Den Networks rallies 11% as Co swings to profit in June quarter

Shares of Den Networks rallied up to 11.3 per cent to quote at Rs 69.85 apiece on the BSE on Friday after the cable network company posted strong numbers for April-June quarter (Q1FY20) on July 11.
 

The company declared a net profit of Rs 11.23 crore for the recently concluded quarter against a loss of Rs 30.72 crore in the year-ago period. The company had reported a net loss of Rs 1,86.38 crore in the quarter ended March, 2019.
 

Analysts at Edelweiss securities believe that a rise in cable subscription due to tariff change and the on-going Cricket World Cup 2019 could have led to additional cable connections and the consequent rise in revenue.
 

The revenue from operations, though, dipped marginally by 0.3 per cent, from Rs 314.17 crore to Rs 313.15 crore on a yearly basis. It, however, grew by 14.6 per cent from Rs 273.10 crore, on a quarter-on-quarter (QoQ) basis. 
 

Competition from peers like Airtel TV and Tata Sky, and the expanding OTT (over-the-top) space, analysts say, could exert pressure on cable average revenue per user (ARPU) for the company. 
 

Den Networks last declared its ARPU and subscriber count in Q3FY19. The latter stood at 7 million then.
 

Furthermore, earnings before interest, tax, depreciation and amortisation (EBITDA) expanded nearly 10 per cent (QoQ), but the margin contracted by 50 basis points (bps) during the same period. Markets further cheered a reduction in debt from Rs 482 crore in Q4FY19 to Rs 404 crore in Q1FY20.
 

POTENTIAL UPSIDE
 

Analysts at Edelweiss, in their result review note, said that potential benefit from the Reliance Jio (RJio) deal remains the key variable. 
 

In March this year, RJio increased its stake in Den Networks from 66.57 per cent to 78.62 per cent. 
 

RJio wishes to launch its services, Reliance Jio GigaFiber and JioTV, for which it needs support of cable companies to provide last mile connectivity for fiber-to-the-home (FTTH) services.
 

“Taking into account RJIO’s plan to enter the distribution space and potential benefits thereof, we retain the 8x 12-month forward EV/EBITDA, which yields a target price of Rs 74,” they said, maintaining a ‘hold’ rating on the company.
 

The stock, they say, is trading at FY20/FY21E EV/EBITDA of 6.4x/5.5x.
 

At 11:54 am, the stock was trading 7 per cent higher at Rs 67.2 apiece relative to a 0.08 per cent gain in the benchmark S&P BSE Sensex.
 

So far in 2019, the stock has underperformed the benchmark index. Den Networks has slipped 10.4 per cent against a 7.6 per cent rise in the S&P BSE Sensex, ACE Equity data show.