India

Media Dish TV
Initiation 4 April 2011
Key Data
Buy At an inflection point
Bloomberg Code DITV IN
Target Price: Rs 81 Dish TV is the leader and pioneer of the DTH space in
Reuters Code DSTV.BO
CMP: Rs67* India. With a commanding market share in a rapidly
growing market, we expect an improvement in ARPU Current Shares O/S (mn) 1,064.0
Upside: 21% coupled with lower content costs. We expect the Diluted Shares O/S (mn) 1,064.0
*as on 1 April 2011 company to turn PAT positive by H2FY12 and Free Cash Mkt Cap (Rsbn/USDbn) 71.4/1.6
flow positive by FY12.
52 Wk H / L (Rs) 77/35
 Strong momentum in the Industry: Indian C&S
subscription market is set to reach Rs416bn in 2015 from Daily Vol. (3M NSE Avg.) 2,257,663
Rs194bn in 2010 with the DTH segment growing to Face Value (Rs) 1
71mn subscribers in 2015 on back of the compulsory 1 USD = Rs44.6
digitization schedule.
 Leader with 31% market share: Dish TV is the leader in
the DTH space with a market share of 31%. The company Shareholding Pattern (%)
is expected to sustain its pace of subscriber addition Public & others
20.8%
aided by compulsory digitization. We believe the
company can maintain its lead given its strong network
strength and competitive product offering. Dom inst.
6.2%
 Improving operating metrics: ARPUs are estimated to
rise on back of value added services and migration of FIIs
Promoter
8.3%
customers to higher packs. The content cost is also 64.7%

expected to be lower due to the fixed cost model in

operation while the subscriber acquisition cost is
expected to be under check going down from Rs 2142 in As on 31 December 2010
Q3FY11. One Year Indexed Stock Performance
 Strong revenue growth Standalone revenue is
220
expected to post a CAGR of 32% to Rs25,193 mn by FY13 200
on back of strong growth in subscription revenue due to 180
160
higher ARPU and a robust growth in subscriber base. We
140
expect subscription revenues to be 89% of the revenues 120
and grow at a CAGR of 39% in the same period. 100
80
 Margin improvement: EBITDA Margins are expected to 60
improve 3x from 9.7% to 30.7% due to lower content 40
Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11
cost, commissions and advertising costs. The company is
DISH TV INDIA NSE S&P CNX NIFTY INDEX
expected to turn Free Cash Flow positive by FY12 and
PAT positive by H2FY12.
 Valuation: Global players such as Dish Network and Price Performance (%)
others in their growth phase, similar to Dish TV, have 1M 6M 1Yr
witnessed an EV/EBITDA of 12-15X. We initiate coverage Dish TV 12.1 19.3 81.5
on Dish TV with a BUY rating valuing it at an EV/EBITDA 5.5 (5.2) 10.1
NIFTY
of 12x FY13E arriving at a target price of Rs 81.
Ankit Kedia Source: Bloomberg, Centrum Research
Ankit.kedia@centrum.co.in  Key Risks: i) Competition from other DTH players ii) *as on 1st April 2011
+91 22 4215 9634 Lower ARPU and higher SAC iii) Competition from other
Malladi Vishwakant
technologies such as digital cable iv) Regulatory risk.
Malladi.vishwakant@centrum.co.in Upside risks i) Reduction in license fees from 10% to 4%
+91 22 4215 9632 ii) Implementation of GST.

Key financial metrics

Y/E Mar (Rsmn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY (%) EPS (Rs) RoE (%) RoCE (%) P/E (x) EV/EBITDA (x)
FY09 7,377 78.5 (1,350) NM (4,763) NM (6.9) NM NM NM NM
FY10 10,848 47.1 947 NM (2,621) NM (2.5) NM NM NM 75.4
FY11E 14,462 33.3 2,340 16.2 (2,068) NM (1.9) NM NM NM 33.1
FY12E 20,046 38.6 5,193 25.9 (329) NM (0.3) NM 2.1 NM 14.9
FY13E 25,193 25.7 7,730 30.7 1,342 NM 1.3 58.9 15.8 52.2 9.9
Source: Company, Centrum Research Estimates

Please refer to important disclosures/disclaimers in Appendix A

Centrum Equity Research is available on Bloomberg, Thomson Reuters and FactSet
Shareholding pattern (%)
Company Background
Q3FY11 Q2FY11 Q1FY11 Q4FY10
Dish TV is a part of the media conglomerate Essel group which
Promoter 64.8 64.8 64.8 64.8 owns among others Zee TV. Dish TV is the first company in India
FIIs 8.3 3.4 3.4 3.4 to launch DTH services in 2004. It is currently the market leader
Dom inst. 6.2 6.1 6.8 5.8 and is the only company to cross the 10 million subscriber mark
Public & others 20.8 25.7 25.0 26.0
which it did in February 2011. Dish offers a platform of 250 video
and 21 audio channels through a network of more than 1400
100 100 100 100
distributors and 55,000 dealers.
Source: BSE

