Dish TV India's Q3FY20 results (Neutral) - Weakness persists…

Q3FY20 Results Highlights

• From Q1 onwards Dish TV is reporting rev. net of content costs as under the new tariff order (NTO), content cost is a pass-through.
• Revenue stood at ~Rs8.7bn (fell 3% qoq; 4% miss). While subscription revenue was in-line at ~Rs8bn (+1% qoq); other op. income came in lower than expected (Ad revenue booked in earlier quarters was reversed during this quarter) leading to miss on total revenue.
• Despite the festivities in Q3, DITV added just ~5K net subs addition (net subs base ~24m). Calculated ARPU was largely flat qoq at Rs111.
• EBITDA fell ~3% qoq to ~Rs5.1bn (3% miss) due to lower other op. expenses as tight leash on costs continued. EBITDA margins stood flat qoq at 58.3% (IDFCe: 57.5%).
• For Airtel DTH ARPU was flat qoq, it added 101K net subscribers and EBITDA fell 3% qoq, similar to Dish TV.
• Lower depreciation qoq led to PBT jumping ~44% qoq to ~Rs246m. However, higher than est. tax outgo (deferred tax) led to DITV reporting a net loss of ~Rs645m in Q3.
• Balance Sheet: Net debt stood at ~Rs21.5bn as of December 2019 vs indicated figure of ~Rs17bn as of H1.
• Dish TV defaulted on Rs2.5bn in Nov’19 and says that it has since paid part of the overdue amount and the remaining will be paid by the end of this month. Debt, interest obligations and creditors which fell due after the particular incident (of default) have been fulfilled on time.
• There was no post result analyst call held this time which does not send a good signal, especially in such tough times.

Key positives: Lower other op. costs / depreciation.

Key negatives: Low net subs addition, sharply lower other op. rev.

Impact on financials: 3%/10% cut in FY20E/21E EBITDA.

Valuations & view

This quarter was weak for the industry visible from Airtel DTH’s EBITDA performance which was similar to that of Dish TV. Weak customer additions continue for Dish TV, even in the festive quarter, as it continues to clamp down on aggressive additions given liquidity constraints. The Essel Group’s liquidity issues have weighed heavily on Dish TV as core operations have also suffered due to lack of ability to avail credit (apart from issue of pledged shares). Apart from this, the Balance Sheet regulatory liability continues to rise and if the DTH industry losses this case in the Supreme Court then Dish TV’s situation will further worsen as net-debt will more than double. Maintain Neutral with a revised TP of Rs11 (3.6x FY20E EV/EBITDA). The only upside risk to valuation is identification and completion of strategic buyout of Dish TV by a much stronger group.