Buy stocks of Dish TV; target of Rs 67

"Dish TV reported another quarter of healthy performance. Net sales stood at Rs 525crs, growth of 21% YoY driven by increase in subscriber base. EBITDA for the quarter was Rs 144crs, robust growth of 60% over Q4FY11 as operating expenses including programming cost squeezed. The company posted loss of Rs 49cr as compared to loss of Rs 37cr in Q4FY11. Net profit had negative impact of forex loss of Rs 6.5cr. The company maintained its market leadership position. Ongoing digitization would boost the subscriber base and ARPU would increase as an outcome of HD services and increase in base pack. However increase subscriber acquisition cost due to incremental marketing and sales cost would drag operating margins. We are conscious on programming cost as contracts renewals are lined up which will have an adverse impact on operating cost."

"The company reported strong revenue growth in spite of soft economic environment and stiff competition in the market. Subscription revenue for Q4FY12 stood at Rs 434crs, a growth of 19% YoY. Dish TV added 0.41mn new subscribers taking total gross subscribers to 12.9mn and net subscribers to 9.6mn. ARPU for the year was Rs 153. We believe the company will maintain in its numero uno position in DTH market and will benefit from digitization. Also ARPU will show an upward trend on the back of HD services and increase in base packs. Dish TV reported increase in operating margins for Q4FY12 by 670bps YoY to 27.5%. However operating margins would be under pressure as subscriber acquisition cost (SAC) would increase considering competition from local cable operators to attract subscribers. Also the management has guided ~10% to ~12% increase in content cost as programming contracts are lined up for renewal which would be overhang for operating margins."

"Digitization would play a major role in terms of increasing total DTH base in the country. We expect Dish TV to benefit the most as the company is market leader and commands premium over its peers. At current price, the stock is trading at 10.8X EV/EBITDA to its FY13 earnings. We recommend Accumulate with a target price of Rs 67, by assigning 12x EV/EBITDA to its FY13 earnings," says KRChoksey research report.