Good show; Re-rating hinges on consistency, JIO’s strategy
* Dish TV reported strong numbers after few quarters of dismal performance. Subscription revenue grew by 8.1% qoq to Rs14.9bn, driven by 6.4% qoq increase in ARPU.
* Operating performance was better than expected, largely driven by higher revenue. Total opex declined by 2.9% qoq (up 2.5% qoq adjusted for one-time cost of Rs600mn in Q4FY18), but 6% higher than our estimate.
* Strong Q1FY19 performance sets positive momentum, as major benefits of cost synergies from merger would reflect in the coming quarters. We continue to highlight that consistency in performance is key due to past baggage of underperformance. We raise EBITDA estimates by 4%/2% for FY19/20E, driven by higher ARPU assumptions.
* Cable TV distribution companies have corrected significantly with JIO’s announcement to launch JIO Fibre and JIO TV while Dish TV has been stable due to ongoing open offer. Pricing plans from JIO on for its fibre and TV offering would decide the level of disruption. We retain ACCUMULATE with unchanged TP of Rs86 (8x FY20E EV/EBITDA).
Robust quarter underscored by rise in ARPU
Reported consolidated revenue at Rs16.6bn was up 8% qoq, driven by ARPU expansion of 6.5% qoq. Incrementally higher HD viewership, lower discounts at package levels and price hike across majority of recharge plans bolstered subscription growth by 8.1% qoq to Rs14,893mn. Net active subscriber base stood at 23.3mn, up 0.3mn qoq v/s 0.20mn in Q4FY18 with ARPU of Rs214. EBITDA at Rs5.6bn was up 39.0% qoq, led by robust revenue growth and merger-related cost synergies. EBITDA margin at 33.6% expanded by 750bps qoq. PAT stood at Rs279bn v/s Rs1.21bn in Q4FY18.
Q1FY19 undoubtedly sets a positive momentum for the ensuing quarters, but the company will have to consistently deliver, which has been missing in the past. Further, majority of cost synergies would be reflected in the ensuing quarters. Cable distribution companies have corrected meaningfully in the last one week post JIO’s announcement to launch JIO Fibre and JIO TV. But, Dish has been resilient, which can be attributable to the ongoing open offer (base price of Rs74). The merged entity has ~65% rural subscriber base, which would not see any impact of JIO’ offering while 35% of urban subscriber base is vulnerable to churn, albeit in the medium term. Disruptive pricing from JIO with enhanced services for urban consumers could impact high profitable HD subscribers of DTH companies. It would be interesting to see whether Dish TV would be able to attract incremental investor interest with a strong operating performance in Q1FY19. Despite a strong performance, Dish TV might not see multiple rerating due to aforementioned factors and therefore consistency in performance will be critical.
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