DTH Industry Timeline

Source: Company Presentation

Key management personnel

Name Position Profile
Subhash Chandra Non-Executive Promoter Essel Group of Companies. A pioneer of the Indian television Industry and recipient
Chairman
of numerous honorary degrees, industry awards and civic honors.
Jawahar Lal Goel Managing Director Mr. Goel is the MD of Dish TV since January '07 & has been instrumental in establishing it as
India’s leading DTH provider. He has also been actively involved in the expansion of Essel
Group and is an active member on the Board of various committees set up by MIB, Govt. of
India for addressing critical matters relating to the Industry.
R.C.Venkateish CEO On Board since July ‘10, he was MD-India & South Asia, ESPN Star Sports before that. An IIT,
IIM Graduate, Venkateish has more than 27 years of experience & a successful track record in
turning around businesses & re-defining business processes for winning brands like Oral-B ,
Nestle and Kelloggs.
Salil Kapoor COO Salil has a work experience of more than 18 years and has worked with various global
corporations including Microsoft and Samsung. He is an MBA from Delhi University.
Rajeev Dalmia CFO A qualified Chartered Accountant, Rajeev has been leading the Finance Department since
January 2007. He has a work experience of over 20 year in the finance Industry.
Source: Company, Centrum Research

2 Dish TV
Investment Rationale DTH Industry: Market share
 Strong momentum in the industry: We expect the DTH Industry
Videocon
to grow from 21.5 mn in 2010 to 50.1mn by 2013 with Dish TV the Reliance 7%
primary beneficiary with a market share of 30%. 9% Dish TV
31%
 Operating metrics show improvement: ARPUs are expected to
Bharti
improve from Rs140 in FY10 to Rs 161 in FY13 while the Subscriber 16%
Acquisition Cost is expected to go down from the current Rs 2142.
Content Cost is also expected to go down to 35% by FY13 due to
the adoption of fixed cost model.
 Financial metrics: EBITDA margins are expected to improve from Sun TV Tata Sky
8.7% in FY10 to 30.7% in FY13. The company is expected to 17% 20%
become PAT positive by H2FY12 and Free Cash Flow positive by
FY12 supporting a rerating in the stock.
Source: Company Presentations

Summary Financials
Y/E March (Rsmn) FY09 FY10 FY11E FY12E FY13E
Key Income Statement Data
Revenue 7,377 10,848 14,462 20,046 25,193
(YoY Growth) 78 47 33 39 26
Operating Profit (1,350) 947 2,340 5,193 7,730
(YoY Growth) NM NM 147 122 49
Operating Margin (18) 9 16 26 31
Depreciation 2,154 3,038 3,843 4,948 5,860
Interest expenses 1,347 1,216 724 760 717
Other non operating Income 96 686 159 187 190
PBT (4,756) (2,622) (2,068) (329) 1,342
Provision for Tax 727 (18) - - -
PAT (Adj.) (4,763) (2,621) (2,068) (329) 1,342
YoY Growth NM NM NM NM NM
PAT Margin (65) (24) (14) (2) 5
Key Cash Flow Statement Data
Cash Flow from Operating (2,667) 2,047 2,607 5,700 7,206
Cash Flow from Investing (5,081) (8,270) (7,989) (4,965) (5,210)
Cash Flow from Financing 8,089 11,174 226 (760) (1,845)
Key Balance Sheet Data
Shareholder's Funds (6,240) 4,003 1,935 1,606 2,948
Debt 11,311 9,178 10,128 10,128 9,000
Total 5,071 13,181 12,062 11,734 11,948
Fixed Asset 11,187 12,401 16,706 16,909 16,448
Investments 945 2506 2506 2506 2506
Inventory 31 28 26 28 31
Sundry Debtors 507 338 475 659 828
Loans & Advances 7,744 8,045 7,250 7,000 8,250
Cash and Bank Balances 541 5,422 267 241 393
Liab. & Provisions 15,883 15,560 15,166 15,610 16,508
Net current assets (7,061) (1,726) (7,149) (7,681) (7,006)
Total 5,071 13,181 12,062 11,734 11,948
Key Ratios
RoE NM NM NM (19) 59
RoIC NM NM NM (1) 4
RoCE NM NM NM 2 16
Per Share Ratio
EPS (6.9) (2.5) (1.9) (0.3) 1.3
Solvency Ratios
Interest Coverage Ratio (2.6) (1.7) (2.1) 0.3 2.6
Valuation Parameters
P/E (Fully Diluted) NM NM NM NM 52
P/BV (7) 18 36 44 24
EV/EBITDA NM 75 33 15 10
Source: Company, Centrum Research Estimates

