Dish TV India's Q4FY19 results (Neutral) - Another miss; tariff order the light at the end of the tunnel?

Q4FY19 Results Highlights

• DITV cons. revenue fell 7.8% qoq to Rs14bn (6% miss) led by 7.4% qoq fall in subscription revenue to ~Rs13.1bn (7% miss).
• DITV’s ARPU decline has continued into Q4 (calc. ARPU fell by 8% qoq to Rs170), this time due to the disruption from New Tariff Order (NTO) implementation uncertainties. ARPU was especially disrupted in Jan/Feb, but has since rebounded in March and improved further in April/May, as per DITV. Net subs addition also fell to just ~47k (IDFCe: 350k), leaving the net subscriber base at ~23.7m.
• EBITDA at Rs4.2bn (-22.0% qoq) came in 15% below est. on rev. miss and higher than exp. content costs (continued to pay broadcasters under the old regime despite rev. accrual under the new regime esp. for March). Staff + SG&A costs however were under control. EBITDA margin came in at 29.7% (-540 bps qoq; IDFCe: 32.8%).
• In Q4, DITV has booked ~Rs15.6bn impairment expenses on goodwill (on VD2H and SL investments). In addition, the company also booked a ~Rs2.8bn tax writeback. Reported loss stood at ~Rs13.6bn. Adj. for impairment PAT stood at ~Rs2bn (and further adjusting for tax writeback, adj. loss was ~Rs877m vs est. profit of Rs159m).
• ~Rs950m/~Rs6.9bn FCF generated in Q4/FY19 respectively. Net debt stood at ~Rs20.7bn as of FY19 end.

Key positives: March onwards increasing in consumer ARPU.

Key negatives: Higher than exp. Impact of NTO led miss in rev./EBITDA.

Impact on financials: FY20E rev now net of content costs; FY20E EBITDA broadly maintained; Introduce FY21E.

Valuations & view

The implementation of the tariff order (NTO) weighed heavily on the performance of DITV causing the huge miss in H2FY19 financials. However, we believe these issues are now behind and DTH operators will be net beneficiaries of the NTO as content cost becomes a pass through and they earn 20-35% commission on the same. We believe DITV is purposely being less aggressive in adding gross susbcribers (FY19 capex at Rs8.6bn while FY20E guidance is just Rs5.6bn) to improve its liquidity situation so that it is prepared to pay the license fee regulatory liability in case it is called for. DITV’s 65% rural subscriber base is a natural hedge to the potential onslaught from Jio’s triple-play foray. 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 35 (5x 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.