After three consecutive quarters of good financial performance, Dish TV India Ltd’s December quarter earnings have disappointed on many counts. For one, the operating profit margin narrowed sharply to 24.7% last quarter from 29% in the September quarter. One of the main reasons for that is because the programming/content costs and other costs have increased more than expected. Content costs as a percentage of revenue stood at 29%, 255 basis points higher sequentially. A basis point is equal to one-hundredth of a percentage point.
However, the company maintains that the poor performance in the December quarter is an aberration. According to Salil Kapoor, chief operating officer at Dish TV, “We acquired many subscribers this quarter and incurred extra sales and marketing costs on that. Margins are likely to go back to earlier levels after this quarter.”
Secondly, while the company managed to increase its average revenue per user (ARPU) by Rs.1 sequentially to Rs.160, it was still below analysts’ expectations. The increase in ARPU was helped by the price hike taken in the September quarter. According to Dish TV, a larger base has put pressure on the December quarter ARPU.
Revenue for the December quarter increased by 13% over the same period last year to Rs.558 crore. This was better than the revenue growth of 10% and 12% seen in the September and June quarters, respectively. Investors, though, were disappointed by the company’s overall performance and the stock fell by 5% to Rs.74. After underperforming for some time initially, the stock has outperformed this fiscal year.
While Dish TV is expected to be one of the biggest beneficiaries of digitization, in the near term investors would want to see whether its operating margin recovers in the current quarter. The company maintains that it should be able to achieve an operating margin of about 28% for FY13. If that happens, it would be better than last fiscal year’s margin of 25.5%. An improvement in ARPU would also be an important variable to track in the coming future.