MOSL: DISH TV INDIA (Buy)-Subdued quarter-merger synergies to be the mainstay for growth

Dish TV India: Subdued quarter; merger synergies to be the mainstay for growth

(DITV IN, Mkt Cap USD0.9b, CMP INR37, TP INR50, 35% Upside, Buy)

• A miss on most fronts: Subscription revenue fell 2% QoQ to INR14.5b (4% miss) due to lower net subscriber addition and a decline in ARPU. This, coupled with muted other revenue, led to a 4% QoQ decline in consol. revenue to INR15.9b (4% miss). Consol. EBITDA declined 3% QoQ to INR5.4b (4% miss), mainly dragged by lower revenue, partly offset by 4% QoQ savings in opex. Yet, EBITDA margin expanded 30bp QoQ to 33.9%. PAT declined 9% QoQ to INR0.3b (72% miss) due to a decline in EBITDA.
• ARPU disappoints: ARPU declined 3% QoQ to INR207. Net subscribers increased by 0.2m QoQ (v/s +0.3m in 1QFY19) to reach 23.5m. The slowdown in net addition can be attributed to the price hikes taken in the preceding quarter.
• Concall highlights: (1) Management reiterated its guidance of 8% revenue growth and 35% EBITDA margin for FY19. (2) Net subscriber addition guidance of 1.3m maintained. (3) FY19 content cost guidance at ~32-33% of revenue. (4) Company targets to become debt-free in two years.
• Merger synergy remains the mainstay: We cut our revenue/EBITDA estimates for FY19/20 by ~3%. However, we expect DITV to regain momentum in the coming quarters, led by the festive boost; expect 25%/41% revenue/EBITDA CAGR over FY18-20 on a low base of FY18 (includes only six months of Videocon D2H consolidation). Furthermore, merger synergy remains the mainstay for overall growth; expect EBITDA margins to reach 36% by FY20.