MOSL: Dish TV 2QFY18 RESULT UPDATE-Videocon merger synergies to drive earnings

​2QFY18 RESULT UPDATE (DISH TV INDIA: Videocon merger synergies to drive earnings)

(DITV IN, Mkt Cap USD1.3b, CMP INR80, TP INR106, 31% Upside, Buy)

• - EBITDA comes in above estimates: Dish TV (DITV) delivered healthy EBITDA growth of 7% QoQ (-18% YoY) to INR2.2b in 2QFY18, 4% above our estimate. Revenue grew 1% QoQ to INR7.5b, supported by a 2% improvement in subscription revenue. EBITDA margin improved 160bp QoQ, led by lower SG&A costs, partly offset by higher transponder cost.
  
• - Improving operating environment: EBITDA margin was also aided by the gradually reducing churn. Net subscriber addition stood at 188,000 to reach 15.9m (+1% QoQ), while ARPUs strengthened to INR149 v/s INR148 in the previous quarter. Improvement in monthly churn to ~0.8% v/s 1% in 1QFY18 helped reduce subscriber acquisition cost (to INR1,525/sub) and ad expenses.
  
• - Margin-led growth ahead: Management continued to guide for 1m annual subscriber adds in FY18/19 and an ARPU improvement in 2HFY18, led by a) the fading impact of discounts offered two quarters ago and b) HD penetration. We believe the EBITDA margin should improve to 30.9% in FY18 v/s 28% in 1HFY18, driven by GST gains, better ARPUs and subscriber adds. Subsequently, FY18 EBITDA is expected to remain flat, while FY18-20E EBITDA CAGR should come in healthy at 18%, driven by 10% revenue growth and a margin improvement. Management maintained FY18/19E synergy guidance of INR1.8b/INR5.1b from the Videocon merger, which could drive steep EBITDA growth.