Dish TV India's Q3FY19 results (Neutral) - TRAI order implementation, promoter-level liquidity issues to be near-term overhangs!

Q3FY19 Results Highlights

• DITV cons. revenue fell by 4.8% qoq to Rs15.2bn (5% miss) led by 2.8% qoq fall in Subscription revenue to ~Rs14.1bn (2% miss). Other op. income fell ~25% qoq as accounting for STBs procured under VD2H was aligned to DITV’s norms, this is an EBITDA neutral exercise (as both rev. and costs were lower by Rs~400m).
• DITV’s ARPU decline has continued into Q3 (~3% qoq fall to Rs200) after reporting a similar decline in Q2 (Q1 had seen a sharp ~7% qoq improvement). Net subs addition came in at ~142k (IDFCe: 200k) while net subscriber base stood at ~23.6m.
• Uncertainty behind TRAI tariff implementation has led to weakness in ARPU as well as subscriber additions. We note that Airtel DTH’s ARPU was flat qoq, while it added ~222k subs (net) during Q3.
• EBITDA at Rs5.2bn (-4.3% qoq) came in 6% below est. on rev miss even as adj. expenses (for change in STB accounting) were under control (flat qoq) while EBITDA margin improved ~20 bps qoq to 34.1% (IDFCe: 34.6%).
• Adj. net profit (for deferred tax) came in at ~Rs242m (5.3% qoq fall; 17% miss), reported profit was higher due to deferred tax write-back to the tune of Rs1.34bn; finance costs came in 16% lower than expected.
• ~Rs2.25bn FCF generated in Q3.

Key positives: FCF generation of Rs2.25bn.

Key negatives: Lower than exp. ARPU/subs addition led EBITDA miss.

Impact on financials: FY19E/20E EBITDA cut by 7%/8% respectively.

Valuations & view

As per the management, DITV has lowered its net-debt by ~Rs5bn in 9MFY19 (currently stands at Rs20.5bn). We believe that it is purposely being less aggressive in adding gross susbcribers to improve its liquidity situation so that it is prepared to pay the license fee regulatory liability in case it is called for. Near-term headwinds aside, we believe that merger synergies are largely on track. Also, DITV’s 65% rural subscriber base is a natural hedge to the potential onslaught from Jio’s triple-play foray. Our channel checks suggest that all four top broadcasters are planning to remove their FTA GEC/movie channels from the Free Dish platform. If indeed true, this could aid subscriber addition for pay-DTH in the near-to-medium term. However, DITV’s promoter group liquidity concerns and their legal tussle with the erstwhile VD2H promoters would continue to weigh on stock performance. We maintain our Neutral stance on DITV with a revised target price of Rs 24 (4x FY20E EV/EBITDA). We maintain that if the promoter leverage issue is resolved or if there is a strategic buyer for DITV as well, the stock can very quickly start reflecting fundamentals.