Den Networks: More gains ahead

Recent fund raising will support its organic as well as inorganic growth plans

Multi System Operator (MSO) company - Den Networks - raised Rs 689.67 crore last week via preferential share allotment to affiliates of Goldman Sachs. The preferential issue priced the shares at Rs 217.50 each. Post this allotment, Broad Street Investments (Singapore) Pte will hold 16.18% and MBD Bridge Street 2013 Investments (Singapore) will hold 1.62% stake in Den networks. While the issue was approved by the board on June 5, 2013, the company has received the money last week post the go-ahead of Ministry of Information and Broadcasting.

The company will use these funds to complete the digitisation purposes as well as to acquire smaller MSOs. With 11 million subscriber base, Den is has the largest subscribers amongst MSOs.

Out of the six analysts polled by Bloomberg since August 2013, five have Buy recommendation with one Hold recommendation on the Den scrip. Their average target price stands at Rs 241, translating into about 42% upsides from current levels.

"Den Networks is the only net profit positive MSO since 2011, and has registered 16.7% CAGR (FY11-13) in net profit to Rs 62.3 crore. The company has an edge over its peers, owing to its largest subscriber universe in the next two phases. Complete digitisation of this base is expected to make a significant impact on Den’s financials", says Karan Mittal, analyst at ICICI Securities.

So far, Den has digitised about 5 million subscribers and is confident of completing the next two phases of digitisation successfully. The company is planning to launch its High Definition (HD) operations on a large scale over the next couple of quarters. It also plans to offer broadband services (Rs 200 crore capex) along with the cable services by the end of this fiscal. Such value added services will boost Den's Average revenue per user (ARPUs) as well as operating margins.

The company is also planning to consolidate smaller MSOs to further increase its subscriber base.

"As compared to other MSOs, Den is well capitalised to tap any acquisition opportunity. We see value in the stock from a two-year perspective", says Abneesh Roy, analyst at Edelweiss Securities.

Den has witnessed strong EBITDA margin expansion from 8.8% in FY11 to 27% in the quarter ending June 2013. Analysts expect its FY14 revenues to grow 48.7% to Rs 1,334 crore; reflecting gains of the digitisation process.