MOSL: DISH TV INDIA (Buy)-A turnaround quarter-merger synergies to propel growth

Dish TV India: A turnaround quarter; merger synergies to propel growth

(DITV IN, Mkt Cap USD1.2b, CMP INR74, TP INR100, 35% Upside, Buy)

• Revenues rebound strongly: After witnessing a weak performance over the last few quarters, Dish TV (DITV) - post its merger with Videocon - rebounded strongly in 1QFY19. Subscription revenue grew 8% QoQ to INR14.9b, driven by steady 7% QoQ ARPU growth, leading to 8% QoQ growth in consol. revenue to INR16.6b (7% beat). Consol. EBITDA grew by a robust 39% QoQ to INR5.6b (27% beat), led by revenue growth and 3% QoQ opex savings. Adj. EBITDA (excl. merger one-off costs of INR0.6b in 4QFY18) rose 21% QoQ. EBITDA margin expanded 750bp QoQ to 33.6%. Adjusted for INR1.47b deferred tax gain in 4QFY18, PAT stood at INR0.3b (-INR0.3b in 4QFY18), driven by strong EBITDA growth, partly offset by depreciation and interest cost.
• Strong ARPU growth - a positive surprise: ARPU grew 7% QoQ, led by (a) lower discounts, (b) higher HD subscriber addition and (c) price hikes across packages. Management highlighted that peers also followed with price hikes. Net subscribers grew 0.3m QoQ to 23.3m; HD subscribers grew to 3.9m.
• Concall highlights: For FY19, DITV guided for revenue growth of 7-8% and EBITDA margin of 34-35%; capex guidance lowered to INR8-9b (from INR10-11b).
• Merger synergies to keep DITV in action: Turnaround in ARPU, coupled with 360bp QoQ adjusted EBITDA margin expansion, is a positive sign. We increase consol. revenue by ~5% and EBITDA by 14/9% for FY19/20E. We expect like-to-like ARPU growth of 6-7% and healthy 1.3m net subscriber adds. This, coupled with cost saving from merger synergies, should support EBITDA growth. We expect 43% EBITDA CAGR over FY18-20, with margins reaching 36% (+750bp).