New rules kicking in from April put Dish TV at an advantage

New rates seen boosting direct-to-home players; Dish TV's union with Videocon D2H is positive

Dish TV stock has gained more than 12 per cent over the last week on upgrades by brokerages, thanks to new rate rules proposed by the regulator. 

Direct-to-home (DTH) players such as Dish TV are seen as benefitting from them.

Kicking in from April 1, the new rules will break up subscriber payments into capacity charge and pay-TV revenues. 

The mandated capacity charge is Rs 130 for the first 100 free-to-air channels, and an additional Rs 20 for every incremental 25 channels. 

Pay channel subscription revenue (in addition to capacity or distribution charge) is split up between broadcasters and distributors, with the latter getting 20 per cent. The move is seen as boosting revenue.

Emkay Global’s Naval Seth and Ashish Agrawal say the rate order is positive for distributors in that it secures revenue via a fixed rental fee on consumers and ensures 20 per cent minimum revenue share on pay channels. Currently, estimates split Dish TV’s average revenue per user (Arpu) of Rs 160 as Rs 50-55 for content and Rs 110 for capacity charge. Arpu is calculated on a monthly basis.

CLSA analysts say the mandated capacity charge of Rs 130 a month will be beneficial for the margins. Phase-III and Phase-IV of digitisation are under way in markets where many subscribers typically opt for lower-Arpu packages.

Under the new regulatory regime, they may have to pay up more to DTH players.

Further, analysts see potential in carriage revenues for DTH operators, with the new carriage fee fixed at 20-40 paise per subscriber per month for standard high-definition formats. 

They say Dish TV’s current carriage revenue of Rs 100 crore (assuming 20 paise per subscriber per month) means the firm gets carriage fees from only 28 channels. Given that it carries 350-400 channels, carriage revenues are bound to increase. 

Further, Dish TV’s union with Videocon D2H is also seen as boosting the company’s core profit margin. 

Given the improved prospects, CLSA has raised its stock target price from Rs 105 to Rs 125, which is at a five per cent premium to the multiple of five-year enterprise value to core profit.