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Company Report Industry: Media Entertainment

Balwindar Singh ([email protected]) +91-22-66322239

Dish TV India Good times ahead - Phase-III/IV; improving B/S; FCFF generation

June 25, 2014 2

Dish TV India

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to important disclosures and disclaimers at the end of the report

Contents Page No.

Investment Rationale .................................................................................................. 5

Leading DTH player with 27% market share ...................................................................................... 5

Digitization Opportunity - Phase III & IV to open up new growth avenues ....................................... 5

DTH has disappointed in Phase-I/II .............................................................................................. 5

However, Phase-III/IV are likely to see DTH bouncing back ........................................................ 6

Opportunity in Phase-III/IV ................................................................................................................ 7

ARPU increase on the cards ............................................................................................................... 7

Dichotomy between DTH and MSOs ................................................................................................. 9

What DITV is doing to address the dichotomy ................................................................................ 10

Change in strategy ........................................................................................................................... 12

Strategy #1-Focus on quality additions: ..................................................................................... 12

Strategy #2- Launch of Zing ....................................................................................................... 12

Strategy #3-Reduction of subsidy on STBs ................................................................................. 13

Strategy #4 - Lowering SAC ........................................................................................................ 14

Strategy #4 - Lowering investment/net subscriber ................................................................... 15

Strategy #5 - Improving payback period .................................................................................... 15

Strategy #6 - Reducing churn ..................................................................................................... 16

Change in strategy to result in improving per subscriber economics for DITV .......................... 16

Margin levers ................................................................................................................................... 17

Rationalizing content cost remains a key focus area ................................................................. 17

ARPU increases to support margin improvement ..................................................................... 18

Focus on improving Balance Sheet/Cash Flow ................................................................................ 18

SWOT Analysis .......................................................................................................... 20

Business Description ................................................................................................. 21

Risks .......................................................................................................................... 22

Financials .................................................................................................................. 23

Expect revenues to increase by 12% CAGR over FY14-16E ............................................................. 23

EBITDA likely to increase by 17.7% CAGR; RoCE to move to positive territory ............................... 24

FCFF generation set to improve; debt likely to reduce from Rs11.8bn in FY14 to Rs8.3bn by FY16E .......................................................................................................................................... 25

Valuations and Recommendation ............................................................................ 26

Dish TV India

Company Report June 25, 2014

Rating BUY

Price Rs57

Target Price Rs72

Implied Upside 26.3%

Sensex 25,369

Nifty 7,580

(Prices as on June 24, 2014)

Trading data

Market Cap. (Rs bn) 60.6

Shares o/s (m) 1,063.0

3M Avg. Daily value (Rs m) 1094.4

Major shareholders

Promoters 64.50%

Foreign 11.54%

Domestic Inst. 4.94%

Public & Other 19.02%

Stock Performance

(%) 1M 6M 12M

Absolute 2.8 (4.7) (6.1)

Relative 0.1 (25.3) (42.9)

How we differ from Consensus

EPS (Rs) PL Cons. % Diff.

2015 0.0 0.2 NA

2016 1.4 1.7 -15.0

Price Performance (RIC: DSTV.BO, BB: DITV IN)

Source: Bloomberg

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Phase-III/IV provides a significant opportunity to the DTH industry: Digital

Cable has emerged as the clear winner in Phase-I/II due to their last mile

connectivity. However, Phase-III/IV is likely to turn the tide in direct-to-home’s

(DTH)’s favour due to connectivity issues of MSOs in cable-dark areas, already

stretched balance sheet of MSOs, delay in implementation of gross billing etc.

Phase-III/IV collectively consists of 80m households compared to 35m

households in Phase-I/II. Assuming that DTH garners 55% of the market share, of

which Dish TV (DITV) is able to capture 25% incremental subscribers, DITV’s

potential gross additions can amount to 11.0m. Since digitization in Phase-III/IV

might get delayed beyond FY16E, we have assumed only partial benefits. We

have conservatively modelled for an increase in gross subscribers by 5.6m from

16.6m in FY14 to 22.1m by FY16E.

Focus on profitable growth: DITV’s renewed focus on profitable growth has

evolved from its past experience of aggressive subscriber additions which led to

higher capex outflow and negative FCFF generation. However, the industry has

now realized that this business model is unsustainable. Over the last couple of

years, there has been a concerted effort from the industry to hike STB prices as

well as ARPU. Consequently, Subscriber Acquisition Costs (SAC) have currently

declined from Rs2,273 in Q2FY13 to Rs1,800. Reduction in cash burn on new

subscriber acquisition would help to improve balance sheet and improve cash

flow position. Through reduction in SAC, DITV has also been able to reduce its

payback period. Further increase of 10% in package prices from June 1, 2014 is

also a step in that direction.

Contd...4

Key financials (Y/e March) 2013 2014 2015E 2016E

Revenues (Rs m) 21,668 25,090 27,449 31,483

Growth (%) 10.7 15.8 9.4 14.7

EBITDA (Rs m) 5,794 6,241 7,079 8,640

PAT (Rs m) (660) (411) (14) 1,507

EPS (Rs) (0.6) (0.4) — 1.4

Growth (%) NA NA NA NA

Net DPS (Rs) — — — —

Profitability & Valuation 2013 2014 2015E 2016E

EBITDA margin (%) 26.7 24.9 25.8 27.4

RoE (%) NA NA NA NA

RoCE (%) NA 2.0 7.0 26.6

EV / sales (x) 3.4 2.8 2.5 2.1

EV / EBITDA (x) 12.6 11.1 9.7 7.8

PE (x) NA NA NA 40.2

P / BV (x) NA NA NA NA

Net dividend yield (%) — — — —

Source: Company Data; PL Research

Dish TV India

June 25, 2014 4

New initiatives likely to address dichotomy between DTH and MSOs: DTH

industry accounts for ~60% of broadcasters’ subscription revenues, with only a

35-40% subscriber base. Furthermore, cable industry receives ~Rs15bn-18bn

carriage fees annually from broadcasters, while for DTH, it is negligible.

To address this dichotomy, DITV has undertaken various steps. In Jan 2014, DITV

introduced “a-la-carte” scheme, whereby, it has removed channels of Indiacast

UTV out of its packages and put them on an ‘a-la-carte’ basis. Initial response

has been encouraging and as per management, only ~20% of DITV’s subscribers

have opted for Colors TV, while for most of the other Indiacast channels, they

have been subscribed by merely ~2-3% of the subscriber base. DITV argues that

it is now in a better position to negotiate with the broadcasters’ and its content

cost renegotiation with Indiacast UTV has resulted in ~25-35% decline in content

costs. DITV plans to follow the same model with other broadcasters.