3 Dish TV
 Investment Argument
Indian subscription market to be Rs416bn by 2015
Indian C&S subscription market is set to be Rs416bn from Rs194bn in 2010 and grow at a CAGR of
17% over 2011-15 driven predominantly by increasing ARPUs, improved product basket and
increasing penetration of digital cable.
Exhibit 1: Indian C&S subscription revenues

(Rsbn)
450 416
400
350
350
298
300
253
250 222
194
200 169
158
140
150 122

100

50

0
2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E

Source: FICCI report 2011

..with DTH being the fastest growing segment
We believe, DTH has become the fastest growing TV distribution segment in India and will
continue to enjoy this going forward. DTH subscriber base in India is expected to reach 71mn by
2015 from 28mn in 2010 and form more than 45% of the total subscriber base compared to 27%
in 2010.
Exhibit 2: Growth of Television Subscribers

(mn)
180
160
2.8
140 2.3
1.8
120 1.3 71
0.8 64
100 0.5 48 56
28 38
80
5 6 8 12 18 26
60
40
68 67 66 64 60 56
20
0
2010 2011E 2012E 2013E 2014E 2015E
Analog Digital DTH IPTV

Source: FICCI report 2011

And getting a fillip with mandatory digitisation
TRAI has proposed 2013 as the sunset date for digitisation and has recommended tax holidays
and reduction of duties to the players for this. We believe this will give a fillip to convert customers
from analog cable to digital cable and DTH.
Exhibit 3: Digitization schedule
Areas Date (Ministry Recommendation) Date (TRAI Recommendation)
Phase I Delhi, Mumbai ,Kolkata, Chennai 31 March 2012 31 December 2011
Phase II All Cities with population over 1 million 31 March 2013 31 December 2012
Phase III Urban Area (Municipalities) 30 November 2014 31 December 2013
Phase IV Rest of India 31 March 2015 31 December 2013

Source: Ministry of IB, TRAI

4 Dish TV
 Dish TV: Leader with 31% market share
Dish TV has a first mover advantage and currently has 31% market share in the 5-year-old DTH
industry and is a leader by more than 3.5mn subscribers from its nearest competitor. The
company in Q3FY11 had more than 9.5mn gross subscribers and we expect this to grow to
15.2mn by FY13. We anticipate the market share to reduce to 30% from current 31% since the
incremental net add market share is expected to be low due to other players becoming aggressive
in the space, though the current incremental net add market share for Dish TV is 30%. Even
though the incremental market share is getting reduced, Dish TV will have the largest market
share in the 6-player market and would continue to be a leader by a big margin.
Exhibit 4: Market share – DTH companies

Videocon
Reliance 7%
9% Dish TV
31%
Bharti
16%

Sun TV Tata Sky

17% 20%

Source: Company, Centrum Research

On back of Pan-India presence through 1400 distributors,~55,000 dealers across 6600 towns with
the network being managed by over 200 sales personnel from 8 Zonal and Regional offices, Dish
TV is in a strong position to acquire subscribers from its competitive product offering. Dish
subscribers will grow from current 9.5m to 15.2m FY13E. New customer acquisition is to form a
small base as compared to total customers which will help the company increase not only its
ARPU but also reduce overall capex since the new subscribers are given high subsidy for STB
which significantly brings down profitability for the company.
Exhibit 5: Growth in Dish TV subscriber base Exhibit 6: Quarterly net and gross subscriber base
(mn) (mn)
20 19.0 10 9.4
18 17.2 9 8.3
15.2 15.6 7.5
16 14.1 8 6.9
13.0 12.5 7 6.5
14 5.5 5.9
12 10.4 10.7 6 4.7 5.1
8.6 5 3.9
10 3.4
6.9 4 2.7 3.0 7.7
8 5.7 6.2 6.8
5.1 3 5.4 5.7
6 4.3 4.3 4.6 5.0
2 3.4 4.0
4 2.53.0 2.2 2.5 2.9
1.61.9 1
2 0.90.9 0
0
Q3FY08

Q4FY08

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY1
FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E

FY14E

FY15E

Net Subscriber Base Gross Subscriber Base Gross Subs Net Subs

Source: Company, Centrum Research Estimates Source: Company, Centrum Research

5 Dish TV
 Exhibit 7: New subscribers as a % of total subscriber base

(mn) (%)
16 15.2 60
14 13.0
50
12 53 10.4
40
10
41
8 37 6.9 30
34
6 5.1
27 20
4 3.0
1.9 20
10
2 14
0 0
FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Gross Subscriber Base New Subscribers (% of Gross Base)

