Dish TV: Timely move

The $100-million (Rs 470-crore) equity infusion through issue of global depository receipts (GDRs) to US-based buyout specialist Apollo Management and Rs 410 crore expected from the third tranche of its rights issue should help India’s largest direct-to-home (DTH) service provider, Dish TV, increase its subscriber base and post an improvement in performance.

In an increasingly competitive environment and falling average revenues per user (down 15 per cent since the June quarter last year), the cash will help Dish TV, which made a loss of Rs 476 crore in 2008-09, to maintain its leadership in a market with six strong players.

The DTH segment is expected to add about nine million subscribers in 2009 and Dish TV is hoping to corner a 20-25 per cent share of that number. Currently, the DTH subscriber base is 20 million, with Dish TV’s share at about six million.

The company has also been cutting costs by shifting to fixed-cost content contracts. This has reduced the cost of content to 46 per cent of sales in the September quarter from 60 per cent a few quarters ago. While this has also resulted in incremental revenues per new subscriber added, the management believes the long-term benefit from these contracts will accrue from 2010-11 as its subscriber base grows.

It also expects the distribution commission, that comes from the sale of recharge vouchers, to come down to about 3-4 per cent of sales from the current 6-7 per cent. This, coupled with upgrades to premium packages by customers, should improve profitability. Further, the company expects the reduction in licence fee from 10 per cent of gross revenues to 6 per cent.

Dish TV, which turned profitable at the operating level from the March quarter this year, expects these measures to help it turn profitable at the net level by the end of 2010-11. The company expects operating profits to be at Rs 100 crore (against operating loss of Rs 188 crore in 2008-09) for the current financial year. Considering the infusion of cash, improvement in operating and financial performance, analysts are bullish on the stock. On a discounted cash flow basis, they value the stock between Rs 50-60, which translates to a 20-per cent return (at the lower end) from the current level.