Dish TV slashes losses in FY 2013; outlook improves

MUMBAI: The Zee TV group DTH service provider Dish TV India Ltd (Dish TV) is slowly but gradually emerging from a sea of red ink; especially if one looks at the company‘s financials for the year ended 31 March 2013. Losses have been more than halved to Rs 66 crore from Rs 133.14 crore in the previous fiscal. Even its quarter losses have been reduced. Additionally, it added new subscribers in Q4 2013 at 200,000, taking up its net subscribers to 10.7 million.

And things look likely to get even better for it if one goes by the massive 27 per cent it commands of the DTH market, and the fact that it is looking at raising average revenues per user (ARPUs), reducing customer subsidies in the medium term and in the process increasing profitability.

Let us look at the standalone Q4-2013 results as against the corresponding Q4-2012

Revenues for Q4 FY 2013 stand at Rs 555.40 crore, a rise of 7.5 per cent from the corresponding last year quarter Rs 516.44 crore. Subscription revenues at Rs 500 crore recorded a growth of 15.3 per cent. Total expenses too went up 7.4 per cent, standing at Rs 580.36 crore in Q4 FY 2013 (Rs 540 crore in Q4 FY 2012). Programming and content cost accounted for a large chunk of this increase rising 34 per cent during this period to Rs 196.72 crore as against Rs 146.76 crore.

Although Dish TV reported a loss of Rs 43.62 crore, it is a 11 per cent improvement over the Q4-2012‘s loss of Rs 49 crore.

Let us take a look at the Q4-2013 financials in comparison with Q3-2013

Revenues in Q4-2013 have marginally decreased by Rs 2.42 crore as against Rs 557.82 crore reported in Q3-2013. While programming and content costs have risen by over 20 per cent to Rs 196.72 crore (Rs 162.69 crore in the immediate preceding quarter), it has got more efficient while reducing its selling and distribution expenses to Rs 74.2 crore (Rs 90 crore.). Additionally, it scaled down its advertising expenses by 30 per cent to Rs 16.6 crore (Rs 23.7 crore). EBITDA in Q4 2013 fell 12.8 per cent to Rs 120 crore against Rs 137.77 crore in Q3-2013. And losses fell to Rs 43.62 crore as opposed to Rs 44.48 crore.

Dish TV has increased its new subscriber prices and pack prices in the past few months and has managed to bring down its subscriber acquisition cost (SAC) to Rs 1,996 as against Rs 2,201 in the immediate preceding quarter.

The company added 200,000 net subscribers in Q4-2013- its lowest net new adds for a quarter since 2007 - taking its net subs base to 10.7 million. This low net add figure has alarmed some observers; but this has happened at a time when India is going through a gut wrenching change of digitisation of its cable TV infrastructure. Phase II of digitisation has been moving rather slowly with cable TV operaors in many cities which were supposed to come under the digitisation hammer fighting the government‘s mandate in courts and getting stay orders. So, many subscribers there are continuing to receiving analogue signals and hence have not moved to digital as yet. Hopefully, in the coming days as digitisation moves forward DTH providers will have some spillover benefits of subs moving to digital services.

Dish TV‘s ARPUs were also lower for Q4-2013 at Rs 157 as against Rs 160 for the immediate preceding quarter.

Let us look at the consolidated FY-2013 results as against FY-2012

FY-2013‘s consolidated revenues stood at Rs 2,166.80 crore, a rise of 10.7 per cent as against last fiscal‘s Rs 1957.9 crore. It reported an EBITDA of Rs 575.9 crore as against Rs 496 crore last fiscal (a 16.1 per cent increase) with its EBITDA margin standing at 26.7 per cent.

It has reported a 5.1 per cent YoY increase in content costs as against an overall increase of 11.5 per cent in total expenses to Rs 2,215 crore (Rs 1,983.8 crore).

What is noteworthy is the way it has managed to bring down the net loss for FY-2013 to Rs 66 crore compared to Rs 133.14 crore in FY-2012. The earnings per share (EPS) too has shown a massive improvement from a negative Rs 1.25 to a negative Rs 0.62.

Dish TV has a bouquet of 400 plus channels and it added another five HD channels in April 2013 taking its offering to 42 HD channels and services on its platform. Most analysts are bullish on the stock, currently trading at Rs 64.30.

