Dish TV-Videocon d2h: Synergies decoded

Dish TV India

BSE Sensex

26,643

S&P CNX

8,192

Dish TV India

Detailed report | Sector: Media

CMP: INR85

TP: INR115 (+35%)

Buy

Dish TV-Videocon d2h: Synergies decoded

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Free float (%)

But wait, there’s more!

DITV IN

1065.8

110/65

-3/-12/-18

92.2

1.4

528.0

35.6



Financial Snapshot (INR b)

Y/E Mar

2016 2017E 2018E

Net Sales

EBITDA

Adj. NP

Adj. EPS (INR)

Adj. EPS Gr. (%)

BV/Sh (INR)

RoE (%)

RoCE (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

EV/Sub (INR)

30.6

10.2

6.9

6.5

3.6

12.7

31.7

10.9

2.1

2.0

-69.7

5.5

11.4

36.0

13.0

3.6

3.3

69.4

8.9

14.3



The Dish TV-Videocon (DITV-VDTH) merger is likely to rake in synergies

worth INR6.9b-7.6b (largely cost-led) over FY19-20. When the synergies

play out, peak capex would be behind – both for the industry and for DITV-

VDTH. Consequently, we expect DITV-VDTH’s sustainable free cash flows to

surge from –INR12b to ~INR17b in FY19 and in FY20.

While we attempt to decode each synergy, we highlight that it’s not just

about the synergies. DTH operators would have an edge in phase III/IV

markets, where cable economics are not as strong. As pricing sanity sinks-in

in the distribution space, DITV-VDTH would be best-placed, given the

combined scale (to reach ~20% of the C&S households by FY20).

The stock is trading at an attractive 9.8x FY19E FCFE (adjusted for dilution)

(FCFE yield of 10% in FY19E adjusted for dilution). RoCE is likely to improve

from ~7% in FY16 to ~26% in FY19.

We maintain our DCF-based target price of INR115, considering the pending

approvals, the most crucial being that from Competition Commission of

India (CCI). If the merger goes through, our DCF valuation would see an

upward revision of 22% to INR140/share (implying an EV of 7.8x FY19E

EBITDA). We reiterate Buy.

NA 15.3

9.6

8.8

6.9

6,789 6,082 5,152

Let’s talk synergies first – expect INR6.9b-7.6b over FY19-20

Shareholding pattern (%)

As On

Sep-16 Jun-16 Sep-15

Promoter

64.4

DII

6.8

7.3

4.0

FII

19.8

19.1

19.8

Others

9.0

9.3

11.8

FII Includes depository receipts

We expect total synergies of INR6.9b-7.6b (760-820bp EBITDA margin expansion)

in FY19/FY20. Revenue synergies would be limited – largely from scale-led

increase in carriage and advertisement revenues – in the near term. Cost

synergies would fuel bulk of the EBITDA savings. Savings in content cost and

transponder lease payouts would account for nearly half the EBITDA gains.

Cost synergies



Synergies and more

Dish TV India



Please click here for Video Link

Jay.Gandhi@motilaloswal.com

91 22 3089 6693

Nearly half the INR6.9b-7.6b EBITDA gains to come from savings in

content…:

We expect DITV-VDTH to benefit from DITV’s legacy content cost

advantage, and save INR1.7b in FY19 and INR2.3b in FY20. DITV currently

pays ~INR52/net subscriber per month (28% of revenue) against VDTH’s

INR71/net subscriber per month (38% of revenue) as content cost. We

expect the combined entity’s content payout to hover at ~30% of revenue,

implying a 12% CAGR in content payouts (~200bp increase) over FY16-20.

While our assumptions do not factor in a key regulatory risk of uniform

content payouts and carriage receivables, the regulator’s open hand on

placement/marketing revenues gives us enough assurance of the net content

(content cost – carriage revenue) synergies playing out.

