Dish TV: Connection with profits now in place

Turnaround in March quarter is likely to continue in FY16

Dish TV’s March quarter numbers were significantly higher than the street expectations, with net profit coming in at Rs 35 crore against the Bloomberg consensus estimates of Rs 0.4 crore and a loss of Rs 149 crore a year ago. While the street was expecting Dish TV to post its first-ever net profit in the March quarter, the larger beat on actual net profit number pushed the stock up 14 per cent to Rs 96.85 on Tuesday. More importantly, the turnaround looks sustainable and FY16 could be a good year.

Net sales, driven by strong subscriber addition, rose 18.5 per cent to Rs 755 crore, higher than the street estimates of Rs 735 crore.  Higher than expected average revenue per user (APRU) of Rs 179 (driven by price hikes) and subscriber additions led to a 24 per cent growth in subscription revenue to Rs 683 crore. Higher ARPU and larger customer base meant margins also got a boost. Additionally, programming content costs as a proportion of sales also fell 414 basis points to 27.5 per cent, partly due to a bigger customer base and cost control. Ebitda margin, thus, came in at 29.4 per cent, highest in 10 quarters.

Notably, Dish TV has locked long-term deals with broadcasters and is confident of keeping content costs under check. Renewal of the existing deals with broadcasters is lined up only around December 2016 and March 2017.

Control over costs, along with strong top line growth, will enable further margin expansion in FY16. Top line should get a push from the 1.4-1.7 million subscribers the company plans to add in FY16, versus 1.5 million in FY15, beside pricing gains. R C Venkateish, chief executive officer, Dish TV, says, “We will continue to push the bar on pricing as well as focus on increasing penetration of HD. This will lead to six-seven per cent ARPU gains in FY16.”

The company has a three-pronged growth strategy and plans to push differentiated pricing in urban and rural markets via its second brand Zing, increased penetration of HD channels and ARPU expansion. Further, the March quarter witnessed only partial benefit from price rises taken in end-February and, hence, some of the gains may flow into the current quarter as well. Post the strong numbers, analysts are likely to up their earnings estimate and price target. While increase in competitive intensity remains a risk, Dish TV’s record lends some confidence.