 "Near-term pressures for Dish TV")
Despite a muted show in the September quarter, the Dish TV stock had gained over four per cent after results on expectations of higher subscriber additions in the second half of FY17.
Dish TV added 0.26 million net subscribers in the September quarter, which were lower than expectations of 0.30-0.36 million customers. The company, which has a target of achieving 1.5 million to 1.9 million net subscriber additions in FY17, has added about 0.67 million subscribers in the first half of the financial year.
The reasons for a stronger second half, according to the management, are digitisation of pending Phase-III areas (seven million out of 50 million yet to be digitised) and Phase-IV markets which have an addressable market of up to 46 million.
The start of the festival season is expected to give a boost to the subscriber numbers. There are 84 million subscribers who need to be covered under the Phase-IV of the digitisation programme and of these about 38 million subscribers have been digitised. Analysts estimate that the DTH (direct to home) sector is expected to get half of the subscriber additions.
A source of worry is the weak average revenue per user (Arpu) for the quarter. Arpu, which was at Rs 174 for the March quarter, fell two per cent on a sequential basis (over the June quarter) to Rs 162. The fall in Arpu was due to customers buying lower-value packs, change in product mix in favour of Zing and Rs 99 (Dish99) pack, as well as lack of pricing power.
The management refrained from giving an Arpu forecast for FY17. The company is focusing on spreading its presence with its low-cost Dish99 product, which can bring down Arpus.
Roughly a fifth of the current additions are for the Dish99 product. As of now, it is looking at improving its volumes and revenues, rather than per unit revenues.
The lack of growth in Arpu, however, is not limited to Dish TV as Airtel and Videocon, too, have reported flattish trends over the June quarter.
While Ebitda margin remained flat in the quarter at 33.9 per cent on a sequential basis, the management has forecast a 35-37 per cent Ebitda margin for FY17. Ebitda stands for earnings before interest, taxes, depreciation, and amortisation. Dish TV is confident of keeping content cost rise at 10-12 per cent this financial year as it negotiates for renewal of contracts. Content costs were 13 per cent higher in the first half of this financial year. Ambit Capital believes that Arpu pressures are balanced by benign outlook for content cost rise.
At the current price, the stock is trading at nine times its FY17 earnings estimates. While there could be upsides if subscriber numbers perk up and the company is able to contain costs, near-term gains will be capped given Arpu pressures.
Investors should await steady improvement in Arpu before taking exposure to the stock.
