Signals getting stronger

Despite higher-than-expected losses at Rs 48.56 crore, Dish TV says it is on track to post its first profits in the current year. The company's CFO, Rajeev Dalmia, says the losses were on account of a mark-to-market adjustment on the foreign currency loan of Rs 750 crore and believes the company should report profits in the December quarter.

However, its performance on quite a few counts (subscriber addition, high definition or HD conversions) was sub-par in the September quarter. Going ahead, however, analysts at Goldman Sachs believe the company is well placed to register annual revenue and Ebitda growth of 30 and 64 per cent, respectively. This is due to higher net subscriber additions, average revenue per user (ARPU) and improving Ebitda margins on the back of mandatory digitisation as well as operating leverage.

SLOWING SUBSCRIBER ADDITIONS
Lack of any major event, monsoons and the economic slowdown translated into lower subscriber addition of 5.75 lakh in the September quarter against average subscriber additions of 8.3 lakh each in the last four quarters. Dish TV's CFO says that HD conversions happen based on events; the first half of the calendar year had the World Cup and the IPL, which helped generate interest for the format.

TEMPORARY BLIP
In Rs crore	Q2, FY12	% chg q-o-q	FY12E	% chg y-o-y
Sales	482	4.8	2,014	40.0
Ebitda	122	8.6	541	128.0
Ebitda (%)	25.3	90 bps	26.9	1,030 bps
Net profit	-48.5	–

-52

–

E: Estimates                                                                            Source: Emkay Global

After peaking in the December quarter of FY11, new additions have been showing a declining trend. Dalmia believes weakness in the economy is causing people to postpone their discretionary spends, which is impacting its new subscribers for normal as well as HD services. In this backdrop, the company has scaled down its expectations of subscriptions for HD service from 7-10 per cent of total subscribers to four-five per cent.

Nevertheless, with 60 per cent of the business coming in the second half of the year (festival season), Dish TV is expected to add 3-3.5 million new subscribers in the current fiscal, taking its total to 13 million subscribers. It is also banking on the launch of HD services from the Zee and Sony stable that will expand the number of general entertainment channels on this technology platform.

ARPUS, MARGINS UP
While HD conversions were not up to expectations, the company managed to increase its ARPU to Rs 152, up 1.3 per cent on a sequential basis, in the September quarter. While average ARPUs for the first half are at Rs 151, average for the year is expected to be Rs 155. The company expects it to pick up in the next two quarters and end with March quarter ARPUs in the Rs 160-Rs 165 bracket. Subscriber acquisition costs, a combination of set top subsidy and promotion expenses, went up in the September quarter due to higher commissions to dealers at the start of the festive season.

Margins, though, still improved by 90 basis points sequentially (aided by lower programming costs) to 25.4 per cent in the September quarter, slightly lower than the expected 26 per cent. Rising subscription revenue and increasing customer additions on a fixed-cost base will ensure improving operating leverage going ahead, says Dalmia.