Post our meeting with Dish TV’s management, we reiterate our belief that the company will turn EBITDA positive by FY10E.
This will be achieved by higher ARPUs and higher efficiencies on content and operational cost.
Given the strong growth potential in DTH subscriber addition (we estimate an 80% CAGR in overall DTH subscriber base to 18mn through FY10E); we believe that there is enough room in the market for all players to grow. Thus, the fears of competition impacting financials and profitability are unwarranted.
At the current market price of Rs32, the stock trades at 46% discount to our one-year forward DCF value of Rs59 per share.
We prefer to value Dish TV using discounted cash flows (DCF), as its near-term financial performance will not reflect the value being created owing to the long gestation period of DTH business.
Once the subscriber base reaches a critical mass, the business will generate significant free cash flows. We like Dish TV given the enormous opportunity in the DTH space, imminent profitability on lower costs and higher ARPU, and attractive valuations. BUY