Discontinuation of content aggregators (Mediapro, IndiaCast, OneAlliance etc.)

will also strengthen DITV’s bargaining power. Over the medium term, DITV

targets to reduce its content costs from 31% of sales in FY14 to ~26-27%. For

FY15E, DITV‘s expects content cost increase in low single digits.

Expect revenues to increase by 12% CAGR over FY14-16E; margins to improve

from 24.9% in FY14 to 27.4% by FY16E, driven by content cost reduction and

increase in ARPU: We expect DITV’s revenues to increase by 12.0% CAGR over

FY14-16E driven by pick-up in subscriber additions. We expect net subscribers to

increase from 11.4m in FY14 to 14.7m by FY16E, increasing at a CAGR of 13.6%.

Subscriber growth will be primarily driven by digitization in Phase-III & IV as DTH

is expected to be the primary beneficiary of digitization in these areas. Current

blended ARPU stands at Rs163. We have modeled for ARPU of Rs172/174 in

FY15E/16E, respectively. We expect DITV’s EBITDA to increase at a CAGR of

17.7% during FY14-16E. With improvement in EBITDA and reduction in interest

costs, adjusted PAT is likely to move into a positive territory. PAT is likely to

improve from loss of Rs411m in FY14 to profit of Rs1.5bn by FY16E, translating

into annual EPS of Rs1.4. RoCE is likely to improve from 2.0% in FY14 to 26.6% by

FY16E.

Focus on improving Balance Sheet/Cash Flow: All of DITV’s strategy to reduce

subsidy, improve payback period and focus on quality additions are designed

with an eye to improve FCFF generation and thereby, reduce debt. DITV became

FCFF positive in FY13, while in FY14, it generated FCFF of Rs3.1bn. Over the next

two years, we expect DITV to generate cumulative FCFF of Rs5bn despite

significant capex lined up. Debt reduction remains a top priority and with

improvement in internal cash flows, we expect DITV to repay Rs2bn/1.5bn debt

in FY15E/16E, respectively.

Recommend “BUY” with target price of Rs72: We expect DITV to be a key

beneficiary of the ongoing digitization process in Phase-III/IV. With DITV’s

leadership position, pick-up in subscriber additions, focus on improving margins,

reduction in subsidy, improvement in FCFF generation and reduction in debt,

DITV is bound to get re-rated. We value DITV at 10x FY16E EV/EBITDA (close to

its 2yr-range), resulting in target price of Rs72 (upside potential of 26%).

Dish TV India

June 25, 2014 5

Investment Rationale

Leading DTH player with 27% market share

DITV, the leading DTH service provider in Asia Pacific, is the only pure-play listed

Indian DTH player commanding industry leading market share of 27%. Though DITV’s

market share has declined from its peak of 70% in 2007 due to entrance of new

players, DITV still ranks first by a wide margin when compared to its nearest

competitor, Tata Sky. DITV’s market share has now stabilized around 25-30% and we

see no threat to its leadership position.

Exhibit 1: Market share of DTH players based on gross subscribers as on March 31, 2014

Dish TV27%

Tata Sky20%

SunDirect

13%

BigTV7%

Airtel Digital

19%

Videocon D2H14%

Source: Company Data, PL Research

Digitization Opportunity - Phase III & IV to open up new growth avenues

DTH has disappointed in Phase-I/II

Digital cable has emerged as the clear winner in Phase-I/II aided by their last-mile

connectivity with end subscribers, strong personal connect, incumbency, high initial

acquisition cost of DTH and lower ARPU in digital cable due to continued delay in

gross billing. Our channel checks suggests that DTH has only been able to garner 15-

20% of subscriber churn from analog to digital environment. MSOs have

demonstrated their strong foothold in these markets, while lack of personal connect

with subscribers have hurt DTH in Phase-I/II.

Dish TV India

June 25, 2014 6

However, Phase-III/IV are likely to see DTH bouncing back

Phase-III/IV is likely to turn the tide in DTH’s favor due to connectivity issues of MSOs

in cable-dark areas. Over the last few years, DTH has built a strong platform for itself

in Tier III/IV cities led by absence of digital cable and limited presence of analog

cable infrastructure in rural towns. MSOs have been focused on Tier-I/II cities due to

their traditional strong footing in metros providing DTH an opportunity to tap rural

towns. We believe DTH will be the primary beneficiary in Phase-III/IV due to:

Focus of large MSOs in Tier I/II cities

Exhibit 2: MSOs - subscriber profile (m)

MSOs Total subscribers Digital subscribers Phase- I seeding Phase- II seeding

Hathway 11.5 7.7 2.5 4.2

DEN 13.0 5.7 2.0 3.0

Siticable >10.0 4.0 1.0 2.5

Digicable >8.5 NA 0.5 1.0

IMCL NA NA 1.0 2.3


Already stretched Balance Sheet of MSOs

Exhibit 3: Stretched Balance Sheet of MSOs

MSOs Gross debt Cash Net debt Equity Net D/E EBITDA Interest EBITDA/Interest FCF FY13

Hathway 11,072 440 10,632 9,593 1.1 3,014 1,345 2.2 (4,626)

DEN 5,173 8,630 (3,457) 18,585 (0.2) 3,022 890 3.4 (3,748)

Siticable 10,958 3,529 7,429 1,133 6.6 1,128 1,191 0.9 (5,404)


Further capex required in Phase- III/IV for MSOs

Exhibit 4: MSOs require further huge capex to fund Phase-III/IV

No. of boxes to be seeded in Phase-III - (m) 30

No. of boxes to be seeded in Phase-IV - (m) 50

Total boxes reqd.-m 80

Cost/Set top box 1,800

Gross Capex reqd.- Rs bn 144

Activation Revenues collected/box 500

Activation revenues - Rs bn 40

Net Capex required - Rs bn 104

Upfront payment reqd. 40%

Upfront payment for set top boxes - Rs bn 42

Deferred payment 60%

Deferred payout - Rs bn 62

Interest rate on deferred payout 10%

Annual Interest - Rs bn 6


Dish TV India

June 25, 2014 7

Better technological competence of DTH players

Owing to the above mentioned rationale, we expect DTH to emerge as the primary

beneficiary of digitization in Phase-III/IV. We expect DTH to garner 50-60% of the

churn from analog to digitized platform. DITV expects 50% of Phase-III and IV

subscribers to shift to the DTH platform.

