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Mandatory Digitization holds the key for Dish TV
Subscriber additions may see an impact in the coming quarters as price hikes are passed on
Last week, the direct to home (DTH) service provider increased the prices of its most subscription packs by Rs. 20 per month. Compared to Rs. 180 earlier, the entry level-basic pack-is now estimated to cost Rs. 200 a month. To offset the rising costs, the company also increased the prices of set-top boxes by Rs. 200. The company hiked prices to overcome the impact of rupee depreciation of around 8.6% in the first quarter and the service tax hike from 10-12% during the budget 2012-13.
Subscriber additions may see an impact in the coming quarters as price hikes are passed on. Analysts said that the management may barely be able to meet the lower end of the guidance of 2.5 – 3.0 million subscriber additions in FY13 compared to 2.5 million additions in FY12. There could be an incremental impact on the subscriber churn rate. Analysts expect churn rate to rise to 16% per annum in FY13 from 14% in FY13.
The cable operator added around 0.4 million subscribers in the three months ended March, the lowest in the past ten quarters. While average revenue per user (ARPU) improved 7% year-on-year, it declined sequentially by 1% due to slowing economy and subsequent price hikes. The company continued to make losses at the net level. For FY12, the consolidated loss was reported at Rs. 133 crore mainly because of forex loss of Rs. 51 crore.
Still, the latest price hike is expected to help Dish TV improve its operating metrics. According to Edelweiss, Dish TV’s ARPUs can rise in the coming quarters. Abneesh Roy and Alankar Garude of Edelweiss add “We anticipate that aided by higher penetration of HD and reduced competitive intensity, ARPUs will increase post‐digitisation. In our view, increase in pack prices by INR20 in the midst of digitisation beams a positive signal for the DTH industry which has long suffered because of low ARPUs due to high competitive intensity.”
Analysts at J.P. Morgan estimate that the latest price hike will help Dish TV improve its ARPUs by as much as 7-8%. And with a 1% increase in ARPUs estimated to translate into 2.5% growth in EBITDA, J.P. Morgan is positive that the company could witness earnings upgrades. Princy Singh and Dinesh S. Harchandani said in a note “We are maintaining our earnings estimates for now, pending more details from management, and will wait to see how competition reacts to this move. A 7% ARPU increase potentially increases our FY13E - FY14E EBITDA estimates by 13%-16%.”
The management in the fourth quarter said that the company has become cash flow positive. Dish TV will be in a sweet spot if mandatory digitization materializes because it will increase subscriber additions at a time when prices are hiked and leakages will be arrested as well. But again, digitization seems to be a distant dream because it has been delayed by another four months. The stock has already had a decent run up because of the unexpected price hike and the upside may be capped for now until mandatory digitization happens, said analysts.
Page Updated Last on: Sep 13, 2012