Dish TV , the largest Direct to Home (DTH) service provider raised rates for most of its monthly subscription packs by Rs 20 from July. The basic pack will now cost Rs 200, while one of its top end packs will be priced at Rs 380.
Other DTH players Tata Sky and Airtel Digital TV have also raised tariffs by close to 11% in their base packages this month.
Media analyst Vikash Mantri, ICICI Securities told CNBC-TV18 that rate hike will lead to better profitability and better subscriber economics for the entire DTH (direct-to-home) pack.
Since all the three players have taken similar rate hikes and at the same time, Mantri expects all of them to gain from better average revenue per user (ARPU).
"Going forward, in the near term we are factoring in around Rs 9-10 increase in ARPU for Dish TV," he added. He expects Dish TV to add 2.5 million subscribers in FY13.
ICICI Securities has a target price of close to Rs 80 for Dish TV. The broking firm feels that Dish TV is best placed among the DTH players to invest in DTH or into growth.
"In FY13-14 I expect them to be free cash flow positive and also report profitability in FY13," he added.
Below is the edited transcript of Mantri’s interview with CNBC-TV18. Also watch the accompanying video.
Q: Dish TV has been the big mover, what did you make of that rate hike and do you think its going to have a big impact in terms of profitability or was it a break even kind of move for the company?
A: I think it’s a good move for the entire DTH players clearly. They had taken a hike of around Rs 10 way back in November- December. This Rs 20 further hike is over and above that which will lead to better profitability and better subscriber economics for the entire DTH (direct-to-home) pack.
We were worried that because of the onset of digitization and in a race to acquire more subscribers, DTH players would actually start competing on an upper front. Now the competition is more about who has a better quality of network or who has a better quality of package to offer and not necessarily on the pricing front.
Therefore this move of everybody, at least the top 3 players in terms of increasing the average revenue per user (ARPU) user by Rs 20 or base package price by Rs 20 comes as a welcome move. It will definitely bid good for the entire industry going forward as they start to show up in numbers.
Q: As a whole how much would you expect ARPUs to improve by than and who do you think stands to benefit the most from the 3 key players, is it the listed entity Dish TV or someone else who is coming out tops?
A: I think all 3 since they have taken a similar rate hike and it has been in the same time frame. Everybody stands to gain from the better ARPU. It will be good if the other players who are not very active also were to take this hike then it would mean benefits for everybody.
Otherwise, it could mean marginal pressure to the players who have not taken the rate hike. I would not differentiate between any one particular play saying he can do better because of this, because it’s an industry wide phenomena per se.
Going forward, in the near term we are factoring in around Rs 9-10 increase in ARPU for Dish TV. Such steps taken in terms of increasing the package will help us giving more confidence in taking hikes later on or at least the growth in ARPU coming on in FY14 and FY15 onwards.
Q: The management of Dish TV had actually outlined a 2-3% growth in ARPU for FY13. Now that the surprise hike has come in do you think they are going to beat that guidance and also what kind of subscriber addition target do you think the management can hold by the time FY13 closes up?
A: I think for FY13 clearly a 2-2.5 million subscriber addition should be easily possible for Dish TV. However, in case we see that the digitization guidelines have been met and we are pushing in for an aggressive digitization first in the metros and then into the one million plus towns, I think the management could even beat these estimates. But, we will hold it to expecting that digitization take its own course.
In terms of ARPU, when the management gave a lower guidance in the beginning of the year, these rate hikes will definitely ensure that the management will beat its own guidance by a margin. We are very confident of that. If I were to look at the last 9-10 months the hike has been as much as 20% in a base package. So, there are reasons to believe that it will show up in the ARPUs in the near term at least in the next 18-24 months.
Q: For a stock like Dish TV what kind of an upside potential do you think it could have from this Rs 70 level because many people argue that there are balance sheet issues that the company has and even from a valuation stand point at about 12-13 times EV to EBITDA it looks a little stretched to justify a higher upside, what's your view?
A: Based on current financials given that they are still in the growth state and investing. The financials look weak and therefore the valuation multiples look expensive. But one should not look at this stock in terms of near term financials.
If I were to look at 2 years back then we were talking about negative EBITDA. So what kind of financial valuation multiples would work then. People have to clearly bet on the fact that today we have taken a 20% increase in base packages in the last nine months.
Is it possible for us to take another 50-70% increase in ARPUs over the next 2-3 years? I don’t see any reason why Indian consumers can pay so much more for the DTH service or for the cable service. Today, we exist in an environment where DTH competes with cable where cable doesn’t pay service tax, they do not pay entertainment tax, they probably do not charge you for the second TV at your household.
Even all these limitations DTH is competing on an unfair ground where cable stands to gain. With digitization all this will change. While today we are discussing ARPUs at Rs 180 and Rs 200 levels at best. I have seen no reason why in the next 3-4 years we’ll be talking about 300-400 ARPUs, which should be where it is given the kind of content that the broadcasters and the DTH operators are providing. It would be wrong to value based on current numbers.
In terms of balance sheet I see clear strength in Dish TVs balance sheet. There were problems 2-3 years back, the company had raised sufficient amount of debt and it is also the best placed among the DTH players to invest in DTH or into growth. As of now in FY13-14 I expect them to be free cash flow positive and also report profitability in FY13. I don’t see those arguments to hamper Dish TV. We have a target price of close to Rs 80 for Dish TV.