Opportunity in Phase-III/IV

Phase-III/IV collectively consists of 80m households compared to 35m households in

Phase-I/II combined. The opportunity that lies ahead for DTH players is huge, given

that DTH already has a strong brand recall in rural towns and connectivity/reach is

not an issue for DTH platform. Though the deadline for Phase-III/IV is Dec 2014, we

expect the process to get completed only by FY17E.

Exhibit 5: Opportunity for Dish TV in Phase-III/IV

Particulars m

No. of households in Phase-III – (m) 30

No. of households in Phase-IV – (m) 50

Total households – (m) 80

Expected share of DTH platform 55%

Potential DTH subscribers – (m) 44

Market share assumption for DISH – (m) 25%

Potential subscribers for DITV- (m) 11.0

Source: Industry, PL Research

ARPU increase on the cards

Despite implementation of digitization in Phase-I/II cities, ARPUs have not increased

materially for DITV due to delay in gross billing. However, we believe it is only a

matter of time before ARPU sees a sustained uptick. We believe there are multiple

levers for ARPU going forward -

Increase in package prices have not translated into corresponding ARPU

increase: DITV has hiked package prices 3-4 times since Apr 2012. However, all

of the price increase has not percolated into ARPU increase due to significant

downtrading within packages. While base pack price stands at Rs220 currently

compared to Rs175 in Apr 2012, ARPU has increased only from Rs152 in Apr

2012 to Rs163 currently. Muted growth in ARPU can be attributed to

downtrading within packages (in Q4FY12, 48% of subscriber base was on base

pack, while currently 58% of subscribers are on base pack). In light of this, DITV

has changed its strategy from fuelling subscriber growth to focus on quality

subscribers. Improvement in subscriber mix will enable DITV to bring about an

improvement in ARPU and reduce churn.

Dish TV India

June 25, 2014 8

Further hike in package prices by 10% from June 1, 2014: DITV has hiked

package prices by further 10% (excl. base pack) from June 1, 2014.

Exhibit 6: Package price trend

Packages Q2FY11 Q4FY11 Q1FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 June'1st '14

Super Family Pack 150 160 165 175 175 180 200 220 220 220 220 220

Super Gold 225 225 225 225 225 235 255 280 280 280 280 300

Super World Pack 270 270 275 275 275 285 305 320 320 320 320 340

Platinum packs 325 325 350 350 350 360 380 400 400 400 400 421

Paradise Packs NA NA NA NA NA 400 400 440 449 449 449 494


Exhibit 7: ARPU trend (Rs/month/subscriber)

Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14

ARPU 139 142 150 150 152 152 152 156 159 160 157 165 165 166 163


Implementation of gross billing will give headroom to DTH to raise prices:

Traditionally, cable has remained a preferred choice for consumers due to its

last-mile connectivity and lower monthly outflow (while the lumpsum amount

that a LCO used to charge consumer was significantly lower than DTH, LCO also

used to provide 2nd/3rd cable connection in the same house at free of cost),

while DTH has been perceived as a premium service by the consumers.

However, with the implementation of gross billing, we expect digital cable to

raise ARPUs significantly (to cover their capex and tax) which would enable DTH

to further raise prices.

MSOs require further money to fund their capex. Additionally, to meet tax

obligations and increase content cost payouts to broadcasters, MSOs will be

forced to increase package prices.

Ramp-up in HD services will further increase blended ARPU. Of the net

incremental additions during the last few quarters, HD subscribers account for

~10-12% of the new subscribers. Since HD ARPU at Rs441 currently is ~2x as

compared to SD, increase in HD subscribers can increase blended ARPU. DITV’s

offering of 46HD channels is the highest among all DTH players.

Exhibit 8: HD additions & ARPU

Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1 FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14

HD additions as a % of total additions 5.5% 6.0% 5.0% 5.0% 8.0% 8.0% 8.0% 8.0% 14.0% 11.5% 11.0% 11.5%

HD ARPU- Rs/month NA >400 >400 NA 414 NA NA 414 414 454 441 441


Dish TV India

June 25, 2014 9

DTH ARPU in India is one of the lowest: DTH ARPU in India at US$4/month is

one of the lowest when compared globally or even with the emerging markets.

Hence, there exists a tremendous potential for increase in ARPU, going forward.

Exhibit 9: Pay-TV-ARPU across Asian countries


Dichotomy between DTH and MSOs

Despite a substantially lower subscriber base of DTH compared to analog/digital

cable, DTH industry ends up paying ~Rs24bn as content costs to broadcasters which

is similar to that of cable. DTH industry accounts for ~60% of broadcasters’

subscription revenues with only a 35-40% subscriber count. Compare this to the

carriage fees which are paid by broadcasters to Cable v/s DTH. Cable industry

receives ~Rs15-18bn carriage fees annually from broadcasters, while for DTH, this

amount is negligible.

Exhibit 10: DTH pays disproportionately higher content costs to broadcasters'

FY11 FY12 FY13

Hathway

Content cost – (m) 3,622 4,295 4,325

No. of subscribers – (m) 8.7 8.8 10.5

Content cost/subscriber/month - Rs 35 41 34

DEN networks

Content cost – (m) NA NA 2,988

No. of subscribers – (m) NA NA 11

Content cost/subscriber/month- Rs NA NA 23

Siticable

Content cost – (m) 2,003 2,163 2,343

No. of subscribers – (m) NA NA 10

Content cost/subscriber/month - Rs NA NA 20

Dish TV

Content cost – (m) 5,168 6,087 6,525

No. of subscribers – (m) 8.5 9.6 10.6

Content cost/subscriber/month - Rs 51 53 51


Dish TV India

June 25, 2014 10

Our analysis suggests that DTH industry continues to suffer due to unfavourable

treatment meted out to them compared to cable. For DITV, net content

cost/subscriber (content cost less carriage revenues) works out to

~Rs55/subscriber/month compared to significantly lower amount for MSOs.

What DITV is doing to address the dichotomy

Unique initiatives showcase DITV’s strategic vision and understanding of business;

miles ahead of competitors.

A-la-carte scheme to reduce DITV’s content costs/increase carriage revenue

In Nov 2013, DITV launched “On Request Channels” scheme which gives consumers

the choice of removing the channels which they do not want from their subscription

packages. Under this scheme, there is a separate categorization within the

subscribed package of the consumer named as “Request only basis”. It is available

to the consumer only if he requests for those channels included under this scheme.