…and transponder costs:

A standard 36MHz transponder can

uplink/downlink 24-28 SD or 12-14 HD channels. To increase DITV-VDTH’s HD

count to ~150 channels (currently ~60 HD channels each), the platform

would need a transponder capacity of ~415MHz. The remaining 585MHz

(assuming the combined entity operates at 1,000MHz) is sufficient to cater to

the SD channel needs. We expect DITV-VDTH to save INR3.2b-3.7b (47-48%

of total EBITDA gains) in content and transponder costs.

4 January 2017

Dish TV India

Stock performance (1-year)



Ad spends, employee costs could be trimmed by INR1.3b-1.9b:

Ad spends are

likely to be trimmed over FY19-20, as competitive intensity cools off. Marginal

savings could also come through in employee expenses, as overlapping positions

are trimmed. We expect savings of INR1.3b-1.9b in ad spends and employee

expenses in FY19/FY20.

Potential savings of 90-160bp in other opex, business promotion / administration

expenses:

Scale-led reduction in call center charges, and biz promotion and

administration expenses could help save INR0.67b-1.45b (90-160bp).

Revenue synergies limited in near term:

Revenue synergies would be restricted

to carriage and advertisement revenues in the near term. However, expect

subscription synergies to play out over the medium-to-long term as increasing

consolidation lends some pricing power to the DTH industry.

Expanded reach to help garner higher carriage and advertisement revenues:

With DITV-VDTH expected to command ~20% subscriber market share (>double

the second-largest private DTH operator), it is plausible that it would command

the TRAI-capped monthly rate of 20 paise/subscriber/channel. Assuming only

40/575 channels carried by DITV-VDTH pay carriage fees, the combined entity

could rake in INR3.45b-3.65b as carriage fees (11-12% of current INR30b+ Indian

carriage market for 20% reach). Ad revenues too are likely to jump, as scale-led

benefits kick in. We factor in synergies of INR470m-490m from carriage and ad

revenues in FY19/FY20.

Phase III/IV: Tailor-made opportunity for DTH:

Phase III/IV presents an

incremental opportunity to grab 75-80m subscribers (~USD3b incremental

subscription opportunity for distribution platforms). Unlike phase I/II markets,

DTH is likely to take the lead in phase III/IV markets, as cable economics fall

apart deeper in India’s hinterland. Private DTH operators are likely to add 30-

35m subscribers in Phase IV markets, with DITV-VDTH adding ~12m subscribers

(net). We expect DITV-VDTH to house 20% of the C&S households by FY19-20.

Its subscriber share gain would be largely at the expense of marginal DTH

operators and MSOs. While round-1 would go to DTH operators, further

industry consolidation could drive the second leg of upside from improved

segmentation/pricing at the consumer level. We expect DITV-VDTH to clock 12%

revenue CAGR and 24% EBITDA CAGR over FY16-20.

FCFE, return ratios to surge as synergies play out at trough of capex cycle:

Post

the “land grab” in Phase IV markets over FY16-20, capex intensity should reduce

significantly to just replacement-related capital spending. Even if DITV-VDTH

coughs up almost all its regulatory dues (estimated to be ~INR25b by FY19),

partially pares down debt and continues its annual ~6m gross subscriber

addition in FY19/FY20, it would generate annual free cash flow (FCFE) of

~INR17b in FY19/FY20. Synergies playing out at trough of capex cycle would

support return ratios. RoCE would improve from ~7% in FY16 to ~26% in FY19.

Revenue synergies



Kindly refer our report dated

29 November 2016 on Tata Sky



But it’s not all about synergies

Kindly refer our report dated

9 May 2016 on Videocon d2h



Kindly refer our report dated

16 December 2016 on the impact of

demonetization on ad spends

Attractively priced at 10% FY19E FCFE yield; Buy

We expect DITV-VDTH to deliver an annual FCFE of ~INR17b in FY19/FY20. The stock is

attractively priced at 9.8x FY19E FCFE (FCFE yield of 10% in FY19E post dilution). Given

the pending approvals – the most crucial being that of Competition Commission of

India (CCI), we retain our DCF-based target price of INR115.

