Shareholders have welcomed Dish TV India Ltd’s price hike. The stock went up by 4.7% on Friday in reaction to the 10% price rise of the company’s monthly subscription pack. This is effective from 4 April.
Naturally then, the benefits of this development in the form of better average revenue per user (Arpu) and profitability will reflect from the next fiscal. In a note to clients, Edelweiss Securities Ltd said it expects this to boost reported Arpu by Rs.12 in three quarters.
This soothes investor anguish to some extent especially after Dish TV’s December quarter Arpu, though sequentially better, came in lower than Street expectations.
In fact, the last quarter results were disappointing on many yardsticks, prompting some analysts to cut estimates. Little wonder then that the Dish TV stock has declined by around 18% in the past two months since its last numbers were announced.
There are other concerns, too. Hopes are not running high on the current quarter’s performance as well. One reason for that is content costs are expected to be higher after the new contract with MediaPro, some impact of which was also felt in the December quarter. Higher content costs are expected to keep operating profit margin under pressure in the current quarter. The December quarter operating margin had fallen sharply and was the lowest in the past four quarters. For the year, numbers at the Ebitda level are expected to be lower than expectations. Ebitda, a key measure of profitability, refers to earnings before interest, taxes, depreciation and amortization.
While investors are happy with the recent hike, interest in the stock is likely to be sustained when Arpu improves and subscriber additions provide some pleasant surprises. As on 31 December, Dish TV had 14.7 million gross subscribers and 10.5 million net subscribers. According to the company’s investor presentation for the last quarter, Dish TV leads in the DTH industry in terms of gross subscribers, with an estimated gross subscribers’ market share of 28%. While that’s comforting, the company also faces stiff competition and that’s one of the key risks. In the near term, investors should keep a tab on whether operating margin improves sequentially.
Lastly, investors are aware that Dish TV, being a key company in the industry, is in a sweet spot to benefit from digitization.
The process is expected to lead to a better Arpu and drive subscriber growth. Needless to say, more than expected delays on the digitization front would be a spoilsport.