Source: Company, Centrum Research Estimates

New services to increase stickiness and reduce churn
Dish TV has constantly innovated with the service offering which helps it increase stickiness with
the subscribers. Company has recently come with a new 30 channels HD offering compared to
maximum of 6 channels by competitors which we believe will help it garner additional
subscribers. Along with this the company also offers other services such as pay per view movies
and interactive services such as ICICI Active, Monster Jobs Active, Shaadi Active, and Travel Active.
Exhibit 8: HD bouquet
Service Provider Set Top Box (Rs) Offer No. of Channels HD Bouquet Charges
Tata Sky 2599 None 5 All channels available in HD will be
automatically updated to HD at a charge
of Rs 50/ month
Dish TV 2611 HD World Cup Package free for 2 30 14 channels @ Rs 120, the Other 15
months. Rs 400 vouchers for channels @ Rs 100.
existing customers
Sun TV 2940 2 months subscription free 8 All available channels transmitted in HD at
no extra cost
Airtel 3105 4 months subscription free 2 Rs 166 after 4 months for ESPN in HD (No
ad breaks for CWC)
Videocon 6490 (With - 5 Rs 400/month (all channels + HD)
recording) (375/month) (Approximate premium of Rs
70 for HD Packs)
Reliance 2590 - 5 ~ Rs 30 / channel / month

Source: Company, Centrum Research

6 Dish TV
 Subscriber acquisition cost to be under check
We expect the subscriber acquisition cost to be under check going forward from current Rs2142
levels of which Rs1670 is towards STB subsidy, Rs360 is dealer commission and Rs110 is marketing
cost. Dish TV subsidizes ~50% of the STB cost and 80% of advertising expenses and dealer
commissions which go towards acquiring new subscribers. SAC includes the amount spent on
subsidizing the cost of the set top box, advertising expenses, and commissions paid to dealers for
acquiring new customers. STB price fluctuates on back of currency since they are imported. We
expect the STB cost to reduce going forward which will also reduce the SAC.
Exhibit 9: Decreasing Subscriber Acquisition Cost

(Rs)
3,000 2,832
2,800 2,600 2,601 2,635
2,600 2,505
2,487 2,477
2,600 2,383
2,400 2,147 2,083 2,142
2,200 1,880
2,000 1,850
1,800 1,628
1,600
1,400
1,200
1,000
Q1FY08

Q2FY08

Q3FY08

Q4FY08

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11
Source: Company, Centrum Research

Content cost to come down substantially

Programming & content cost is the main cost for Dish TV. Globally companies pay ~38% for
content as a percentage of subscription revenues even though they have content exclusivity and
high cost sports properties. With no content exclusivity in India and with growing subscriber base
the content cost is expected to fall significantly in medium term. Considering this, Dish TV
changed its content contracts with broadcasters from per subscriber model to fixed fee model.
Currently, Dish TV programming and content cost is 39% of subscription revenues which has
reduced from 55% in FY09. We have modeled it to reduce to 35% of subscription revenues by
FY13E and further 32% by FY15E. We believe DTH players are in a commanding position
compared to broadcasters considering that DTH subscriber base is expected to be ~50% of the
total television households and no broadcaster can afford to neglect this. Though the
broadcasters have a “must share” clause, the DTH operators don’t have a “must carry” clause. Also
for popular channels, DTH subscription revenue as a revenue stream has started to become
substantial to the total revenue pie and hence being shifted to “a la carte” from the base pack
would not make sense for them. Hence we believe the DTH operators have a stronger hand
compared to the broadcasters and hence as addressability increases the content cost as a
percentage of subscription revenues will reduce though the total pie will continue to increase.
Exhibit 10: Decreasing programming cost (As a % of subscription revenues)

(Rsmn) (%)
1400 1229 80
71 73
1200 70 67 1060 1062 70
60 61929 59 986 1001
881 925 60
1000 867
804
755 50
800 646 670 46 46 46 44 42 40 40
39 39
600 502
420 30
400
20
200 10
0 0
Q1FY08

Q2FY08

Q3FY08

Q4FY08

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Content Cost As % of Revenues

Source: Company, Centrum Research

7 Dish TV
 Exhibit 11: Sun TV DTH revenues

(Rsmn)
800
680 700 700
700 630
600
500 440
400
340 365
400
300 250
166
200 112
100
100
10
0
Q3FY08

Q4FY08

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11
Source: Company, Centrum Research

Exhibit 12: ZEE TV DTH revenues

(Rsmn)
900 787 821
800
683 710
700 632
600 514
467
500
381
400
283
300 249 271
188
200 150 180 125 125 175
100
0
Q3FY07

Q4FY07

Q1FY08

Q2FY08

Q3FY08

Q4FY08

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11
Source: Company, Centrum Research

