Event update: Dish TV India (Outperformer) - Turbulence ahead of the merger?

Event

Dish TV India (DITV) has informed the exchanges that certain entities belonging to the Videocon Group (including the promoters of Videocon d2h (VD2H)) have become subject to insolvency and/or enforcement proceedings by lenders. DITV is evaluating if these events impact its rights and obligations under the definitive agreements signed with VD2H and whether this would have any impact on its merger with VD2H. Read the exchange filing here.

Merger has received all approvals

We note that DITV had announced the merger in November 2016 and it has received all approvals (including Competition Council of India, National Company Law Tribunal, exchanges and Ministry of Information and Broadcasting). The last approval received was that of the MIB on 15 December 2017 and the merger was effective from 01 October 2017 as per the NCLT.

Management Speak

As per the management the transaction is on track and they are seeking 60 days of time (outer limit) to understand from VD2H promoters whether lenders of Videocon Group would have any recourse to Videocon Group’s shareholding in the combined entity (DITV+VD2H).

Our View

As per our understanding, Videocon Group is part of the list of accounts which the RBI had given time till 13 December 2017 to finalise a resolution plan failing which these borrowers have been referred to NCLT. As per NCLT norms, it has to resolve the issue within 270 days from the day of referring else the account has to be liquidated.

The merger is thus delayed, although it is difficult to say by how long. We note that our strong Outperformer rating (upside of 60%) is predicated on synergy benefits coming through in FY20E which would need to be revisited once new merger timelines are clear. The possibility that VD2H promoters may have to sell their 23% stake, in the combined entity, to resolve their insolvency issues could mean that the stock price of the combined entity would be under pressure in the near-term. We have an OP rating on DITV. Our TP of Rs135 values the combined entity at 10x FY20E EV/EBITDA. In the eventuality of the merger being called off, we would have to review our rating on the stock.