Says Dish TV chairman Subash Chandra, "In the media sector, digitisation, though not fully up to speed, holds big potential for the industry. DTH platforms, in particular, look forward to a level playing field contributing to meaningfully higher ARPUs and stickier subscriber bases over time. Dish TV‘s industry leading initiative, to hike acquisition and pack price is likely to be a catalyst to achieve that."

Dish TV recently launched India‘s first standard definition recorder, Dish+ with an unlimited recording facility. This was initially launched in the 42 cities covered under Phase 1 and Phase 2 of digitisation and is now available across India as a value for money differentiator over its competitors‘ offerings.

Dish TV managing director Jawahar Goel points out that fiscal 2013 saw most players in the Indian DTH industry evolve to the next level and Dish TV led the industry and helped it pull off a significant increase in the new subscriber acquistion price over the last several months thereby reducing the effective cash burn per subscriber.

"While the resultant decline in industry gross additions is marginal, it is expected to be well compensated by the quality of subscribers," he highlights. "There was no respite though from the multiple taxation which the DTH industry is reeling under. Uncertainty on the rollout of goods & services tax (GST) continues to be an overhang on the earnings potential of the industry,"

He is quite confident that DTH will score over cable TV thanks to the strong service back up the sector has built and its increasing focus on value growth rather than chasing subscriber numbers.

"On the digitisation front, the MSO‘s readiness on encryption, packaging, dunning and effective business processes is taking undue time. With increasing expectations, customers however will gradually align to a technologically progressive and service oriented mass-scale platform, albeit at a premium. Dish TV has experienced strong though early signals of churned subscribers getting back to its platform in select markets in the current quarter," says Goel says in a parting statement.

Other points for FY 2013 to be noted are:

* The company set up a 70:30 joint venture company Dish T V Lanka (Pvt) Ltd on 25 April 2012 under the laws of Sri Lanka with Satnet (Pvt Ltd). Satnet has a DTH licence and the joint venture will work on providing DTH related service in the island country.

* The company has extended the life of the consumer premises equipment (CPE) for depreciation purposes of to five years for equipment activated on or after 1 April 2012. Upto 31 March 2012, in certain cases, the one-time advance contribution towards the CPEs in the form of rental was being recognized over a period of three years from the activation date. There is no significant impact on financial results of the quarter and year-ended 31 March 2013 on account of change in estimate for revenue recognition.

* Dish TV’s net-worth as at 31 March 2013 is eroded by its accumulated losses. However, the management has prepared the financial results assuming that the Company will continue as a going concern considering that it has adequate resources in the form of operating cash flows, sanctioned credit facilities from lenders and bank deposits to adequately meet its obligations.

* The name of the Company’s wholly owned subsidiary in Singapore, namely, Dish TV Singapore Pte Limited was changed to Digital Network Distribution Pte Limited on 12 March 2013. The Company entered into a share purchase Agreement dated 19 March 2013 with a party for transfer of its investment at an agreed price of Sing$12,000. On 1 April 2013, the share holding in Digital Network Distribution Pte Limited was transferred and, accordingly, as at 31 March 2013, the investments has been shown under current maturities of long term investment.

* During the current year, Direct Media Distribution Ventures Pvt. Ltd (formerly known as Dhaka Warriors Sports Pvt Ltd) disinvested its holding in the Company from 59.86% to 45.24% and consequently, it ceases to be the holding company of Dish TV India Limited.

*Hitherto, the exchange differences arising from foreign currency borrowing to the extent that they are regarded as an adjustment to interest cost, were treated as borrowing cost in terms of AS – 16, “Borrowing Costs.”

During the year ended 31 March 2013, pursuant to a clarification dated 9 August 2012 from the MCA, the Company has changed the accounting policy w.e.f. from 1 April 2011, to treat the same as “foreign exchange fluctuation”, to be accounted as per AS – 11 “Effects of Changes in Foreign Exchange Rates,” instead of AS – 16 “Borrowing Costs”.

This change has resulted in a reversal of finance cost of Rs. 70.68 crore and increase in depreciation by Rs. 11.24 crore during the year ended 31 March 2013. The aforesaid change, resulting in a net gain of Rs 59.44 crore, has been shown as ‘exceptional items’ in the financial results for the year ended 31 March 2013. In this regard, if the company had followed the same accounting policy as in the previous year, finance costs for the year would have been higher by Rs 58.41 crore; depreciation expense would have been lower by Rs 14.15 crore and the loss for the year would have been higher by Rs 44.26 crore.

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