ARPU growing at a steady rate

ARPU for Dish TV has been under pressure for some time on back of high competition in the
industry and discounted packages offered to the new customers as the content is bundled with
the STB. Current blended ARPU for the Dish TV is Rs142 which has grown by mere 3.5% since
Q3FY09. However, the renewal ARPU is at Rs166. We have taken a mere CAGR of 7% in ARPU from
FY11-13E considering that the competition would continue to be high in the near term. We
believe we are being conservative in our ARPU assumption and any upside from this would
further boost profitability. Even globally, ARPU is significantly higher than in India and we believe
in the long run ARPU will follow the global trend and grow.
 Dish TV ARPU is lower than analog cable ARPU due to high competition in the industry
resulting in offering lower price points to customers and making it attractive to garner more
subscribers. This makes it attractive to customers to switch from analog to DTH.
 Given that DTH offers a better service compared to analog cable, we believe the ARPU of DTH
should be above that of the analog cable post the initial subscriber acquisition growth phase
and as the industry stabilizes and matures over next 3-5 years.
 New subscribers take a lower entry package and slowly migrate to higher packages for more
services and newer channels resulting in an increase ARPU over a period of time which could
typically range from 6-12 months. Also, new HD services will increase the ARPU for the
incremental subscriber base.
 Increase in value added services which currently form less than 2% of the total revenues
would slowly increase to 5-6% in next 3-5 years on back of video on demand and
other services.

8 Dish TV
 Exhibit 13: Increasing ARPU

(Rs per month)

180
161
160 146 151
140 141
140 131

120
100
81
`
80
60
36
40
20
-
2006 2007 2008 2009 2010 2011E 2012E 2013E

Source: Company, Centrum Research

Exhibit 14: ARPU: Quarterly Trend Exhibit 15: Global ARPU
(Rs per month) ($ per month)
170 164 164
60
50
160 50
150
146 40 40
150 142 142
139 138 139 139 40 35
137 135 30 30
140 132 132 30
126 22
130 17
20
12 12
120 8
10 3 2
110
0
USA

100
Brazil

Phillipines
Thailand

Malaysia

Korea

India

China
Japan

Czech
Germany
Mexico
UK
Q1FY08

Q2FY08

Q3FY08

Q4FY08

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Source: Company, Centrum Research Source: Ecomonitor, Centrum Research

9 Dish TV
 Financials
Strong revenue growth backed by subscription revenues
We expect Dish TV to post revenue CAGR of 32% over FY10-13E on back of strong subscription
revenues to Rs25,193mn. We expect subscription revenues to be 89% of the revenues and grow at
a CAGR of 39% over the same period. We believe the key growth drivers for the subscription
revenue are steady increase in blended ARPU from Rs140 in FY10 to Rs161 in FY13 along with
robust growth in gross subscribers which we expected will reach 15.2mn by FY13. Since the STBs
are given on rental basis by Dish TV, the rental revenue is expected to grow at a CAGR of 16% over
FY10-13E to Rs2346mn while other revenue streams are placement, bandwidth, teleport
and others.
Exhibit 16: Revenue distribution

(Rsmn)
30000
458
25000
2,346
400
20000
2,255

15000 350
994 2,090
22,389
10000 472
1,501 17,391
1,007 12,022
5000 8,353
5,897
3,288
0
2006 2007 2008 2009 2010 2011E 2012E 2013E
Subscription Lease Others

Source: Company, Centrum Research Estimates

Operational leverage to boost margins

We expected the operating margins for Dish TV to grow 3x from 9% in FY10 to 30.7% in FY13 on
back of low content cost. We expect the operating leverage to start kicking in due to fixed content
cost model which will boost margins since they form more than 40% of the total cost.
Advertisement cost is expected to be reduced from Rs434 per subscriber added in FY09 to Rs 350
in FY12E and we don’t expect this to increase more than Rs1bn at the peak since even at the peak
of competition the company did not invest more on promotion and advertisement and used
innovative barter system with broadcasters for advertising to reduce advertising cost. Dealer
commission too is expected to reduce from upwards of Rs500 in FY09 to Rs350 currently. We
believe this will significantly boost margins. On back of this we expected EBIDTA to grow at a
CAGR of 101% over FY10-13E to Rs7730mn from Rs947mn in FY10.
Exhibit 17: EBITDA / EBITDA margins - Quarterly Exhibit 18: EBITDA – Continuing growth
(Rsmn) (%) (Rsmn)
800 17.9 30 10000
9.0 11.5 10.6 15.3 20
600 5.9 4.2 7730
400 2.0 10 8000
200 0
42 145 231 116 349 322 498 667
(10) 6000 5193
0
(20)
(200) (490) (472) (642) (588) (666) (874) (389)
(20.2) (30) 4000
(400) (40) 2340
(600) (50) 2000 947
(62.6) (43.1)(40.5)
(800) (50.4) (60)
(54.9) (57.3)
(1,000) (70) 0
Q1FY08

