Outlook good for Dish TV but stock factors in most positives

Outlook good for Dish TV but stock factors in most positives

Dish TV India Ltd announced on Tuesday that it has signed a long-term contract for additional transponders. This improves the company’s total transmission bandwidth to 648MHz from 432MHz. The enhanced transponder capacity will help Dish TV to increase its standard definition channel capacity to more than 320 and high-definition capacity to more than 30.

Analysts maintain that this is a positive development for the company and will give it an edge, as it will be able to offer a wider bouquet of channels to subscribers. Dish TV is the leading player in the DTH (direct-to-home) television space, which is an extremely competitive business.

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For the current fiscal year, Dish TV has given a subscriber addition guidance of 3.2 million. Analysts expect the cricket World Cup in early 2011 to boost subscriber additions. Currently, the company has more than 9 million subscribers. While more subscribers are always welcome, it’s important that this should also boost average revenue per user (Arpu). It’s well known that improving Arpu remains a challenge for DTH service providers.

For the quarter ended September, Dish TV’s Arpu stood at 139 due to higher subscriber additions at low incremental Arpu, which ultimately kept average Arpu subdued. However, the company expects Arpu to be in the range of 150-152 by the end of the March 2011 quarter.

In a recent note to clients, JPMorgan analysts pointed out that Dish TV is withdrawing its base pack (it has stopped offering this pack to new customers) and has raised the entry Arpu to 160 from 135.

“Dish TV had 55% customers at the base ‘silver pack’ in April 10, but this is down to 20% now. High-end Gold and Platinum now account for 50% of total customers," wrote JPMorgan analysts.

Going forward, the company’s content costs, which stood at 39% of revenue in the September quarter, are expected to come down (not in absolute numbers but as a percentage of revenue), as Dish TV has entered into fixed content fee agreements with a majority of the broadcasters. This should help the company’s profitability.

Dish TV’s stock has outperformed the BSE-500 index since the beginning of the fiscal. It has risen by 87% to 69 per share compared with the 12% increase in the BSE-500 index during the same period. At the current levels, the stock seems to be factoring in most of the positives. Accordingly, in the short run, there could be limited upsides.

Graphics by Naveen Kumar Saini/Mint

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