If the consumer is not interested in watching the channel and does not request for

these channels within a stipulated period of time, he will be credited with 100 bonus

points (valued Rs100) for each unsubscribed channel which can be used by him to

purchase movies-on-demand/a-la-carte channels etc. This scheme was introduced

on Nov 15, 2013 for 22 channels of Indiacast UTV.

However, things turned ugly between DITV and Indiacast UTV after the launch of this

scheme. In Dec 2013, the Telecom Disputes Settlement and Appellate Tribunal

(TDSAT) gave its official order in the petition filed by IndiaCast UTV against DITV.

DITV has been asked to provide all the channels of the IndiaCast bouquet on a-la-

carte basis. DITV has taken all the 22 channels of Indiacast UTV (with regard to which

the fixed deal agreement came to an end on Dec 31, 2013) out of its packages and

put them on a-la-carte basis on its platform. For the remaining 16 channels of

Indiacast UTV whose agreement expired on Mar 31, 2014, Dish TV has also put them

on a-la-carte basis.

Through this scheme, DITV expects to benefit by way of –

Reduction in content costs: Over the medium term, DITV targets to reduce its

content costs from 31% of sales in FY14 to ~26-27%. Implementation of a-la-

carte scheme is a step in that direction. Through this renegotiation with

Indiacast UTV, DITV aims to save on content cost payouts as its outflow is

expected to reduce significantly under the new arrangement. As per

management, its content cost renegotiation with Indiacast UTV has resulted in

~25-35% decline in content costs related to that contract. DITV plans to

implement the same model with other broadcasters’ also. Discontinuation of

content aggregators (Mediapro, IndiaCast, OneAlliance etc.) will also strengthen

DITV’s bargaining power. For FY15E, DITV expects content cost increase to be in

low single digits, while as a % of revenues, content cost is likely to decline by

150-200bps.

Dish TV India

June 25, 2014 11

Exhibit 11: Content costs set to reduce

27.0%

28.0%

29.0%

30.0%

31.0%

32.0%

33.0%

34.0%

35.0%

36.0%

4,000

5,000

6,000

7,000

8,000

9,000

10,000

FY11 FY12 FY13 FY14 FY15E FY16E

Content costs (Rs m) Content costs as a % of sales (RHS)


Increase in carriage fees: Through the implementation of this scheme, DITV will

succeed in earning additional carriage revenues from those channels which do

not have a pull factor attached to them. DITV’s aggressive strategy to remove

Indiacast channels from its packages clearly shows that DITV is not willing to

budge in its fight with broadcasters. Smaller broadcasters will have to shell out

higher amount to DITV in case they want their channels to feature/be carried

within packages.

As per management, after the a-la-carte scheme for Indiacast UTV channels has

been implemented, only ~20% of Dish TV’s subscribers have opted for Colors

channel (compared to ~50-60% earlier). Further, most of the other Indiacast

channels have been subscribed by merely ~2-3% of Dish TV’s subscriber base.

DITV plans to share monthly reach data of channels

Starting Feb 2014, DITV is sharing monthly reach data of individual channels

broadcast on its platform with media agencies/advertisers. This is a unique initiative

which will share individual channels reach data as a percentage of Dish TV’s total

platform reach. Sharing of such data will help agencies/advertisers in taking

informed pricing decisions. We believe this initiative clearly outlines DITV’s

aggressive strategy of controlling content costs/increasing carriage revenues. Smaller

channels will be forced to either shell out higher carriage fees or receive lower

content costs. Currently, there is no other distribution platform which shares reach

data and industry has to depend on TAM for viewership data.

Dish TV India

June 25, 2014 12

Change in strategy

Strategy #1-Focus on quality additions:

Of late, investors have been pretty concerned about slowing additions in DITV’s

subscriber base. However, we believe that lower additions are a part of a strategy

shift wherein the focus is on profitable growth (rather than just chasing growth).

Aggressive acquisition of subscribers in the last few years was brought about by

offering lower entry costs, higher subsidy on set top boxes, lower package prices etc.

which resulted in continued losses. However, over the last few quarters, the strategy

has shifted from mere growth to profitable growth, i.e management has clearly

stressed on the need for acquiring higher ARPU subscribers. Management

acknowledges the importance of reducing subsidy on set-top boxes and moderating

churn rates which would help it to achieve profitable growth. While high STB prices

may ensure more sticky consumers, it may result in moderation in subscriber

additions and loss of subscriber market share in the interim.

Exhibit 12: Gross subscriber additions - m

0.4

0.5

0.8

0.3 0.4 0.4

0.5 0.4

0.6

0.8

1.1

1.0

0.7

0.6

0.7

0.4 0.5 0.5

0.8

0.4 0.3 0.4

0.5

0.3

-

0.2

0.4

0.6

0.8

1.0

1.2

Q1

FY0

9

Q2

FY0

9

Q3

FY

09

Q4

FY0

9

Q1

FY1

0

Q2

FY1

0

Q3

FY

10

Q4

FY1

0

Q1

FY1

1

Q2

FY

11

Q3

FY1

1

Q4

FY1

1

Q1

FY1

2

Q2

FY

12

Q3

FY1

2

Q4

FY1

2

Q1

FY

13

Q2

FY1

3

Q3

FY1

3

Q4

FY1

3

Q1

FY

14

Q2

FY1

4

Q3

FY1

4

Q4

FY1

4


Strategy #2- Launch of Zing

DITV recently launched Zing, a sub-brand designed specifically for linguistic

audiences and primarily for Phase-III/IV markets where regional language

consumption is a priority. Initially, it was launched in Orissa and West Bengal and has

now been extended to Bengali speaking markets in Northeast. Zing’s acceptance has

been pretty encouraging. In Orissa, Zing is the no. 1 brand in terms of incremental

gross additions on a MoM basis, while in West Bengal it is the no.2 brand.

Management also highlighted that cannibalization of the DISH primary brand has

been minimal as customers who have moved to Zing have primarily shifted from

analog/DD platform. Zing’s base pack is priced at Rs175 (DISH base pack is at Rs220).

However, gross margins in Zing are higher than DISH due to lower content costs as

Zing is primarily focused on regional content.

Dish TV India

June 25, 2014 13

Launch of Zing has also spurred subscriber additions which had slowed down

over the last couple of quarters. On a monthly rate, DITV is now clocking 0.2m

subscribers compared to 0.13m last year. Hence, overall subscriber additions for

FY15E are likely to be significantly higher than FY14 (FY14 gross subscriber adds

were 1.45m). Overall, DITV’s market share of incremental additions increased to

24% in Q4FY14 compared to 20% in Q3. As per DITV, Zing currently has 1lakh

subscribers and is expected to add 2lakh gross subscribers in FY15. Zing is

expected to contribute <10% of incremental gross additions.

