MOSL: DISH TV (Buy)-Exhibits partial recovery as demon impact fades-EBITDA revival from 2HFY18E

​Dish TV: Exhibits partial recovery as demon impact fades; EBITDA revival from 2HFY18E

(DITV IN, Mkt Cap USD1.2b, CMP INR74, TP INR106, 43% Upside, Buy)

• Resurgence in ARPU uplift revenues: Bucking the trend of the last two quarters, DISH's operating revenue grew 4.3% QoQ (-5.1% YoY) to INR7.4b (3% beat). The fading impact of demonetization drove subscription revenue by 11.5% QoQ (-5% YoY) to INR6.92b. This was steered by a) healthy 10% QoQ jump (-10% YoY) in ARPU to INR148 (4% beat) and b) net adds of 0.186m (+12.7% QoQ, reaching net subscriber base of 15.7m). Monthly churn stood at 1% v/s 0.9% in the previous quarter.
• Assault on content cost: Despite the recovery in ARPU in 1QFY18, EBITDA grew 5.6% QoQ (-23% YoY) to INR2.01b, with the margin at 27.2% (+35bp QoQ, -630bpYoY; 110bp miss). This was mainly due to an increase in content cost (INR190m) and marketing expenses QoQ, which offset the impact of 22% reduction in transponder costs. Net loss trimmed to INR139.4m.
• Expect moderate revenue growth, margin outlook remains upbeat: Management expects 7-8% revenue growth in FY18, led by improving ARPUs toward 2HFY18 and healthy subscriber additions of 1m in FY18. EBITDA margin is expected to hover at 29-31% v/s 27.2% in 1QFY18. Management successfully reduced content cost with one of the large broadcasters in July 2017, and expects further reduction with other broadcasters. The merger with Videocon should be completed by Oct'17. Thus, we have excluded FY19 estimates and will include Videocon merger estimates with revised workings. According to management, the merged entity should drive INR1.8b synergies in FY18 and INR51b in FY19, driving EBITDA growth.