Q2FY08

Q3FY08

Q4FY08

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

-2000 -830 -1350

-1857 -2146
2006 2007 2008 2009 2010 2011E 2012E 2013E
EBITDA EBITA Margins -4000

Source: Company, Centrum Research Source: Company, Centrum Research Estimates

10 Dish TV
 Exhibit 19: Content cost as a % of subscription revenues

(Rsmn) (%)
73
1,400 71 70 67 80
1,200 60 61 59 70

1,000 60
46 46 46 44 42 40 50
39
800 39
40
600
30
400 20
200 10
420 502 646 755 804 867 929 670 881 925 986 1001 1060 1062 1229
0 0

Q1FY08

Q2FY08

Q3FY08

Q4FY08

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11
Content Cost As of Revenues(%)

Source: Company, Centrum Research

To become PAT positive by H2FY12
We expect Dish TV to become PAT positive by H2FY12 and post losses of mere Rs329mn for full
FY12 and turn full year profitable in FY13 with Rs1342 PAT. We believe the profitability is on back
of strong operating leverage.
Exhibit 20: PAT, PAT margins

(Rsmn) (%)
8,000 300
5,566 225
6,000
4,000 3,044 150
1,342 11 17 75
2,000 (17) (2)
(31) 0
(81) 6
0
(75)
(2,519) (329)
(2,000) (150)
(126) (2,068)
(4,000) (2,621)
(225)
(207) (4,132)
(6,000) (4,763) (300)
2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E

PAT PAT Margins

Source: Company, Centrum Research Estimates

To turn free cash flow positive in FY12
We expect Dish TV to turn free cash flow positive from FY12E on back of lower capex and strong
cash flow from operations.
Exhibit 21: Free cash flows

(Rsmn)
12,000
9868
10,000
8,000
5831
6,000
4,000
1807
2,000 548
-
-2,000 -1266 -1547
-4,000 -2619 -2823
-6,000
-5540
-8,000
-7770
-10,000
2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E

Source: Company, Centrum Research Estimates

11 Dish TV
 Valuations
Dish TV is in a sweet spot and at an inflection point in terms of benefiting from digitization of the
C&S industry. With more than 10mn subscribers in FY11 the company would increase its operating
margins by 3x along with being free cash flow positive from FY12 and PAT positive from H2FY12.
With revenue CAGR of 32% and EBIDTA CAGR of 101% over FY10-13E, respectively, we expect the
stock to get re-rated.
Exhibit 22: 1 year forward EV/EBITDA
(Rsmn)
120000

100000

80000

60000

40000

20000

0
Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11
EV 26X 14X 18X 22X

Source: Company, Centrum Research

Exhibit 23: Dish TV – International peer comparison

Revenue growth EBIDTA Margins NPM PE EV/EBIDTA Mcap/Revenue RoE (%)
Company Curreny Mcap (mn) CY11 CY12 CY11 CY12 CY11 CY12 CY11 CY12 CY11 CY12 CY11 CY12 CY11 CY12
DIRECTV-CLASS A USD 37,046 10% 8% 26% 27% 9% 9% 15.1 11.5 7.1 6.7 1.4 1.3 NM NM
DISH NETWORK CORP-A USD 10,799 5% 3% 25% 24% 8% 9% 9.5 9.3 4.8 4.4 0.8 0.8 NM NM
SKY DEUTSCHLAND AG EUR 2,049 16% 16% (11)% 0% (19)% (8)% NM NM NM 796.4 1.8 1.6 NM NM
AUSTAR UNITED
AUD 1,723 5% 6% 35% 35% 9% 9% 26.6 23.0 9.3 8.4 2.3 2.2 NM NM
COMMUNICATIONS
COMCAST CORP-CLASS A USD 67,953 47% 6% 32% 31% 8% 8% 16.1 13.8 5.6 5.2 1.2 1.2 9% 10%
CABLEVISION SYSTEMS-NY GRP-A USD 10,069 7% 5% 37% 37% 7% 9% 17.8 13.7 7.2 6.5 1.3 1.2 NM NM
BRITISH SKY BROADCASTING GRO GBP 14,461 9% 7% 22% 23% 11% 12% 20.7 17.2 11.2 9.4 2.3 2.1 87% 69%
TIME WARNER CABLE USD 24,497 4% 4% 37% 37% 8% 8% 15.8 12.8 6.4 6.2 1.3 1.2 18% 31%
VIRGIN MEDIA INC USD 8,949 5% 4% 39% 40% 3% 8% 48.1 15.4 6.8 6.2 2.2 2.1 5% 29%
Average 7.3 6.6
DISH TV INDIA LTD INR 71,393 39% 26% 26% 31% (2)% 5% 14.9 9.9 3.5 2.8 (19)% 59%

Source: Bloomberg, Centrum Research

We valued Dish TV at 12x FY13E EV/EBIDTA and arrive at a target price of Rs81. We believe global
players such as Dish Network and others in their growth phase similar to that of Dish TV had
EV/EBIDTA multiples of 12-15x. Indian telecom companies in their hay days also witnessed
EV/EBIDTA multiples of 12-14x. Considering the turnaround in profitability, margin expansion,
leadership in the DTH space along with being free cash flow positive, EV/EBIDTA multiple of 12x is
justified. We are extremely bullish on the Indian Pay TV market and initiate coverage on Dish TV
with a BUY rating and target price of Rs81 (upside potential of 21%).