Zing is being offered at an entry price of Rs1,299/box as a promotional offer.

While initial subscriber acquisition costs for DITV may be high, we expect it to

settle down gradually.

Exhibit 13: Regional focussed packages of Zing


Strategy #3-Reduction of subsidy on STBs

Reduction in subsidy has been identified as a key strategy for DITV to move towards

profitable growth. Under the current scenario, DITV ends up subsidizing Rs1,200/set

top box. Though subsidy has been reduced over the last year through gradual

increase in entry prices, DITV maintains that they would like to move to zero-subsidy

model over the long-term. Appreciation in Rupee with the emergence of a new,

stable govt. at the Centre would also help in reducing subsidy as DITV imports set-

top boxes from Korea.

Dish TV India

June 25, 2014 14

Exhibit 14: DISH TV- hike in offer price of SD box

1,640 1,840

1,999

2,249

-

500

1,000

1,500

2,000

2,500

Before Feb'13 Wef Feb'13- First

hike

Wef Feb'13-

Second hike

Wef July'13(R

s)


Strategy #4 - Lowering SAC

SAC for the DTH industry has remained high over the years due to focus on new

seeding and gaining incremental market share. This has resulted in high capex

outflow and negative FCFF generation due to high level of subsidy. However, the

industry has realized that this business model is unsustainable due to high capex

requirements, low ARPU levels and resultant long payback period.

In FY14, there has been a concerted effort from the industry to hike STB prices as

well as ARPU. Steep hike in entry prices of STB along with discontinuation of free

viewing period has resulted into lowering of SAC for DITV as well as industry.

Reduction in cash burn on new subscriber acquisition would help to improve balance

sheet and improve cash flow position gradually.

Exhibit 15: DITV’s SAC on a downtrend

2,488

2,153 2,125 1,996

1,800

-

500

1,000

1,500

2,000

2,500

3,000

FY10 FY11 FY12 FY13 FY14

Source: Company Data, PL Research Note: SAC = Subsidy on STB + 80% of mktng. expenses + trade comm

Exhibit 16: Reducing SAC remains a top priority for DISH

2,145 2,273 2,201

1,996 1,828 1,849 1,889 1,800

-

500

1,000

1,500

2,000

2,500


Dish TV India

June 25, 2014 15

Strategy #4 - Lowering investment/net subscriber

Through reduction in SAC, investment/net subscriber has also reduced for DITV over

the last few years.

Exhibit 17: Dish TV's investment/subscriber - Rs

4,055

3,390 3,218

2,939 2,837

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

FY10 FY11 FY12 FY13 FY14

(Rs)


Strategy #5 - Improving payback period

Globally, the DTH industry is characterized by high initial cash outflows related to

customer acquisition, while the revenues are back-ended. Initially, subscriber

addition involves payout from the DTH provider in terms of subsidy on STBs,

marketing expenses for acquiring new customers and commission payout to dealers.

This results in high SAC initially, while revenues kick in over the lifetime of the

customer. Hence, DTH industry typically has a prolonged payback period.

Over the last couple of years, through reduction in SAC, DITV has been able to

reduce its payback period. Payback period stood at >5 years in FY10 which has

declined to <3 years in FY14.

Exhibit 18: SAC/ARPU - in months - proxy for payback period

18 18

15

14

13

11 10

9

7

9

11

13

15

17

19

FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E


Dish TV India

June 25, 2014 16

Strategy #6 - Reducing churn

DITV’s current payback period at 2.5-3.0 years implies that if any consumer leaves

DITV’s platform before this time period, then that consumer leads to a loss for DITV.

Hence, it is necessary that the churn is reduced and kept at a manageable level.

Exhibit 19: Annualized churn rate

14.1% 13.9%

20.2%

12.0%12.7%

11.3% 11.2% 11.8%

6.0%6.9%

8.1%7.2%

4.0%

6.5%

9.0%

11.5%

14.0%

16.5%

19.0%

21.5%

Q1

FY1

2

Q2

FY

12

Q3

FY1

2

Q4

FY

12

Q1

FY1

3

Q2

FY1

3

Q3

FY1

3

Q4

FY1

3

Q1

FY

14

Q2

FY1

4

Q3

FY1

4

Q4

FY1

4


DITV has taken the following measures to reduce churn:

Provide an impeccable viewing experience, both in terms of number of channels

as well as quality of technology

Increase prices of STBs in order to attract quality and not price-conscious

subscribers

Change in strategy to result in improving per subscriber economics for DITV

DITV’s renewed focus on profitable growth has evolved from its past experience of

aggressive subscriber additions which led to higher capex outflow and resultant

pressure on FCFF generation. We believe the proposed change in strategy is a step in

the right direction as it will help to improve per subscriber economics for DITV over

the medium term. Better economics will also partially annul moderation in

subscriber additions.

Dish TV India

June 25, 2014 17

Margin levers

Rationalizing content cost remains a key focus area

Content cost is the single largest cost item for DITV and accounted for 31% of sales in

FY14. As highlighted earlier, DTH industry ends up paying ~Rs24bn as content costs

to broadcasters’ which is similar to that of cable. Despite accounting for only 35-40%

of subscriber market share, DTH industry contributes ~60% of broadcasters’

subscription revenues.

Reduction in content cost remains a primary focus area for DITV. Over the medium

term, DITV targets to reduce its content cost from 31% of sales in FY14 to ~26-27%.

Implementation of the a-la-carte scheme and sharing of monthly reach data is a

precursor to the fact that content cost renegotiations now would be based on actual

viewership. As per DITV, renegotiation with Indiacast UTV has resulted in ~25-35%

decline in content costs related to that contract. DITV plans to implement the same

model with other broadcasters’ also. Discontinuation of content aggregators

(Mediapro, IndiaCast, OneAlliance etc.) will also strengthen DITV’s bargaining power.

Further, implementation of digitization would also gradually correct the dichotomy

between DTH and MSO content payouts to broadcasters.

For FY15E, DITV expects content cost increase to be in low single digits, while as a

percentage of revenues, content cost is likely to decline by 150-200bps (we have

modelled for content costs to increase by 8%/12% in FY15E/16E, respectively).

