A focus on the impending merger benefits with Videocon d2h (direct to home) is making investors turn a blind eye to the weak financial performance of Dish TV India Ltd. The company’s shares gained more than 1% on Wednesday even as its September quarter results showed no concrete signs of revival and performance lagged industry peers. Revenue is down 3.9% from the year-ago quarter. As costs remained high, operating profit or earnings before interest and tax dropped 18.7%.
Operating performance wasn’t exciting either. Average revenue per user (Arpu) at Rs149 is up just 0.7% from the June quarter and down 8% from a year ago. Subscriber additions are up 1% on a sequential basis. Comparatively, Arpu of Videocon and Bharti Airtel d2h businesses increased in the range of 2-7% on a sequential basis. “Lower increase was due to partial benefit accruing from GST implementation. Net addition was also lower compared to both Videocon and Bharti Airtel,” Emkay Research said in a note.
Nevertheless, the September quarter performance showed signs of stability. Ebitda (earnings before interest, tax, depreciation and amortization) margin improved on a sequential basis. Deceleration in net subscriber additions was arrested and revenue fall slowed on a year-on-year basis. Further, the management forecast better subscriber additions and improvement in Arpu in the second half of the fiscal year. But that provides cold comfort.
As Antique Stock Broking Ltd points out, the recovery in Arpu and subscriber additions is rather slow. Second, the subscriber additions are expected to be driven by consumers in rural areas who use lower-priced packages. This can weigh on overall improvement in realizations. The concerns have to lead to some cuts in earnings estimates. “We lower our EBITDA estimates marginally by ~3% for FY18-20F to factor in the slower than anticipated improvement in ARPUs,” Nomura said in a note.
But as can be seen from Wednesday’s gain in Dish TV’s stock price, analysts are attaching little importance to weak performance and earnings cuts. The merger with Videocon d2h, which is awaiting approvals, is expected to provide a major earnings boost.
The management expects the combined entity to derive synergy benefits of Rs180 crore in the current fiscal year and Rs510 crore next year (FY19).
According to analysts, the benefits and relatively superior performance of Videocon d2h can emerge as an earnings growth driver supporting the stock. “Our positive view on Dish TV despite weak performance is derived from its inexpensive valuations, synergies from the merger with Videocon d2h and digitisation,” HDFC Securities institutional research said in a note.
While these expectations are making Dish TV investors overlook the weak September quarter performance, much depends on the timely consolidation of Videocon d2h and actual realization of the merger benefits.