Event update: Dish TV India (Outperformer) - Merger done, finally!

Event

Dish TV India (DITV) has informed the exchanges that it has filed all relevant documents with the Registrar of Companies pertaining to its merger with Videocon D2H on 22 March 2018. Videocon D2H has now been merged with and into Dish TV effective 22 March 2018. Dish TV’s board of directors will meet on 26 March 2018 to initiate the necessary incidental actions in relation to the merger.

Management Speak

Management indicated that Dish TV shares would be granted to the shareholders of Videocon D2H (as per the pre-agreed swap ratio) at the 26 March 2018 Board meeting. Once the shares are granted, Dish TV would then apply to the exchanges to seek a date from which the newly issued shares (or merged entity) can be traded. The company is hopeful that the newly issued shares would begin to trade from 15 April 2018.

Our View

While the effective date of the scheme is 22 March 2018, the appointed date was 1 October 2017. Hence, Q4FY18 results would be the first time when Dish TV and Videocon D2H would report combined results. We believe benefits of the merger would be visible incrementally from Q1FY19E onwards.

We estimate ~19% market share for combined entity in overall pay-TV households with a comfortable net-debt/EBITDA multiple of 1.2x for FY18E. As distribution businesses have tremendous economies of scale, we expect the merger of Dish TV and Videocon D2H to yield both revenue (higher carriage & advertisement revenue) and cost (content, SG&A and employee, network, capex, interest) synergies. This should help improve the operational performance and growth profile of Dish TV; EBITDA scale should be a re-rating event as synergies play out over time (mostly by FY20E). Lowering of license fee and resolution of past license fee are near-term triggers. Maintain Outperformer with a target price of Rs125 (valuaing it at 10x EV/FY20E EBITDA) for the combined entity.