If the merger is

successfully consummated, our target price would see an upward revision of 22% to

INR140 (EV of 7.8x FY19E EBITDA; largely in line with global peers).

4 January 2017

Dish TV India

Snapshot of synergies

Dish TV

Revenue (INR m)

Content cost (INR m)

Net subs

Content cost/net sub

Content cost as % of rev

Savings (bp)

License fees (INR m)

As % of rev

As % of subscription rev

Savings (bp)

Transponder Lease costs (INR m)

Transponder Capacity (Mhz)

Transponder lease cost per Mhz

(INRm)

As % of rev

Savings (bp)

Employee Cost (INR m)

As % of rev

Savings

Ad Expenses

As % of rev

4 January 2017

FY19E

41,578

12,015

19.3

28.9%

FY20E

46,066

13,216

20.7

28.7%

Videocon d2h

FY19

41544

15371

16.5

37.0%

FY20E

46517

16979

18.0

36.5%

Dish TV Videocon Dish TV Videocon

ex-synergies

(with synergies)

FY19E

FY20E

FY19E

FY20E

83122

92583 84,396 92,467

27386

35.9

32.9%

30195

38.7

32.6%

25,668

36.0

30.4%

27,850

38.1

30.1%

Synergy benefits

FY19E

1274

-1718

FY20E

-116

-2345

Comments

Scale-led carriage and ad revenue to aid top-line

Assumes an 18%+ escalation from Dish TV's current content

payout on a net sub base and a 200bp increase as % of rev

-253bps -250bps

2,993

7.2%

7.7%

3,313

7.2%

7.7%

2908

7.0%

7.5%

3256

7.0%

7.5%

5,901

7.1%

7.6%

6,569

7.1%

7.6%

4,614

5.5%

5.8%

5,061

5.5%

5.8%

-163bps -162bps

1,993

828

2.4

4.8%

1,756

4.2%

2,053

828

2.5

4.5%

1,896

4.1%

1771

612

2.9

4.3%

1662

4.0%

1860

612

3.0

4.0%

1861

4.0%

3,764

1,440

2.6

4.5%

3,417

4.1%

3,912

1,440

2.7

4.2%

3,757

4.1%

2,243

1,000

2.5

2.7%

2,926

3.5%

2,552

1,000

2.6

2.8%

-187bps -147bps

3,219

3.5%

-64bps

1,039

2.5%

1,152

2.5%

1246

3.0%

1395

3.0%

2286

2.7%

2547

2.8%

1,468

1.7%

1,110

1.2%

-817

-58bps

-1438

Assumed at ~1.4x FY19 levels for Dish TV, as need to advertise

could remain elevated in FY19 to increase awareness of offerings

post-merger. FY20 ad spends to could revert to normal run-rate

of ~INR1-1.1b annually.

-491

-538

~60bp savings could be brought about by trimming several

overlapping positions at Zonal levels.

-1521

-1360

TataSky intends to double HD channel count from ~80 currently

within its 864 Mhz transponder capacity, Even if Dish TV

Videocon cuts capacity by ~30%(current combined capacity 1440

Mhz), it could more than match up with peers on HD channels

and still save on costs

-1,287

-1,509

Savings a/c for shift in new license regime of 8% of AGR vs curr.

followed 10% of GR. Also a/c for diff. in computation of license

fee. Unlike Dish TV, Videocon doesn't exclude commission &

activation from revenues to compute license fee payout.