12 Dish TV
 Key Risks
Competition from other DTH players
DTH being a six-player market has become a highly competitive industry with big corporate
houses such as Reliance ADAG, Bharti Airtel, Tata Group, Sun Network and Videocon being the
other players apart from Dish TV with deep pockets. We believe irrational competition will result in
high subscriber churn. Dish TV has a monthly subscriber churn of 0.7% and 12% annually while
competitors have a higher churn. As the market becomes mature, players will find it even more
difficult to acquire new customers and as currently there is no difference between DTH players as
all offer the same service and with mandatory content share regulation the broadcasters have to
share the same content with all players. Hence the players have to differentiate themselves only
with branding, marketing and service offerings.
Exhibit 24: Dish TV – Subscriber Churn vs. Competition

Gross Active Inactive

Company subscribers Subs Subs (%)
Dish TV 9.4 7.7 1.7 81.9
Tata Sky 6.5 5 1.5 76.9
Sun Direct 6.1 4 2.1 65.6
Airtel Digital TV 4.9 3.6 1.3 73.5
Reliance Big TV 3.6 2.5 1.1 69.4
Videocon D2H 2.2 0.9 1.3 40.9
Source: MPA Report. As on Feb 2010

Lower than expected ARPU and higher subscriber acquisition cost

With competition being irrational, the subscriber acquisition cost could increase significantly from
current levels of Rs2142 as players start to offer freebies while ARPUs come under pressure due to
discounted content offering to pay for promotional activities as new subscribers are entering the
system at significantly lower ARPU levels.

Competition from other technologies such as digital cable

As consolidation and corporatization is changing the face of MSOs, they could significantly fund
the STB at the customers’ end and convert the old analog cable into digital cable. We have seen
instances in the metro markets where the subscriber churn is from DTH to digital cable on back of
lower APRU offered by MSOs. We believe this could be a deterrent to the industry as a whole as
the ARPU would takes longer than expected to move upwards.

Regulatory risk
The DTH industry is subject to extensive regulations and hence it faces the risk of an unfavorable
regulatory environment. Regulation in terms of pricing of channels, inter-operability of STB,
license fee, content differentiation, entertainment tax levied by individual states and content cost,
to name a few, continue to dampen profitability of the sector.

Upside risk
Reduction in license fee
License fee currently is 10% of the gross DTH revenues. Favorable TDSAT order dated 28th May
2010 says that this should be at 6%. If implemented the increase in EBIDTA margins would be 4%.

Implementation of GST
Currently the company pays ~4% entertainment tax along with service tax and other taxes.
Implementation of GST would rationalize and reduce taxes since the industry is heavily
taxed currently.

13 Dish TV
Financials
Exhibit 25: Income statement Exhibit 27: Cash flow
Y/E March (Rsmn) FY09 FY10 FY11E FY12E FY13E Y/E March (Rsmn) FY09 FY10 FY11E FY12E FY13E

Net Sales 7,377 10,848 14,462 20,046 25,193 CF from operations

Growth (%) 78.5 47.1 33.3 38.6 25.7 Profit before tax (4,756) (2,622) (2,068) (329) 1,342
Depreciation & amortization 2,154 3,038 3,843 4,948 5,860
Raw Materials Expenses 143 23 26 28 31
Interest Expenses 810 1,123 724 760 717
% of sales 1.9 0.2 0.2 0.1 0.1
Others 27 (477) (159) (187) (190)
Operating Expenses 5,263 7,007 8,156 10,945 13,189 CF before WC changes (1,764) 1,063 2,340 5,193 7,730
% of sales 71.3 64.6 56.4 54.6 52.4 Working capital changes (879) 999 267 507 (524)
Other Expenses 3,321 2,871 3,940 3,880 4,243 Cash inflow from operations (2,643) 2,062 2,607 5,700 7,206
% of sales 45.0 26.5 27.2 19.4 16.8 Income tax paid 24 15 - - -
EBITDA (1,350) 947 2,340 5,193 7,730 Cash from Operations (2,667) 2,047 2,607 5,700 7,206
Cash from investing
EBIDTA Margins (%) (18.3) 8.7 16.2 25.9 30.7
Capex (5,103) (4,870) (8,147) (5,152) (5,400)
Depreciation 2,154 3,038 3,843 4,948 5,860
Investments - (1,560) - - -
EBIT (3,504) (2,091) (1,503) 244 1,869 Other Income 22 (1,841) 159 187 190
Interest expenses 1,347 1,216 724 760 717
Other Income 96 686 159 187 190 Cash from investing (5,081) (8,270) (7,989) (4,965) (5,210)
PBT for operations (4,756) (2,622) (2,068) (329) 1,342 Cash from financing
Provision for tax 7 (0) - - -
Borrowings/ repayments 5,899 (646) 950 - (1,128)
Effective tax rate (%) (0.2) 0.0 0 0 0
Share Capital Raised 3,077 12,845 - - -
Net Profit (4,763) (2,621) (2,068) (329) 1,342
Interest Paid (887) (1,024) (724) (760) (717)
Source: Company, Centrum Research Estimates Cash from financing 8,089 11,174 226 (760) (1,845)

