Dish TV India Ltd shares fell 4% on Tuesday despite the company’s June quarter results beating Street estimates. Why did this happen?
Dish TV reported a consolidated net profit of Rs.54 crore, higher than Rs.35 crore seen in the March quarter. Fall in “other operating costs” and selling and distribution expenses boosted Ebitda margin, which stood at 32.1%, an all-time high according to the company. Ebitda stands for earnings before interest, tax, depreciation and amortization.
True, the Ebitda performance came as a pleasant surprise. But do note that Dish TV has reported revenue net of certain collection fees paid to its trade partners. According to the company, this has resulted in the revenue shrinking by around 4%, with a similar number being reduced from expenses. “It, however, results in the savings of the licence fees (which is about 10% of the subscription revenue)—hence, an Ebitda benefit by about Rs.11 crore,” said Credit Suisse in its results update.
Also, investors seem disappointed with the company’s average revenue per user (Arpu). On a like-to-like basis, the measure for the June quarter was Rs.173 versus Rs.172 in the March quarter.
As Credit Suisse pointed out, sequential Arpu performance was a slight disappointment considering that the March quarter is seasonally weak for Arpu, thanks to fewer days, and it had taken a number of price hikes, the full impact of which should have been felt this quarter.
The company added 390,000 net subscribers compared with 404,000 additions in the March quarter, which was again sequentially lower. One factor that has been driving subscriber additions for Dish TV is the product “Zing” aimed at customers interested in regional content. Dish TV intends to add up to 1.7 million net subscribers this fiscal year and investors would do well to keep a tab on that.
No doubt, Dish TV’s June quarter numbers prompted analysts to upgrade their estimates. But, till Tuesday, Dish TV’s shares increased by two-thirds (67%) in 2015, suggesting that shareholders are capturing a good portion of the optimism.
In fact, considering the limited upside, HDFC Securities Institutional Research has downgraded Dish TV to “neutral” rating. “We arrive at a discounted cash flow-based fair value of Rs.122 a share, implying a target FY17 enterprise value/Ebitda multiple of 11.4 times (same as earlier),” said the HDFC results review. On Wednesday morning, Dish TV’s shares were trading about 2% lower.
