 -1,331 -660 632 1,841

Dividends 0 0 0 0 0

Transfer to reserves -1,919 -1,331 -660 632 1,841

Valuation and ratio analysis

Reported P/E (x) na na na 102.6 35.2

Normalised P/E (x) -33.7 -48.7 -51.7 102.6 35.2

FD normalised P/E (x) na na na 102.6 35.2

FD normalised P/E at price target (x) na na na 181.5 62.3

Dividend yield (%) na na na na na

Price/cashflow (x) 16.4 15.8 6.7 6.6 3.4

Price/book (x) na na na na na

EV/EBITDA (x) 30.4 15.1 13.1 9.3 6.4

EV/EBIT (x) na na na 43.8 24.3

Gross margin (%) 64.8 68.8 69.5 71.6 73.7EBITDA margin (%) 16.6 25.3 26.7 30.4 31.5

EBIT margin (%) -11.2 -1.3 -2.2 6.5 8.3

Net margin (%) -13.4 -6.8 -3.0 2.5 5.6

Effective tax rate (%) na na na 0.0 0.0

Dividend payout (%) na na na 0.0 0.0

Capex to sales (%) 70.0 33.5 41.8 21.5 37.1

Capex to depreciation (x) 2.5 1.3 1.4 0.9 1.6

ROE (%) -190.7 98.8 28.6 -27.4 -172.3

ROA (pretax %) -6.8 -1.1 -1.9 6.2 9.8

Growth (%)

Revenue 32.4 36.3 10.7 17.9 29.8

EBITDA 113.1 108.3 16.8 33.9 34.5

EBIT na na na na 66.1

Normalised EPS na na na na 191.3

Normalised FDEPS na na na na 191.3

Per share

Reported EPS (INR) -1.81 -1.25 -62.05c 59.40c 1.73

Norm EPS (INR) -1.81 -1.25 -1.18 59.40c 1.73

Fully diluted norm EPS (INR) -1.81 -1.25 -1.18 59.40c 1.73

Book value per share (INR) na na na na na

DPS (INR) na na na na na


Relative perfo rmance chart (one year)

Source: ThomsonReuters, Nomura research

(%) 1M 3M 12M

Absolute (INR) -8.7 -9.2 -1.2

Absolute (USD) -13.9 -16.8 -5.0

Relative to index -4.6 -11.7 -15.8

Market cap (USDmn) 1,094.1

Estimated free float (%)

52-week range (INR) 84.85/56.7

3-mth avg daily turnover(USDmn)

3.32

Major shareholders (%)

