Uphill climb for Dish TV in Q4

The company needs to add 500,000 additional subscribers to meet its FY16 subscriber target

Weak operational performance in the quarter ended December and muted outlook on average revenue per user (ARPU) metric led to a 13 per cent fall in the stock price of Dish TV on Wednesday. The company missed expectations on the revenues, operating profit as well as net profit numbers.

While revenues were up 12.6 per cent, operating profit was higher by 39 per cent and the company’s net profit came in at Rs 68 crore as against a loss in the year-ago period. On a sequential basis, net profit was down 21 per cent, which the company attributed to losses on account of forex fluctuations, especially weak rupee against the dollar.

On the operational front, the company was short of Street estimates on net subscriber additions as well, which came in at 317,000 (down seven per cent quarter-on-quarter) as against expectations of 450,000. Dish TV's direct to home (DTH) peers have done better in the quarter and have grown faster on subscriber additions gaining market share from Dish TV.

This is the fourth quarter of sequential fall in subscriber additions for Dish TV which had peaked at 420,000 in the December quarter of 2014. Analysts had estimated higher subscriber additions given the third phase of digitisation. Given the delays in implementation and competitors offering more attractive packs, the company has missed out and is expected to play catch up going ahead. While the company has done about one million net additions in the nine months of the current financial year, it has stuck to its 1.5 million additions target for financial year 2016. The company will need to add about a half a million additional subscribers in the March quarter, which may not be easy given its own track record.

The company has indicated that it will follow a dual strategy for attracting customers with high-value packs for urban and city consumers, while subscribers located at smaller towns could be offered lower priced packs. Given the busy cricket calendar (T20) and the expectations of higher TV sales (LCDs, etc) during such periods, analyst expect the company to do better than the December quarter on subscriber additions.

The other disappointment was on the ARPU metric, which came in at Rs 172 per month as compared to expectations of Rs 176 per month. The company indicated that lower revenue growth on account of a two per cent increase in service tax to 14.5 per cent and higher number of subscriber additions from the Zing portfolio, which are typically lower priced, added to the muted ARPU number.

Adjusted for the service tax increase, ARPUs would have been Rs 175, according to the company. The company has guided for an ARPU of Rs 172 for the financial year, which is flat as compared to FY15. This indicates that there is a bit of pricing pressure preventing players such as Dish TV from increasing prices.

Going ahead, the company is looking at pushing their HD (high definition) pack given that they typically get nearly double the realisations of a standard pack. The management, however, emphasised that they would, given the large catchment of phase III digitisation, look at market share gains and volume-driven approach, rather than just focus on ARPUs.

On the costs front, the management is hopeful that content costs which are currently at 30 per cent of sales will go down to about 27-28 per cent with revenue growth moving faster than content costs. Though operational numbers were muted, the company managed to post its highest-ever margins of 34.4 per cent. The number could move up if content costs are kept under check. Contracts with channels come up for renewals in the second quarter of FY17 and any significant increase could hurt profitability.