Dish TV : Not appetising

In a difficult environment, it could be a while before the company makes money.

With its proposed rights issue for Rs 1140 crore, Dish TV will be more than doubling its equity base. That’s a huge dilution even if the money helps reduce the DTH service provider’s debt of around Rs 500 crore. The issue is priced at Rs 22 per share with shareholders getting 121 shares for every 100 shares held. But in a weak market, the stock closed Tuesday’s trading session at Rs 21.65. So the average cost of the shares, if one picks up the rights shares, works out to Rs 21.85. Even at these levels, the stock seems expensive because the company has accumulated losses of over Rs 600 crore.

What’s more, the operating environment has just got more hostile with Airtel making its debut in the DTH space. With Tata Sky lowering subscription rates and Reliance offering subscribers an attractive package, it hasn’t been an easy time for Dish TV. All its peers have far deeper pockets and, with their telecommunication networks and subscriber bases, Airtel and Reliance can be formidable competition.

For sure, the DTH service will find an increasing number of takers over the next few years, more so because the entry points are now lower. So a subscriber base of 18 million by FY10 doesn’t look unlikely. But Dish TV’s average cost of acquiring customers has gone up from Rs 1,800 in FY08 to around Rs 2500 currently and the management believes it could rise further to Rs 2,800. That’s because Dish TV has been subsidising set-top boxes with the entry point now below Rs 2,000.

While subscribers continue to sign on — one million paid up for the service in FY08 and 530,000 in Q2FY09 — higher dealer commissions and advertising costs left the company reeling with losses of Rs 414 crore last year, on income from sales and services of Rs 412 crore. Moreover, it has lost market share to competitors over the past year. The subscriber base is a reasonably-strong 4 million, the result of some aggressive marketing, but the competition is getting fierce.