Promoters 64.8

Source: Thomson Reuters, Nomura research

Notes

Interest expense also factors in

interest on the provision created

for entertainment tax


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3

Cashflow(INRmn)Year-end 31 Mar FY11 FY12 FY13F FY14F FY15F

EBITDA 2,381 4,960 5,794 7,757 10,430

Change in working capital 424 -2,312 4,278 1,123 4,766

Other operating cashflow 1,143 1,457 -359 926 3,806

Cashflow from operations 3,948 4,105 9,713 9,806 19,002

Capital expenditure -10,052 -6,553 -9,063 -5,485 -12,312

Free cashflow -6,104 -2,448 650 4,321 6,690

Reduction in investments 2,318 821 -1,282 0 0

Net acquisitions

Reduction in other LT assets 2 521 0 0 0

Addition in other LT liabilities

Adjustments 836 344 1,106 315 316

Cashflow after investing acts -2,949 -762 474 4,636 7,006

Cash dividends 0 0 0 0 0

Equity issue 56 22 0 0 0

Debt issue 1,751 2,185 427 -3,000 -3,000

Convertible debt issue

Others -1,152 -784 -1,175 -1,336 -1,220

Cashflow from financial acts 655 1,424 -748 -4,336 -4,220

Net cashflow -2,293 662 -274 300 2,785

Beginning cash 5,550 3,257 3,919 3,645 3,945

Ending cash 3,257 3,919 3,645 3,945 6,730

Ending net debt 7,545 10,154 10,855 7,555 1,770


Balancesheet(INRmn)As at 31 Mar FY11 FY12 FY13F FY14F FY15F

Cash & equivalents 3,257 3,919 3,645 3,945 6,730

Marketable securities 0 0 2,782 2,782 2,782

Accounts receivable 227 286 304 373 484

Inventories 44 69 86 67 150

Other current assets 2,687 2,326 3,706 2,378 2,586

Total current assets 6,215 6,600 10,522 9,544 12,732

LT investments 2,000 1,500 0 0 0

Fixed assets 18,474 18,044 20,808 19,970 24,105

Goodwill 384 43 67 67 67

Other intangible assets

Other LT assets 158 152 151 151 151

Total assets 27,231 26,340 31,548 29,732 37,055

Short-term debt 4,317 3,880 6,040 6,040 6,040Accounts payable 10,711 6,408 10,425 9,372 13,464

Other current liabilities 3,286 4,999 6,674 7,573 8,650

Total current liabilities 18,313 15,287 23,140 22,985 28,154

Long-term debt 6,485 10,194 8,460 5,460 2,460

Convertible debt

Other LT liabilities 2,063 1,798 1,504 2,210 5,524

Total liabilities 26,861 27,278 33,104 30,656 36,138

Minority interest

Preferred stock 1,063 1,064 1,065 1,065 1,065

Common stock -693 -2,002 -2,621 -1,989 -148

Retained earnings

Proposed dividends

Other equity and reserves

Total shareholders' equity 370 -939 -1,556 -924 917

Total equity & liabilities 27,231 26,340 31,548 29,732 37,055

Liquidity (x)

Current ratio 0.34 0.43 0.45 0.42 0.45

Interest cover -1.1 -0.1 -0.4 1.2 2.2

Leverage

Net debt/EBITDA (x) 3.17 2.05 1.87 0.97 0.17

Net debt/equity (%) 2,039.3 -1,081.8 -697.7 -817.7 193.1

Act ivi ty (d ays)

Days receivable 7.4 4.8 5.0 4.8 4.7

Days inventory 2.6 3.4 4.3 3.8 4.5

Days payable 900.3 512.3 465.5 497.7 478.4

Cash cycle -890.3 -504.1 -456.3 -489.0 -469.2


Notes

With positive FCF generation of

INR650mn in FY13, we expect FCF

generation of INR4.32bn in FY14F

which implies FCF yield of 6.7%

Notes

We expect a reduction in debt as the

company is likely to generate strong

FCF in FY14F. Dish TV has a

negative working capital cycle as

shown in Fig 16, where we have

captured the way to calculate Dish

TVs working capital cycle


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4

Increase in set top box (STB) price by DTH companies; focuson FCF and quality customers

Dish TV had increased the price of STB twice in Feb-13 from INR1,690 to INR2,000 per

box, which was followed by other domestic DTH companies. While some cable operators

such as Den Networks also increased prices of STB, the price differential between cable

operators and DTH companies has increased, which has resulted in lower subscriber

additions by DTH companies. This is also visible in subscriber additions (as shown in the

table below) between 1 March 2013 and 12 April 2013 where multi system operators(MSOs) have seeded 4.45mn STBs vs. 0.38mn STBs seeded by DTH players. DTH

companies have consciously taken this decision to improve their balance sheet, FCF and

add value-focused customers than just subscriber additions (that can positively impact

the churn rate going forward), in our view.

Fig. 1: Dish TV Increasing price of standard definition set

up boxINR

Source: Company data, Nomura research

Fig. 2: Declining SAC/ARPU The proxy for the paybackperiod is coming down with the increase in STB prices


Fig. 3: Phase 2 Impact on subscriber additions on account of STB price increases


We increase our estimated consumer premise equipment (CPE) price charged by the

company to subscribers, which should increase the lease rental income for the

company. We increase our CPE charge estimate by INR200 per year (in Q3) over

FY14-16F (during digitization) and INR400 thereafter, which should help reduce the

subsidy to zero by FY17F. While the company has indicated that it will reduce the

subsidy to zero in the next 12-18 months, we believe that such a sharp increase will be

contingent on the rate at which MSOs increase prices of STBs.

We adjust our DTH market share estimate in analog subscribers (which convert to

digital) from 35%/40%/45% to 20%/30%/30% in phases 2/3/4, while we maintain Dish

TVs incremental share estimate of 24% in the DTH industry. This means a lower

number of subscriber additions for Dish TV vs. our earlier expectation.

