Dish TV, Hathway unshaken

As digitisation is mandatory, higher import duty on set-top boxes might not impact subscriber addition

The Budget brought an unpleasant surprise for direct-to-home (DTH) and multi-system operator (MSO) companies such as Dish TV, Hathway and Den. Contrary to an expectation of lower import duty on set-top boxes (STBs), it increased from five per cent to 10 per cent. These stocks fell as much as 10 per cent in Thursday's trading session.

As digitisation is mandatory, the move might not impact subscriber addition, but will increase the total price of one STB by Rs 80-100 if the entire hike is passed on. The cost of an STB is between Rs 1,500 and 2,000 a piece. Given their over-leveraged balance sheets, these companies cannot absorb the cost increases and, hence, are likely to pass it on fully to the end consumers, believe analysts.

Each of these companies is likely to add 2.5-3.0 million STBs annually. Analysts believe this move will increase the annual capital expenditure of the DTH/cable companies by Rs 25-30 crore each.

"The move is negative for the industry and we believe the companies will pass it to the end consumer. While the impact will not be very large, the move should have ideally been announced a year back", said Abneesh Roy, associate director, institutional equities, research, Edelweiss Securities.

Experts believe the step is ill-timed, given the digitization process is well into its second phase. The government's aim is to push domestic manufacturing, but the step will have limited success as the current players will take at least a year to expand their existing capacities. Among the domestic players, Videocon is the only large company that manufactures STBs. Thus, the cable and DTH companies will continue to depend on imported STBs. Overall, analysts continue to remain bullish on the MSOs and DTH scrips.

 

"We are very positive on the cable and MSO companies as they stand to gain significantly from digitisation. Thus, we would use any correction in these stocks as a good buying opportunity," said Abneesh.

For private FM radio companies, however, the Budget brought some cheer. The government had announced Phase-III of FM radio expansion in FY13, but the process was delayed. The announcement of auctioning of 839 new channels in FY14 will provide impetus to the Phase-III process, believe analysts. The scrips of ENIL and Reliance Broadcast rallied eight per cent and two per cent, respectively, on Thursday, but ended in the red in sync with the benchmark indices.