Dish TV India

Snapshot of synergies

Dish TV

FY19E

Savings

Commission

As % of rev

Savings

Business promotion/cust. support

As % of rev

Savings

Other opex (incl.

purchases/uplinking/call centre

charges

As % of rev

Savings

Admin expenses

As % of rev

Savings

Key Revenue Synergies

Carriage and Placement revenue

No. of channels carried

@INR20p/channel/month

Gross subscribers

Ad revenue @ 10% inflation

Teleport

Other operating revenue

As % of rev

Total Savings (INR m)

EBITDA

EBITDA margin

Margin savings (bps)

1,860

4.5%

1,039

2.5%

957

2.3%

1,743

4.2%

FY20E

2,059

4.5%

1,106

2.4%

1,015

2.2%

1,830

4.0%

Videocon d2h

FY19

0.1%

1706

4.1%

1031

2.5%

938

2.3%

FY20E

0.1%

1945

4.2%

1124

2.4%

1031

2.2%

Dish TV Videocon Dish TV Videocon

ex-synergies

(with synergies)

FY19E

FY20E

FY19E

FY20E

1896

2.3%

2746

3.3%

1988

2.4%

2681

3.2%

2102

2.3%

3051

3.3%

2139

2.3%

2861

3.1%

2,784

3.3%

2,279

2.7%

1,761

2.1%

2,705

3.2%

3,054

3.3%

2,497

2.7%

1,884

2.0%

2,219

2.4%

Synergy benefits

FY19E

FY20E

-101bps -155bps

889

952

102bps

-467

-60bps

-228

-31bps

-2bps

103bps

-554

-60bps

-255

-27bps

-643

-69bps

Comments

No synergies

Assumed to revert near Dish TV's FY16 levels of 2.7% of rev

Call centre charges could be saved as contracts are on number of

hours/calls. Rate per call could decline courtesy the scale.

Admin expenses could remain elevated in FY19 courtesy merger-

related expenses. However, Merged Co could save on legal, rent

rates, audit and stamp duty fees with scale in FY20

3459

0.2

36.0

1139

250

4847

5.7%

37,948

45.0%

3655

0.2

38.1

1309

250

5214

5.6%

43,023

46.5%

760bps

824bps

Assuming 40 channels carried @ max capped rate of INR20

paise/net sub per channel per month

605

250

2,671

6.4%

16,184

38.9%

666

250

2,992

6.5%

18,428

40.0%

484

1689

532

1753

3.8%

17022

36.6%

1089

250

4360

5.2%

31058

37.4%

1198

250

4744

5.1%

35450

38.3%

Better ad rates could be negotiated courtesy the scale

488

-6890

470

-7573

14874

35.8%

4 January 2017

Dish TV India

Global distribution peer comparison

Company Name

India

Dish TV

Hathway Cable

SITI Networks

DEN Networks

Global

AT&T Inc

Charter Communications Inc

Liberty Global PLC

DISH Network Corp

Comcast Corp

Sky PLC

237,227 166,871 169,527 171,070 53,566 55,455 56,939

85,618 40,019 42,195

27,838 17,605 17,066

26,716 15,123 14,942

166,326 80,059 83,247

16,811 16,382 17,168

44,747

17,193

14,714

89,065

18,096

14,082 15,584 16,985

8,388

3,157

2,681

8,136

3,035

2,960

8,351

2,951

3,261

17,564 18,422 18,850

1,354

-45

1,432

8,501

1,259

1,490

393

1,298

8,888

1,474

2,221

734

1,198

9,829

1,680

13.6

78.5

401.5

19.1

20.0

13.4

12.9

51.7

106.9

21.3

18.4

11.4

12.2

30.6

39.7

23.3

16.0

10.0

6.7

11.2

8.6

12.1

8.6

9.4

6.4

10.1

8.8

12.6

8.2

8.5

1.9

127.8

3.0

16.7

2.8

5.6

11.6

8.0

0.5

49.5

15.6

27.2

22.5

3.3

3.9

49.3

15.5

29.1

26.8

5.6

3.9

27.1

16.9

28.9

1,407

419

417

180

478

353

191

225

560

409

264

262

647

453

287

167

200

234

104

-17

-2

-19

-7

-16

-17

36.7

37.8

25.1

9.3

19.5

138.0

8.7

9.2

11.5

5.8

7.2

7.3

6.0

4.6

3.4

13.8

1.3

55.8

-11.7

-1.9

-8.9

42.6

-6.4

19.8

-8.2

33.0

2.7

-9.8

MCap

Rev. (USD Mn)