Scale advantage visible in content negotiation withbroadcasters; lower guidance of 8-10% y-y growth in FY14F

Dish being the market leader in the DTH industry with ~28% market share, according to

management, has been able to better negotiate over content cost with broadcasters.

While management reduced its earlier guidance of 12-15% increase in FY13 content

1,100

1,300

1,500

1,700

1,900

2,100

Jan'12 July'12 Feb'13 Feb'13

12

14

16

18

20

As of Total Dig it ization

subscriber Total MSO DTH

1-Mar-13 16 55% 8.8 4.7 4.07

26-Mar-13 16 67% 10.7

12-Apr-13 16 85% 13.6 9.15 4.45

Digital Subscribers


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Churn rate fell to 0.8% in Q4 from 1% in Q3; emphasis onvalue-focused customers and churn management strategyyield results

Dish TVs churn rate declined to ~0.8% in Q4 from 1% in Q3. Apart from win-backs of

customers, the decline in churn rate can be attributed to:

Set up box price increase by DTH players as well as some cable operators such as

Den Networks in Feb-13, which has increased the subscriber switching cost. This can

also been seen from the fact that Airtels DTH churn rate has come down from 1.3% inQ3 to 1.1% in Q4.

Dish TVs offer of 70 basic free channels (mostly free-to-air) for subscribers as a part of

the existing base package. As highlighted in our report, Misplaced conclusion about a

price war, dated 11 October 2012, this was a churn management strategy which

became evident in Q4.

While we continue to factor in a 1% churn rate, we do not rule out a positive surprise on

this front. Its too early to extrapolate 0.8% churn rate and we will wait for 1-2 quarters to

check its sustainability.

FCF generation l ikely to increase from INR650mn in FY13F to~INR432bn in FY14F

Dish TV has generated ~INR650mn FCF in FY13 and should generate ~INR4.32bn (pre-

interest outflow) in FY14F, as per our estimate. This implies a FCF yield of ~6.7%.

Reduction in debt level We estimate gross debt at INR14.5 bn and net debt at

~INR9.5bn in end-FY13F. We expect the debt level to come down gradually from

FY14F as the company would repay debt from positive FCF post payment of interest.

Lower subscriber addition As highlighted above, the increase in STB price should

lead to lower subscriber addition by the company over FY14-16F. This should lead to

lower capex and thus increase FCF, in our view.

Reduction in subsidy on consumer premise equipment (CPE) The company has

increased the CPE price from INR1,690 to INR2000, and this should reduce the

subsidy and thus improve FCF for the company, in our view.

Summary of our estimate changes

Based on our review of numbers and discussion with management, we revise our

estimates to capture the trends in FY13F and following points:

We now factor in a delay in phases 3/4 of digitization from three months earlier to six

months, based on our discussions with various stakeholders in the industry. While the

government may continue with the current deadline for phases 3/4 of digitization, the

shifting of all analog subscribers may take 3-6 months after the deadline in phases 3/4

based on what has happened in phases 1/2. In phase I, the digitization deadline was

extended in Kolkata and Chennai, while in phase 2, ~4mn subscribers out of 16mn

were on analog cable after the expiry of the deadline of 31 March 2013.

We increase our lease rental estimate from INR740 to INR1,050 for H1FY14 post CPE

price increase taken by company from INR1,690 to INR2,000 for Feb-13. We estimate

that the company will further increase the price of CPE by INR200 per year over FY14-

16F (till digitization) and INR400/240 in FY17/18F to completely remove the subsidy on

STB.

As DTH companies have increased the price of STB, we reduce our DTH share

estimates for analog subscriber from 35%/40%/45% to 20%/30%/30% in phases 2/3/4

while we maintain our estimate of 24% incremental share in the DTH industry for FY14-

16F.

As a result of the low DTH share in phases 2/3/4 of digitization and the delay in the

deadline, we revise our subscriber addition estimate for Dish from TV from 4.1/6.4/3.1

mn earlier to 2.2/5.0/4.0 mn in FY14/FY15/FY16F.
http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=566481&appname=GRP&cid=Z29RcTQ1ajJsUVE90http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=566481&appname=GRP&cid=Z29RcTQ1ajJsUVE90http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=566481&appname=GRP&cid=Z29RcTQ1ajJsUVE90http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=566481&appname=GRP&cid=Z29RcTQ1ajJsUVE90


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7

We now factor in a content cost increase of 10% (vs. 15% y-y earlier) in FY14F to

factor in management guidance of 8-10% increase.