Via Moneycontrol
Other DTH players Tata Sky and Airtel Digital TV have also raised tariffs by close to 11% in their base packages this month.
Media analyst Vikash Mantri, ICICI Securities told CNBC-TV18 that rate hike will lead to better profitability and better subscriber economics for the entire DTH (direct-to-home) pack.
Since all the three players have taken similar rate hikes and at the same time, Mantri expects all of them to gain from better average revenue per user (ARPU).
"Going forward, in the near term we are factoring in around Rs 9-10 increase in ARPU for Dish TV," he added. He expects Dish TV to add 2.5 million subscribers in FY13.
ICICI Securities has a target price of close to Rs 80 for Dish TV. The broking firm feels that Dish TV is best placed among the DTH players to invest in DTH or into growth.
"In FY13-14 I expect them to be free cash flow positive and also report profitability in FY13," he added.
Below is the edited transcript of Mantri’s interview with CNBC-TV18. Also watch the accompanying video.
Q: Dish TV has been the big mover, what did you make of that rate hike and do you think its going to have a big impact in terms of profitability or was it a break even kind of move for the company?
A: I think it’s a good move for the entire DTH players clearly. They had taken a hike of around Rs 10 way back in November- December. This Rs 20 further hike is over and above that which will lead to better profitability and better subscriber economics for the entire DTH (direct-to-home) pack.
We were worried that because of the onset of digitization and in a race to acquire more subscribers, DTH players would actually start competing on an upper front. Now the competition is more about who has a better quality of network or who has a better quality of package to offer and not necessarily on the pricing front.
Therefore this move of everybody, at least the top 3 players in terms of increasing the average revenue per user (ARPU) user by Rs 20 or base package price by Rs 20 comes as a welcome move. It will definitely bid good for the entire industry going forward as they start to show up in numbers.
Q: As a whole how much would you expect ARPUs to improve by than and who do you think stands to benefit the most from the 3 key players, is it the listed entity Dish TV or someone else who is coming out tops?
A: I think all 3 since they have taken a similar rate hike and it has been in the same time frame. Everybody stands to gain from the better ARPU. It will be good if the other players who are not very active also were to take this hike then it would mean benefits for everybody.
Otherwise, it could mean marginal pressure to the players who have not taken the rate hike. I would not differentiate between any one particular play saying he can do better because of this, because it’s an industry wide phenomena per se.
Going forward, in the near term we are factoring in around Rs 9-10 increase in ARPU for Dish TV. Such steps taken in terms of increasing the package will help us giving more confidence in taking hikes later on or at least the growth in ARPU coming on in FY14 and FY15 onwards.
Q: The management of Dish TV had actually outlined a 2-3% growth in ARPU for FY13. Now that the surprise hike has come in do you think they are going to beat that guidance and also what kind of subscriber addition target do you think the management can hold by the time FY13 closes up?
A: I think for FY13 clearly a 2-2.5 million subscriber addition should be easily possible for Dish TV. However, in case we see that the digitization guidelines have been met and we are pushing in for an aggressive digitization first in the metros and then into the one million plus towns, I think the management could even beat these estimates. But, we will hold it to expecting that digitization take its own course.
In terms of ARPU, when the management gave a lower guidance in the beginning of the year, these rate hikes will definitely ensure that the management will beat its own guidance by a margin. We are very confident of that. If I were to look at the last 9-10 months the hike has been as much as 20% in a base package. So, there are reasons to believe that it will show up in the ARPUs in the near term at least in the next 18-24 months.
Q: For a stock like Dish TV what kind of an upside potential do you think it could have from this Rs 70 level because many people argue that there are balance sheet issues that the company has and even from a valuation stand point at about 12-13 times EV to EBITDA it looks a little stretched to justify a higher upside, what's your view?
A: Based on current financials given that they are still in the growth state and investing. The financials look weak and therefore the valuation multiples look expensive. But one should not look at this stock in terms of near term financials.
If I were to look at 2 years back then we were talking about negative EBITDA. So what kind of financial valuation multiples would work then. People have to clearly bet on the fact that today we have taken a 20% increase in base packages in the last nine months.
Is it possible for us to take another 50-70% increase in ARPUs over the next 2-3 years? I don’t see any reason why Indian consumers can pay so much more for the DTH service or for the cable service. Today, we exist in an environment where DTH competes with cable where cable doesn’t pay service tax, they do not pay entertainment tax, they probably do not charge you for the second TV at your household.
Even all these limitations DTH is competing on an unfair ground where cable stands to gain. With digitization all this will change. While today we are discussing ARPUs at Rs 180 and Rs 200 levels at best. I have seen no reason why in the next 3-4 years we’ll be talking about 300-400 ARPUs, which should be where it is given the kind of content that the broadcasters and the DTH operators are providing. It would be wrong to value based on current numbers.
In terms of balance sheet I see clear strength in Dish TVs balance sheet. There were problems 2-3 years back, the company had raised sufficient amount of debt and it is also the best placed among the DTH players to invest in DTH or into growth. As of now in FY13-14 I expect them to be free cash flow positive and also report profitability in FY13. I don’t see those arguments to hamper Dish TV. We have a target price of close to Rs 80 for Dish TV.
Via Moneycontrol
