Dish TV + Videocon D2H: Amansa Capital’s new bet

Dish TV is Asia Pacific’s largest direct-to-home (DTH) company and part of the Essel Group. Dish TV has on its platform more than 607 channels and over 67 HD channels. Dish TV’s total bandwidth capacity equal 864 MHz, amongst the largest held by any DTH player in India.

Dish TV:
– 607 channels and over 67 HD channels
– Over 1,973 distributors across 9,402 towns
– Over 297,400 dealers across the country
– Over 1,090 service franchisees
– 2.6 mn installations in FY17

Videocon d2h:
– 650 channels and over 61 HD channels
– Over 2,800 distributors and direct dealers
– Reach of over 250,000 retailers/dealers
– Nearly 320 direct service centers
– 2.2 mn installations in FY17

In 2018, Videocon d2h merged into Dish TV, to form Dish TV Videocon.

Dish TV Videocon (45%) is the market leader in DTH followed by Tata Sky (26%), Airtel Digital (21%), Sun Direct (5%) and Others (3%). The combined entity is estimated to have 29 mn subscribers as on Mar 2018 – Dish TV (16 mn subscribers) and Videocon d2h (13 mn subscribers).

The average revenue per user (ARPU) is expected to be ₹180 – Dish TV (₹160) and Videocon d2h (₹210). The content cost for the combined entity is expected to come down to 30% of subscription revenue – Dish TV (31%) and Videocon d2h (36%)

The DTH market is currently estimated to have over 60 million subscribers and is growing at around 10% annually.

Dish TV is strong in the eastern region and Videocon D2H has a good hold in south India.

Cost savings will be worked at in areas such as content, debt-servicing, procurement of set top boxes, call centres and disaster recovery set-up. Due to the better rating of the combined entity, interest costs are expected to come down. The combined entity sees the benefits from cost savings at over ₹500 crore.

Management:
– A division of Zee Entertainment
– Mr. Jawahar Goel, Chairman and MD, Dish TV
– Mr. Anil Kumar Dua, CEO, has over 28 years of experience in the consumer industry
– Mr. Dua worked with Gillette, Hero Moto Corp and Hindustan Unilever in the past

Competitive Advantage:
– Market leader with 45% market share in DTH
– Highest number of channels
– Strong brand
– Strong distribution
– Strong free cash flow potential

Risks:
DTH companies face stiff competition from new entrants such as Reliance Jio and independent streaming companies like Netflix, Hotstar and Amazon Prime.

DTH companies have been consolidating businesses, while looking at fresh investments to counter challengers. In December 2017, Airtel sold 20% stake in its DTH business to Warburg Pincus for Rs 2,300 crore, raising cash to tackle competitors.

Investors:
– Promoters hold 31.5% of the company
– Deutsche Bank holds 15% of the company
– HDFC Funds hold 2.7% of the company
– Amansa holds 2.4% of the company
– Norway Pension Fund holds 3% of the company

As per March 2018 shareholding, Amansa holds 4.4 crore shares of #DishTV for ₹331 crore at CMP of ₹75.

Promoter is offering to buy back 26% of the outstanding shares at ₹74 per share, involving a total outlay of ₹3,701 crore.

Valuation:
HDFC Securities assigns a target price of ₹105 based on 9x FY19 EV/EBITDA multiple.

Motilal Oswal assigns a target price of ₹105 based on 9x FY19 EV/EBITDA multiple.

Resources:
Investor Presentation Dish TV – Feb 2018 [Download]
Investor Presentation Videocon D2H – Nov 2017 [Download]

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