Based on data release by the ministry of information and broadcasting, there were

lower number of analog connections in phases I/II. Accordingly, we revise our number

of analog household estimates from 10/20/40/38mn to 6/16/43/43mn (total 68mn) in

phases 1/2/3/4 digitization.

Lower subscriber addition would lead to lower capex and thus our lower depreciation

estimate.

We reduce our tax rate estimate for FY15F from 20% to 0% as the company hasmentioned that it will be paying minimum alternate tax (MAT) from FY16F and no tax till

FY15F.

Fig. 6: Change in estimates

INR mn

Source: Nomura estimates

Fig. 7: Nomura vs consensus

INR mn, except for EPS which is In INR

Source: Bloomberg, Nomura estimates

Valuation methodology

We value the stock based on discounted cash flow to arrive at our new TP of INR108 as

we roll forward our TP base to FY14F from H1FY14. We reduce our cost of equity

estimate from 14.9% to 14.2% to capture the decline in Indias 10-year government bond

yield from 8.2% to ~7.5%. The stock currently trades at an EV/EBITDA multiple of 9.3x

FY14F EBITDA (6.4x FY15F EBITDA) which is ~28% discount to its 3-year average

trading multiple of 13.8. In our view, this is compelling in the context of EBITDA likely

tripling (an EBITDA CAGR in FY13-16E of ~44%) over FY13-16F and our ~INR4.32bn offree cash (pre interest outflow) flow generation estimate for FY14F that translates to

6.7% FCF yield. Our target price implies EV/EBITDA multiple of 11.7x FY15F EBITDA

(7.1x FY16F EBITDA when the complete benefit of digitization will be visible). Cash flows

are discounted back to FY14F. Our valuation methodology remains unchanged.

FY14F FY15F FY16F FY14F FY15F FY16F FY14F FY15F FY16F

Revenue 25537 33146 46528 27,831 37,893 50,445 -8% -13% -8%

- y-y growth 17.9% 29.8% 40.4% 23.8% 36.2% 33.1%

EBITDA 7,757 10,430 17,193 7,601 11,751 19,079 2% -11% -10%

- margin 30% 31% 37% 27% 31% 38%

PAT 632 1,841 7,011 -1,093 598 6965

Old ChangeNew

FY14F FY15F FY14F FY15F FY14F FY15F

Revenue 25537 33146 25568 30026 0% 10%

- y-y growth 18% 30% 18% 17%

EBITDA 7,757 10,430 7305 9052 6% 15%

- margin 30% 31% 29% 30%PAT 632 1,841 83.1 1385

Nomura Consensus Difference


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8

Fig. 8: DCF-based target price of INR108

INR mn except for target price which is in INR

Source: Company data, Bloomberg, Nomura estimates

Fig. 9: Cost of equity

Source: Bloomberg, Nomura estimates

Fig. 10: Sensitivity of target price to terminal growth and cost

of equity


Year FY11 FY12 FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E 2021E 2022E 2023E Term inal

Sales 14367 19580 21668 25537 33146 46528 53195 58784 64565 69986 76322 83880 92392Growth 32% 36% 11% 18% 30% 40% 14% 11% 10% 8% 9% 10% 10% 6%

EBITDA 2381 4960 5794 7757 10430 17193 19059 19642 20630 20829 22294 24348 26734EBITDA Margin 17% 25% 27% 30% 31% 37% 36% 33% 32% 30% 29% 29% 29%

D&A 3996 5219 6276 6104 7684 7868 7638 7439 7141 5389 4225 3992 3898

Interest 1534 1780 1284 1336 1220 1057 934 983 1124 1282 1461 1663 1891

Taxes (3) 0 0 0 0 1753 2271 2556 2956 3498 6894 7912 9028Tax Rate 0% 0% 0% 0% 0% 20% 20% 20% 20% 20% 33% 33% 33%

Capital Expenditure 10052 6553 9063 5485 12312 9494 4975 4408 3997 3549 3677 3807 3940