Net change in cash 341 4,951 (5,156) (25) 151

Exhibit 26: Balance sheet
Source: Company, Centrum Research Estimates
Y/E March (Rsmn) FY09 FY10 FY11E FY12E FY13E
Share Capital 687 1,062 1,062 1,062 1,062 Exhibit 28: Key ratios
Reserves & Surplus (6,928) 2,941 873 544 1,886 Y/E March FY09 FY10 FY11E FY12E FY13E
Total Shareholders Funds (6,240) 4,003 1,935 1,606 2,948 Margin ratios (%)
Secured Loans 2,696 3,628 3,628 3,628 3,500 EBIDTA Margins (18.3) 8.7 16.2 25.9 30.7
Unsecured Loans 8,615 5,550 6,500 6,500 5,500 PBIT Margins (47.5) (19.3) (10.4) 1.2 7.4
Loan Funds 11,311 9,178 10,128 10,128 9,000 PBT Margins (64.5) (24.2) (14.3) (1.6) 5.3
PAT Margins (64.6) (24.12) (14.3) (1.6) 5.3
Total Capital Employed 5,071 13,181 12,062 11,734 11,948
Growth ratios (%)
Fixed Asset
Revenues 78.5 47.1 33.3 38.6 25.7
Gross Block 13,123 16,977 24,662 29,570 34,636
EBIDTA NM NM 147.2 121.9 48.9
Less:- Accumulated
4,316 6,826 10,669 15,618 21,478 Adj Net Profit NM NM NM NM NM
Depreciation
Net Block 8,806 10,151 13,993 13,952 13,158 Return Ratios (%)
ROCE NM NM NM 2.1 15.8
Capital WIP 2,381 2,251 2,713 2,957 3,290
RoIC NM NM NM (0.9) 3.7
Total fixed assets 11,187 12,401 16,706 16,909 16,448
RoNW NM NM NM (18.6) 58.9
Investments 945 2,506 2,506 2,506 2,506 Turnover Ratios
Inventory 31 28 26 28 31 Average collection period(days) 22.0 14.2 10.3 10.3 10.8
Debtors 507 338 475 659 828 Average payment period (days) 214.2 211.78 174.1 159.7 135.9
Loans & advances 7,744 8,045 7,250 7,000 8,250 Working Capital Cycle (days) (190.2) (195.6) (161.8) (147.4) (123.1)
Cash & bank balances 541 5,422 267 241 393 Per Share (Rs)
EPS (6.9) (2.5) (1.9) (0.3) 1.23
Total current assets 8,822 13,834 8,018 7,929 9,502
CEPS (17.4) 168.25 39.49 15.2 9.7
Current liab. and provisions 15,883 15,560 15,166 15,610 16,508
Book Value (9.1) 3.8 1.8 1.5 2.8
Net current assets (7,061) (1,726) (7,149) (7,681) (7,006) Dividend - - - - -
Total 5,071 13,181 12,062 11,734 11,948 Valuations (x)
PER NM NM NM NM 52.2
Source: Company, Centrum Research Estimates
P/BV (7.3) 17.5 36.2 43.6 23.8
EV/EBIDTA NM 75.4 33.1 14.9 9.9
EV/Sales 7.5 6.6 5.4 3.9 3.0
M-cap/Sales 6.1 6.5 4.8 3.5 2.78

Source: Company, Centrum Research Estimates

14 Dish TV
Appendix A
Disclaimer
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Key to Centrum Investment Rankings
Buy: Expected outperform Nifty by>15%, Accumulate: Expected to outperform Nifty by +5 to 15%, Hold: Expected to outperform Nifty by -5% to +5%, Reduce: Expected to underperform
Nifty by 5 to 15%, Sell: Expected to underperform Nifty by>15%

15 Dish TV
 Centrum Broking Private Limited
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16 Dish TV