Dish TV : BUY

DISH TV Benefitting From Digitization

The I&B Ministry has announced its intent to implement the Digital Addressable Cable System by December 2014. In order to understand its implications, we met with the mgmt of Hathway Cables (unrated).

The management is confident of a successful rollout this time around and believes that their co shall be a key beneficiary (82% of its 8.3 mn subscribers come under Phase 1 and Phase 2 of the mandatory CAS implementation). In our opinion, Dish TV too will gain significantly from this thrust on digitization, leading us to raise our TP on Dish TV.

Hathway mgmt meet: Key highlights

• Focus on digitization: Hathway is currently focusing on digitizing its existing ~8.3 mn subscriber base, rather than expanding its subscriber base through inorganic means. They expect  to  digitize  ~1  mn  subs  in  FY12E  with  digitizing  becoming mandatory.
• Funding in place to digitalize 6 mn subscribers: Required to pay only 30% of STB capex upfront with the rest due at the end of the third year. Hathway will be required to pay 7-8% interest on outstanding liabilities. The STB subsidy is currently at Rs 600 /subscriber.
• Consolidation likely post CAS implementation:  Cable industry likely to witness consolidation post mandatory digitization as many small MSO’s and LCO’s business would become unviable.
• Cable players are the likely beneficiaries of mandatory digitization: Hathway’s mgmt believes that the mandatory digitization is likely to benefit cable players more than DTH as they can provide similar services at a comparatively lower rate than DTH. However, carriage & placement fees could get negatively impacted for cable cos.

Outlook and Recommendation

Rapid build-up in digital subs base post mandatory digitization augurs well for Dish TV as it leads to a faster expansion of its subscriber base. While we maintain our earnings estimate for Dish TV, we revise our TP upwards to Rs 81 (previous Rs 69) based on a 12x EV/EBITDA multiple on FY13E (earlier disc. back to FY12E @ 16% WACC).  We maintain our  BUY rating  on  Dish  TV  with  an upside of 16% from CMP of Rs 70.

I&B Ministry’s recommendation on digitization

The Information and Broadcasting ministry (I&B) has come out with its views on implementation of digital addressable cable system in India, suggesting Dec 2014 as the sunset date for the analogue cable regime.