Working Capital 1602 (977) 3985 1830 8080 4691 1490 2090 1663 2261 3249 3905 4626FCFE (7600) (4349) (568) 2766 4977 9581 12369 13785 14217 14760 13511 14871 16501 213753Cost of Equity 14.2% 14.2% 14.2% 14.2% 14.2% 14.2% 14.2% 14.2% 14.2% 14.2% 14.2% 14.2% 14.2% 14.2%

Discount Factor 0 0 0 1.0 0.9 0.8 0.7 0.6 0.5 0.5 0.4 0.3 0.3 0.3

Time 0 0 0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 9.0

Discounted FCFE 0 0 0 2766 4359 7349 8309 8110 7325 6660 5339 5147 5002 64789

PV of FCFE 125,153

Add: cash 6,727

Sub: PV of provision 17,064

Total PV 114,816

No. of shares 1064.7

Target Price (FY14) 108

Cost of Equity Ass umpt ions

Rd 7.5%

Beta 1.12

Rm-Rf 6.0%

Re 14.2%

erminal g

12.2% 13.2% 14.2% 15.2% 16.2%

4% 121 107 96 87 80

5% 130 114 101 91 83

6% 143 123 108 96 86

7% 161 135 116 102 91

8% 187 151 127 110 97

Cost of Equi ty


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9

Fig. 11: TP sensitiv ity to DTH market share in phases 3/4 ofdigitization and increase in CPE price/ year by Dish TV overFY14-16F

INR

*Note we assume INR 400 increase in CPE price from FY17F subject to STB costprice as the upper limit


Fig. 12: Target price sensitivity to churn rate and DTH marketshare in phases 3/4 of digitization

INR


Fig. 13: EV/EBITDA trading mul tiple Stock trading is at ~28% discount to its 3 year average trading multiple of 13.8x

Source: FACTSET, Capitaline, Nomura research

Fig. 14: Zee vs. Dish TV EV/EBITDA trading mu ltip le Dish istrading at a 44% discount to Zee vs. 3-year average discountof 6%

Source: FACTSET, Capitaline, Nomura research

Fig. 15: The 10-year Indian government bond yield hasdeclined by ~60bps YTD

Source: Bloomberg, Nomura research

Fig. 16: Dish TV Negative working capital cycle

Source: Company, Nomura research

CPE pri ce

increase

20% 25% 30% 35% 40%

0 91 98 105 111 118

100 92 99 106 113 120

200 94 101 108 115 122300 95 102 109 116 123

400 96 103 111 118 125

500 97 104 112 119 126

DTH market share in phase 3/4

Churn

20% 25% 30% 35% 40%

0.8% 103 111 118 125 132

0.9% 99 106 113 120 127

1.0% 94 101 108 115 122

1.1% 88 95 102 109 116

1.2% 83 89 96 102 109

DTH market share in phase 3/4

9

11

13

15

17

19

E V/ EBI TD A F Y1 3 y ear av erage E V/ EBI TD A 1 s tdev 1 s tdev

-60%

-40%

-20%

0%

20%

40%

60%

80%

5

10

15

20

25

30

Aug-09

Oct-09

Dec-09

Feb-10

Apr-10

Jun-10

Aug-10

Oct-10

Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Premium /disc ount D ish Z ee

7.0

7.2

7.4

7.6

7.8

8.0

Jan-13 Jan-13 Jan-13 Feb-13 Mar-13 Mar-13 Apr-13 Apr-13 May-13 May-13 May-13 Jun-13

FY12 FY13F FY14F FY15F

Inventory 4 4 4 4

Debtors 5 5 5 5

Advances to vendors, dis tributors etc 7 7 7 7

Income received in advances 73 60 64 96

Trades Payable 48 118 48 48Advances/ deposits received 15 15 15 15

Creditors for fixed assets 52 90 90 90

Other creditors 11 11 11 11

WC days -181 -277 -211 -242


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10

Impact on Dish TV of the depreciation of INR vs. USD

INR has depreciated by ~8.8% YTD vs. USD (from 55 to ~59.8) which, in our view, will

likely have a limited adverse impact in the short term, but given Dishs market leadership

position, we expect Dish to pass the price increase to consumers. We look at major FX

components that could impact the company-

Dish TV has ~INR12bn of buyers credit in USD as companies receive a credit period of

~60 days from CPE suppliers. The depreciation of INR by ~8.8% could lead to

additional cash outflow of INR1142mn (including interest) from the company which is

~1.7% of its current market cap. The company also has inventory of 1.6mn STB vs. our

expectation of ~ 2.2mn gross subscriber additions in FY14F.