Exhibit 20: Direct correlation between content costs and EBITDA margins

13.0%

17.0%

21.0%

25.0%

29.0%

33.0%

37.0%


Content cost as a % of sales EBITDA margin %


Dish TV India

June 25, 2014 18

ARPU increases to support margin improvement

Under the digitization regime, ARPU increase is inevitable driven by -

Focus on quality subscribers than price-conscious subscribers

Implementation of gross billing would push cable ARPU higher giving room to

DTH to raise prices

MSOs will be forced to raise prices to counter increase in content cost payouts

and meet additional funding requirements

Ramp-up in HD services

Focus on improving Balance Sheet/Cash Flow

All of DITV’s strategy to improve payback period, reduce subsidy, focusing on quality

additions are designed with an eye to improve FCFF generation and thereby, reduce

debt. DITV became FCFF positive in FY13, while in FY14, it generated FCFF of

Rs3.1bn. In FY14, company has aggressively reduced debt by Rs5.8bn in constant

currency terms (Rs8.7bn after FX inclusion) through internal cash generation. At end

of Mar’14, gross debt stood at Rs11.8bn compared to Rs16.3bn in Mar’13. Net debt

stood at Rs8.5bn in Mar 2014 compared to Rs12.0bn in Mar 2013. In FY15E, DITV

expects to repay around Rs5.5bn of debt. DITV expects net debt at end of FY16E to

be ~Rs7bn. We expect DITV to generate Rs5bn of cumulative FCFF during FY14-16E,

which would imply self-sufficiency in funding its subscriber additions in Phase-III/IV.

Over FY14-16E, we expect gross debt to reduce by Rs3.5bn to Rs.8.3bn.

Exhibit 21: FCFF generation over the years

(2,339)(2,789)

293

4,232

2,559 2,507

(4,000)

(2,000)

0

2,000

4,000

6,000


FCFF generation

Source: Company Data, PL Research Note: As per DITV, in FY13/14 it generated FCFF of Rs650m and Rs3.1bn respectively

Exhibit 22: Debt reduction remains a top priority

10,763

14,003

16,330

11,849 9,849

8,349

-

5,000

10,000

15,000

20,000


Gross debt


Dish TV India

June 25, 2014 19

Superior technology implies impeccable viewing experience

DITV boasts of collective transponder capacity of 648MHz which is the highest

among all other DTH players. DITV has still not completely shifted to the MPEG-4

technology and expects the transition to be a gradual one based on replacement

demand from existing customers. As per management, all the new boxes that they

are seeding is based on MPEG-4 technology. While Tata Sky has made a concerted

effort to shift to MPEG-4 at one go, DISH opted for a gradual phase-out of MPEG-2

technology. All the other four DTH players (Airtel, Sun Direct, Reliance Digital and

Videocon D2H) use MPEG-4 technology as they have been a late entrant in this

business. Nonetheless, DISH offers the highest number of channels both in SD as well

as HD.

Exhibit 23: Number of channels

Dish TV Tata Sky Airtel Sun Direct Reliance Digital Videocon

SD 353 290 317 212 248 343

HD 46 24 19 10 10 27


Dish TV India

June 25, 2014 20

SWOT Analysis

Exhibit 24: SWOT Analysis

Strengths Opportunities Weaknesses Threats

Economies of Scale - DITV is the largest DTH player in India, with

~27% market share

Phase-III/IV - DTH is expected to be the primary beneficiary

Subscriber mix - ~60% of subscribers are rural. Low

concentration of subscribers in TAM-rich areas reduces bargaining

power

ARPU increase can augment churn - Consumers can shift to digital cable which might be cheaper

HD- is currently <10% of overall subscriber base

ARPU-ARPU growth till now has been lower than expectations

Rising competition- MSOs have demonstrated its dominance in

Phase-I/II

Higher channel offerings - By far, DITV offers the highest number of

channels, both in SD and HD

ARPU - With implementation of gross billing, DTH will be in a

position to raise prices

Deep understanding of industry dynamics - Initiated several new

initiatives like ‘On Request’ channels, sharing monthly reach

data etc.

Strong promoter background - Promoted by the Essel group

Source: PL Research

Dish TV India

June 25, 2014 21

Business Description

DITV, promoted by the Essel group, is the pioneer in India’s DTH space. DITV is Asia-

Pacific’s largest DTH provider and the only pure-play listed Indian DTH player. The

company is the leader in DTH service offering with 400+ channels and services and is

the only DTH provider in India to be serviced by two satellites. Dish has a pan-India

distribution network with ~ 167,000 dealers across 8,700+ towns who are serviced

through 300+ sales personnel and 14 Regional offices. As of Mar 2014, DITV’s market

share stood at 27%. Gross subscribers stood at 16.6m in Q4FY14.

Management Team

Mr. Subhash Chandra, Non-Executive Chairman - Mr. Subhash Chandra, Non-

Executive Chairman of the Board and promoter of Essel Group of Companies, is

amongst the leading lights of the global media & entertainment industry. Mr.

Chandra revolutionized the television industry by launching the country's first

satellite television channel, Zee TV in 1992 and later the first private news channel,

Zee News. For his contributions to the industry, Mr. Chandra has been awarded the

2011 International Emmy Directorate Award. Mr. Chandra became the first Indian

ever to receive a Directorate Award recognizing excellence in television

programming outside the United States.

Jawahar Lal Goel, Managing Director - Mr. Goel has been instrumental in

establishing DITV as a prominent brand with India’s most modern and advanced

technological infrastructure. Mr. Goel led the initiatives of the Indian Broadcasting

Foundation (IBF) as its president for four consecutive years from September 2006 to

September 2010 and continues to be its active Board member. He is also on the

Board of various committees and task forces set up by Ministry of Information &

Broadcasting (MIB). He is the prime architect in establishing India’s most modern

and advanced technological infrastructure for the implementation of Conditional

Access System (CAS) and Direct-to-Home (DTH) services through Head-end in the Sky

(HITS) which is poised to bring about a revolution in the distribution of various

entertainment and electronic media products in India and would enormously benefit

TV viewers.

R. C. Venkateish, Chief Executive Officer - Mr. Venkateish joined DITV in July, 2010.

He brings with him a wealth of more than 27 years’ experience, of which, 12 years

have been in senior international positions with global brands like Smithkline

Beecham, Nestle India, Gillette, Kellogg India.

Prior to this, Venkateish was the Managing Director India and South Asia, ESPN Star

Sports. His key achievements include developing new businesses into sizeable

operations and setting up Sales & Distribution channels. He was a key player in

consolidating ESPN Star Sports position as the clear market leader in sports

broadcasting and launch of Star Cricket.