CY17E

CY18E

EBITDA (USD Mn)

CY16E

CY17E

CY18E

PAT (USD Mn)

CY16E

CY17E

CY18E

CY16E

PE (x)

CY17E

CY18E

EV/EBIDTA (x)

CY16E

CY17E

CY18E

CY16E

ROE (%)

CY17E

CY18E

(USD M) CY16E

26,456 27,823 29,716

4 January 2017

Dish TV India

Exhibit 1: Deal contours: 9% premium paid to Videocon d2h on an EV/net subscriber basis

Dish TV India

Dish TV price (INR)

No of Shares (m)

Market Cap (INR m)

Net Debt (INR m)*

EV (INR m)

Revenue (INR m)

EBITDA (INR m)

EBITDA margin (%)

FY17E net subscribers

EV/FY17E sales

EV/FY17E EBITDA

EV/FY17E net subscriber (INR)

1,066

93,215

6,250

99,465

32,390

11,374

35.1%

16.2

3.1

8.7

6136

Addition/

Videocon d2h

858

75,013

15,360

90,373

31,891

10,093

31.6%

13.5

2.8

9.0

6698

Dish TV Videocon

1,924

168,229

21,610

189,839

64,281

21,467

33.4%

29.7

3.0

8.8

6873

-8%

VDTH Premium/

Discount

#Assuming transaction at DITV’s CMP: INR87.45

VDTH FY17 revenue/EBITDA annualized*

Source: Company, MOSL

Exhibit 2: Key financials & performance indicators

Revenue (INR m)

EBITDA (INR m)

EBITDA margin (%)

EBITDA – Capex

Net Debt/EBITDA

Net Subscribers (m)

HD Subscribers (m)

ARPU (INR)

Churn (%)

2QFY17 Subscriber Acquisition Cost (INR)

Dish TV

30,599

10,249

33%

1165

0.6

15.1

1.4

172

8.3

1590

VDTH

28,559

8,013

28%

785

1.9

12.5

1.4

207

8.8

1869

Source: Company, MOSL

Dish TV Videocon

59158

18262

31%

1950

1.2

27.6

2.8

Exhibit 3: DITV EV/EBITDA

14.9

7.1

13.2

7.2

EV/EBDITA (x)

Peak( x)

Avg (x)

Median (x)

Min (x)

47.0

Source: Company, MOSL

4 January 2017

Dish TV India

Synergies of INR6.9b-7.6b (760-820bp)

Largely cost-led; revenue synergies limited in near term



We expect revenue synergies to be limited – largely from scale-led increase in carriage

and advertisement revenues – in the near term.

Cost synergies would fuel bulk of the EBITDA savings. We expect total synergies of

INR6.9b-7.6b (760-820bp EBITDA margin expansion) in FY19/FY20.

Savings in content cost and transponder lease payouts would account for nearly half

the EBITDA gains.



Expect marginal subscription synergies over FY19-20; expanded reach to

help garner higher carriage and advertisement revenues



We do not expect subscription synergies to play out in the short term. Yet, over

the medium-to-long-term, increasing consolidation should lend some pricing

power to the DTH industry. Also, as DAS III/IV cable collections increase over the

next 2-3 years, the DTH industry should get enough headroom to take

consistent price hikes. We expect revenue synergies to be restricted to carriage

and advertisement revenues in the near term.

Assuming DITV-VDTH gets paid the full 20 paise per subscriber/month/channel

(cap recommended by TRAI), the combined entity could rake in INR3.45b-3.65b

in FY19/FY20. That works out to 11-12% market share in the INR30b+ Indian

carriage market. That’s plausible considering DITV-VDTH is expected to cater to

~20% of the estimated 182m/191m C&S households in India in FY19/FY20.

Ad revenues too are likely to jump, as scale helps fish for higher ad rates.