Depreciation of INR vs. USD would mean an increase in the price of STB/CPE for DTH

companies. As per news on Indiatelevision.com, DTH companies such as Tata Sky and

cable operators such as Hathway and Den intend to increase STB prices at the

consumer end to pass on the impact of the depreciation of INR. Hence, we see a

marginal and only a short-term impact owing to depreciation of INR on Dish TV.

Transponder lease cost which is ~7.6% of total cost is paid in USD (the company paid

~ INR1.2 bn in FY13). So, even if we assume a 5% growth and 8.8% INR depreciation,

the PV of incremental cash flow till perpetuity would be INR1,205, on our estimates,

which is ~1.9% of its market cap.

Investment ri sks

Delay in digitization: We assumed six months further delay in phases 3 and 4 of

digitization. Any further delay in digitization would mean slower subscriber additions,

which would result in a deviation from our estimates.

A change in government regulation: The India media industry, which includes cable

operators, broadcasters, DTH players, etc, is regulated by the government. Any change

in government policies, such as tax rate and the import duty on STB can adversely

impact our estimates.

Competition: Aggressive strategy by a competitor Indias DTH industry has six

players (excluding DD Direct), with Dish being the market leader, with a 29% market

share. Currently, there are six DTH players and any aggressive strategy by a competitor

to increase its market share can result in an increase in the churn rate. This wouldadversely impact our numbers.

Depreciation of INR vs. USD: Dish imports STBs from Korea. If the depreciation of INR

vs. USD sustains itself it would lead to increase in the cost of STBs. We assume that the

company will pass on the increase in the cost of STBs due to the depreciation of INR vs.

USD. So, our estimate might be adversely impacted if the company decides not to

increase STB prices.


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Appendix A-1

Analyst Cert ificat ion

We, Ankur Agarwal and Lalit Kumar, hereby certify (1) that the views expressed in this Research report accurately reflect our

personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our

compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this

Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by

Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures

The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more

Nomura Group companies.

Materially mentioned issuers

Issuer Ticker Price Price date Stock rating Sector rating Disclosures

Dish TV India DITV IN INR 62 01-Jul-2013 Buy Not rated

Zee EntertainmentEnterprise Z IN INR 247 01-Jul-2013 Buy Not rated

Dish TV India (DITV IN) INR 62 (01-Jul-2013)

Rating and target price chart (three year history)

Buy (Sector rating: Not rated)

Date Rating Target price Closing price

03-Oct-12 Buy 81.40

03-Oct-12 107.00 81.40

14-May-12 Not Rated 55.70

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology Our 12-month target price of INR108 is based on a DCF valuation methodology. We have assumed6% terminal growth, risk-free rate of 7.5% (10-year Indian government risk free bond), beta of 1.12 and market premium of 6%.

Based on these numbers, we have taken cost of equity of 14.2%. Cash flows are discounted back to FY14F.

Risks that may impede the achievement of the target price Delay in digitization: We assume six months further delay inphase 3 and 4 each of digitization. Any further delay in digitization would mean slower subscriber addition, which would result ina deviation from our estimates. Change in government regulation: the media industry, which includes cable operators,broadcasters and DTH players, is regulated by the government. Any change in government policies, such as tax rates andimport duty on STB, could adversely affect our estimates. Competition: aggressive strategy by a competitor Indias DTHindustry has six players (excluding DD Direct), with Dish the market leader at 29% market share. There are six DTH players,and any aggressive strategy by a competitor to increase its market share could result in an increase in churn rates. This wouldadversely affect our numbers. Depreciation of INR vs. USD: Dish imports STBs from Korea. The depreciation of INR vs. USDwould increase the cost of STBs. We assume that the company will pass on the increase in the cost of STBs due to thedepreciation of INR vs. USD. So, our estimate might be adversely impacted if the company decides not to increase STB prices.


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recommendation of the stocks under coverage is) a negative absolute recommendation.
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DIsh TV 130701 Nomura Reiterate Buy Focus on Value-focused Subscribers and FCF,Industry Dynamics...

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