Dish TV India

June 25, 2014 22

Risks

Slowing subscriber additions: Increase in STB prices, reduction in subsidy and

increase in ARPU can slow down the subscriber additions. Moderation in

subscriber addition and loss of market share remains a key risk, going forward. If

company is not able to add new subscribers aggressively in Phase-III/IV, it will

put our earnings estimation at risk.

Change in govt. regulations: Any unfavourable change in govt. policies related

to license fee on DTH, import duty on STBs etc. can negatively impact financial

performance of DITV.

Aggressive competition: Intensifying competition resulting from host of

companies to capture market share in Phase-III/IV remains a risk to profitable

growth. DITV might also be forced to reduce prices to match up with

competitors. Such reduction would impact FCFF generation.

Continued delay in digitization: Though we have assumed a delay of 12-18

months in Phase-III/IV digitization, any further delay might put at risk our

subscriber addition estimates in that fiscal.

Rupee depreciation: Since DITV imports STBs, any Rupee depreciation would

increase the cost of STBs which might imply increase in subsidy if the company is

not able to pass on the price increase. Transponder costs are also denominated

in Dollars and would increase due to Rupee depreciation.

Dish TV India

June 25, 2014 23

Financials

Expect revenues to increase by 12% CAGR over FY14-16E

We expect DITV’s revenues to increase by 12.0% CAGR over FY14-16E driven by pick-

up in subscriber additions. We expect net subscribers to increase from 11.4m in FY14

to 14.7m by FY16E, increasing at a CAGR of 13.6%. Subscriber growth will be

primarily driven by digitization in Phase-III & IV as DTH is expected to be the primary

beneficiary of digitization in these areas. Phase-III/IV includes 80m potential

households subscribers. We expect DTH to garner 55% market share in Phase-III/IV

accounting for 44m of subscribers. Assuming DITV captures 25% market share of

new gross additions, DITV’s potential gross additions can amount to 11.0m.

Since digitization in Phase-III/IV might get delayed beyond FY16E, we have assumed

only partial benefits. We have conservatively modelled for increase in gross

subscribers by 5.5m from 16.6m in FY14 to 22.1m by FY16E. Current blended ARPU

stands at Rs163. We have modeled for ARPU of Rs172/174 in FY15E/16E,

respectively. Though ARPUs in Phase-I/II are likely to increase post the

implementation of gross billing, blended ARPU growth is likely to be lower as new

subscriber additions in Phase-III/IV is likely to have a lower ticket size.

Exhibit 26: Revenues and Revenue growth

0.0%

10.0%

20.0%

30.0%

40.0%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000


(Rs

m)

Revenues YoY gr. (RHS)


Exhibit 27: ARPU and ARPU growth

139 153 158 164 172 174

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-

50

100

150

200


(Rs)

ARPU YoY gr. (RHS)


Dish TV India

June 25, 2014 24

Exhibit 28: Gross subscribers

10.4 12.9

15.1 16.6

19.0

22.1

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

-

5.0

10.0

15.0

20.0

25.0


(m)

Gross subscribers at year end YoY gr. (RHS)


Exhibit 29: Net subscribers

8.5 9.6 10.6 11.4

12.9 14.7

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

-

5.0

10.0

15.0

20.0


(m)

Net subscribers at year end YoY gr. (RHS)


EBITDA likely to increase by 17.7% CAGR; RoCE to move to positive territory

We expect DITV’s EBITDA to increase at a CAGR of 17.7% during FY14-16E. EBITDA

margins, which dipped to 24.9% in FY14, are likely to recover back to 27.4% by FY16E

driven by reduction in content costs and moderate increase in blended ARPU. As per

management, content cost renegotiation with Indiacast UTV has resulted in ~25-35%

decline in content costs related to that contract. DITV plans to implement the same

model with other broadcasters’ also. For FY15E, DITV expects content cost increase

to be in low single digits (we have modelled for content costs to increase by 8%/12%

in FY15E/16E, respectively). Interest cost is likely to decrease to Rs1.0bn/864m in

FY15E/16E, respectively from Rs1.3bn in FY14. With improvement in EBITDA and

reduction in interest costs, adjusted PAT is likely to move into a positive territory.

PAT is likely to improve from loss of Rs411m in FY14 to profit of Rs1.5bn by FY16E

translating into annual EPS of Rs1.4. RoCE is likely to improve from 2.0% in FY14 to

26.6% by FY16E.

Exhibit 30: EBITDA

2,380

4,960 5,794 6,241

7,079

8,640

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

-

2,000

4,000

6,000

8,000

10,000


(Rs

m)

EBITDA Margin (RHS)


Exhibit 31: PAT

-1,920 -1,331

-660 -411

-14

1,507

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

-3,000

-2,000

-1,000

-

1,000

2,000


(Rs

m)

PAT Margin (RHS)


Dish TV India

June 25, 2014 25

Exhibit 32: RoCE to improve

-6.1%

-0.9% -2.0%

2.0%

7.0%

26.6%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%



FCFF generation set to improve; debt likely to reduce from Rs11.8bn in FY14 to Rs8.3bn by FY16E

With improvement in profitability and reduction in subsidy, we expect FCFF to

improve over the next few years. We expect DITV to generate FCFF of Rs2.6bn/2.5bn

in FY15E/FY16E, respectively, resulting into cumulative FCFF of Rs5bn. Debt

reduction remains a top priority and with improvement in internal cash flows, we

expect DITV to repay Rs2bn/1.5bn in FY15E/16E, respectively, despite significant

capex lined up.

Exhibit 33: FCFF generation

(2,339)(2,789)

293

4,232

2,559 2,507

(4,000)

(2,000)

0

2,000

4,000

6,000


FCFF generation

Source: Company Data, PL Research Note: As per DITV, in FY13/14 it generated FCFF of Rs650m and Rs3.1bn respectively

Exhibit 34: Gross Debt

10,763

14,003

16,330

11,849 9,849

8,349

-

5,000

10,000

15,000

20,000


Gross debt


Dish TV India

June 25, 2014 26

Valuations and Recommendation

We expect DITV to be a key beneficiary of the ongoing digitization process in Phase-

III/IV. Company’s leadership position, coupled with new initiatives (launch of Zing,

implementation of a-la-carte scheme, sharing of monthly reach data etc.), would

enable it to emerge stronger than ever.

