MOSL: DISH TV INDIA (Buy)-Cost synergies not fully factored in stock price-Expect healthy EBITDA growth for merged entity in FY19
​DISH TV INDIA: Cost synergies not fully factored in stock price; Expect healthy EBITDA growth for merged entity in FY19
(DITV IN, Mkt Cap USD1.3b, CMP INR78, TP INR106, 36% Upside, Buy)
DITV’s stock price has declined 27% in the last six months on weak revenue/EBITDA performance. Though ARPU expectations remain moderate and DD Free Dish remains a near-term risk, we believe the current stock price does not factor in the high synergies expected from the merger of Videocon D2H. We reiterate Buy.
Merger to provide stimulus to margins
Videocon D2H’s merger should drive synergies of INR2.4b (340bp synergy gains) in FY19 and INR4b (510bp synergy gains) in FY20, implying combined EBITDA of INR26.8b in FY19 and INR31.9b in FY20. Videocon’s high content cost of 40% of total revenues (INR82/subscriber/month against DITV’s 30% or INR51/subscriber/month) should get rationalized. Additionally, GST of 18% as against 15% service tax and 6-7% entertainment tax should help save an additional 400-500bp.
DD Free Dish a near-term risk, but long-term economics unfavorable
DD Free Dish has drawn high interest from broadcasters in the recent auctions, posing a risk to current Pay TV subscribers and 40m-45m phase-IV analog subscribers yet to get digitized. We believe chasing advertisement revenue from the FTA market at the cost of subscription revenue is unfavorable for broadcasters. Their loss of subscription revenue share from DD Free Dish subscribers is INR3.8b higher than the corresponding FTA ad market opportunity. This would increase to INR13.3b, assuming 30m Phase-IV analog subscribers shift to DD Free Dish.
Dish TV India is a direct to home (DTH) entertainment service company based in India. Co. is a division of Zee Network Enterprise (Essel Group Venture). EGV has national and global presence with business interests in media programming, broadcasting & distribution, specialty packaging and entertainment. Co. offers DVD quality picture and stereophonic sound effects to customers. Co. transmits programs through satellite and gives customers control of selecting channels and paying for them. Co. offers features such as Electronic Program Guide, parental lock, games, 400 channels, interactive TV and movie on demand. Co. also delivers customers national and international channels.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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