All of DITV’s strategy to reduce subsidy, improve payback period and focus on quality

additions are designed with an eye to improve FCFF generation and thereby, reduce

debt. DITV became FCFF positive in FY13, while in FY14, it generated FCFF of

Rs3.1bn. Over the next two years, we expect DITV to generate cumulative FCFF of

Rs5bn despite significant capex lined up. Debt reduction (repayment of Rs5.8bn in

FY14) remains a top priority. Debt is likely to reduce to Rs8.3bn by FY16E compared

to Rs11.8bn in FY14.

We believe current valuations offer attractive investment opportunity. With DITV’s

leadership position, pick-up in subscriber additions, focus on improving margins,

reduction in subsidy, improvement in FCFF generation and reduction of debt DITV is

bound to re-rate. We value DITV at 10x FY16 EV/EBITDA (close to its 2yr-range),

resulting in target price of Rs72 (upside potential of 26%) and recommend ‘BUY’.

Exhibit 35: 1yr. Forward EV/EBITDA

8.4

20.1

14.1

13.9

8.0

0.0

5.0

10.0

15.0

20.0

25.0

Ap

r-1

0

Sep

-10

Feb

-11

Jul-

11

Dec

-11

May

-12

Oct

-12

Mar

-13

Au

g-1

3

Jan

-14

Jun

-14

EV/E (x) Peak(x) Avg(x)

Median(x) Min(x)

Source: Company Data, Bloomberg, PL Research

Exhibit 36: 1yr. Forward Mcap/Sales

1.5x

2.4x

3.3x

4.2x

5.1x

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Mar

-14

Jun-

14

Source: Company Data, Bloomberg, PL Research

Dish TV India

June 25, 2014 27

Income Statement (Rs m)

Y/e March 2013 2014 2015E 2016E

Net Revenue 21,668 25,090 27,449 31,483

Raw Material Expenses 11,155 13,358 14,389 16,191

Gross Profit 10,513 11,732 13,060 15,292

Employee Cost 822 891 988 1,133

Other Expenses 3,897 4,600 4,993 5,518

EBITDA 5,794 6,241 7,079 8,640

Depr. & Amortization 6,276 5,973 6,462 6,569

Net Interest 773 679 631 564

Other Income 511 649 400 300

Profit before Tax (1,254) (410) (14) 1,507

Total Tax — 1 — —

Profit after Tax (1,254) (411) (14) 1,507

Ex-Od items / Min. Int. (594) — — —

Adj. PAT (660) (411) (14) 1,507

Avg. Shares O/S (m) 1,064.8 1,065.0 1,065.0 1,065.0

EPS (Rs.) (0.6) (0.4) — 1.4

Cash Flow Abstract (Rs m)

Y/e March 2013 2014 2015E 2016E

C/F from Operations 7,701 9,847 7,245 8,433

C/F from Investing (9,061) (4,085) (6,083) (7,027)

C/F from Financing 1,171 (5,981) (2,500) (2,000)

Inc. / Dec. in Cash (189) (218) (1,338) (593)

Opening Cash 3,924 3,645 3,427 2,089

Closing Cash 3,735 3,427 2,089 1,496

FCFF 293 4,232 2,559 2,507

FCFE 2,620 (249) 559 1,007

Key Financial Metrics

Y/e March 2013 2014 2015E 2016E

Growth

Revenue (%) 10.7 15.8 9.4 14.7

EBITDA (%) 16.8 7.7 13.4 22.0

PAT (%) NA NA NA NA

EPS (%) NA NA NA NA

Profitability

EBITDA Margin (%) 26.7 24.9 25.8 27.4

PAT Margin (%) NA NA NA 4.8

RoCE (%) NA 2.0 7.0 26.6

RoE (%) NA NA NA NA

Balance Sheet

Net Debt : Equity (8.2) (2.7) (2.5) (4.2)

Net Wrkng Cap. (days) (62) (29) (50) (51)

Valuation

PER (x) NA NA NA 40.2

P / B (x) NA NA NA NA

EV / EBITDA (x) 12.6 11.1 9.7 7.8

EV / Sales (x) 3.4 2.8 2.5 2.1

Earnings Quality

Eff. Tax Rate — (0.1) — —

Other Inc / PBT NA NA NA 19.9

Eff. Depr. Rate (%) 17.5 15.0 13.9 12.2

FCFE / PAT NA 60.5 NA 66.8

Source: Company Data, PL Research.

Balance Sheet Abstract (Rs m)

Y/e March 2013 2014 2015E 2016E

Shareholder's Funds (1,556) (3,126) (3,135) (1,629)

Total Debt 16,330 11,849 9,849 8,349

Other Liabilities 1,632 1,060 1,060 1,060

Total Liabilities 16,406 9,783 7,774 7,781

Net Fixed Assets 20,873 17,797 17,417 17,875

Goodwill — — — —

Investments 3,525 2,954 5,300 7,300

Net Current Assets (7,995) (10,968) (14,944) (17,395)

Cash & Equivalents 3,645 3,426 2,089 1,496

Other Current Assets 3,502 3,524 3,224 3,697

Current Liabilities 15,142 17,919 20,256 22,588

Other Assets — — — —

Total Assets 16,404 9,783 7,774 7,781

Quarterly Financials (Rs m)

Y/e March Q1FY14 Q2FY14 Q3FY14 Q4FY14

Net Revenue 5,784 5,926 6,238 6,369

EBITDA 1,217 1,478 1,581 1,289

% of revenue 21.0 24.9 25.3 20.2

Depr. & Amortization 1,444 1,504 1,534 1,491

Net Interest 77 135 204 125

Other Income 277 211 97 201

Profit before Tax (304) (161) (157) (327)

Total Tax — — — —

Profit after Tax (304) (161) (157) (1,491)

Adj. PAT (304) (161) (157) (327)

Key Operating Metrics

Y/e March 2013 2014 2015E 2016E

Subscribers (m)

Gross 15.1 16.6 19.0 22.1

Net 10.6 11.4 12.9 14.7

ARPU (Rs / Month) 158 164 172 174

Source: Company Data, PL Research.

Dish TV India

June 25, 2014 28

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India

Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage

27.8%

52.8%

19.4%

0.0%0%

10%

20%

30%

40%

50%

60%

BUY Accumulate Reduce Sell

% o

f To

tal C

ove

rage

PL’s Recommendation Nomenclature

BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months

Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months

Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month

Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as

information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be

considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy

or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information,

statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The

suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an

independent expert/advisor.

Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or

engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

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