Overall, we expect carriage and ad revenues for the combined entity to outpace

the sum of DITV and VDTH’s proforma revenues by INR470m-490m.

Exhibit 4: Key revenue synergies

Dish TV

Carriage and Placement revenue (INR m)

No. of channels carried

@INR20p/channel/month

Gross subscribers

Ad revenue (INRm) @ 10% inflation

Teleport (INR m)

Other operating revenue (INR m)

As % of rev

FY19E

FY20E

Videocon

d2h

FY19E

FY20E

Dish TV Videocon Dish TV Videocon

ex-synergies

(with synergies)

FY19E

FY20E

FY19E

FY20E

3459

3655

0.2

36.0

38.1

1089

1198

1139

1309

250

4360

4744

4847

5214

5.2%

5.1%

5.7%

5.6%

Synergy

benefits

FY19E

FY20E

605

250

2,671

6.4%

666

250

2,992

6.5%

484

1689

532

1753

3.8%

488

470

Source: Company, MOSL

Content cost synergies could save INR1.7b/2.3b (~250bp in margins)

We do not see DTH content payouts changing dramatically as a percentage of

revenue, as the DTH industry has been doling out its fair share to broadcasters (31-

32% of the DTH subscription pool). Also, content cost cannot be analyzed in

isolation; one needs to account for the carriage and placement fees paid to

distribution platforms. On a net content basis (content cost - carriage revenue), the

arbitrage between DTH and cable payouts continues to be stark.

4 January 2017

Dish TV India

Exhibit 5: Platform-wise net content cost per subscriber per

month (INR)

112

SITINET

Den

Networks

Exhibit 6: Estimated net content cost per subscriber per

month for DITV-VDTH

Dish TV Videocon TataSky* Hathway

d2h

FY19

FY20

Source: Company, MOSL

Regulatory risk not baked-in in content synergies; open hand on placement

raises visibility of net content synergies playing out

We expect the combined entity to benefit from DITV’s legacy content cost

advantage, and save INR1.7b in FY19 and INR2.3b in FY20. DITV currently pays

~INR52/net subscriber per month (28% of revenue) against VDTH’s INR71/net

subscriber (38% of revenue). We expect DITV-VDTH’s content payout to hover at

~30% of revenue. Our assumptions imply 10% CAGR in content payouts (~200bp

increase) over FY16-20E. While our assumptions do not factor in a key regulatory

risk of uniform content payouts and carriage receivables, the regulator’s decision to

keep placement and marketing revenues under forbearance assures us of the net

content (content costs less carriage & placement revenues) synergies playing out.

We have not factored in upside from placement and marketing revenues.

Exhibit 7: Content cost to hover at ~30% of post-merger revenue

Content costs (INR m)

32.7%

17.5%

34.4%

33.7%

YoY

As % of rev

30.4%

30.1%

13.0%

21868

FY17E

12.1%

24506

FY18E

25668

4.7%

8.5%

27850

19351

FY16

FY19E

FY20E

Source: Company, MOSL

Exhibit 8: Content cost synergies could save INR1.7b/2.3b (~250bp in margins)

Dish TV

Content cost (INR m)

Net subs

Content cost/net sub

Content cost as % of rev

Savings (bp)

FY19E

12,015

19.3

28.9%

FY20E

13,216

20.7

28.7%

Videocon

d2h

FY19E

FY20E

15371

16979

16.5

18.0

37.0%

36.5%

Dish TV Videocon Dish TV Videocon

ex-synergies

(with synergies)

FY19E

FY20E

FY19E

FY20E

27386

30195 25,668 27,850

35.9

38.7

36.0

38.1

32.9%

32.6%

30.4%

30.1%

Synergy

benefits

FY19E

FY20E

-1718

-2345

-253bps -250bps

Source: Company, MOSL

4 January 2017

Dish TV India

Potential savings of INR1.4b-1.5b annually in transponder costs

Both Dish TV and Videocon d2h currently house ~60 HD channels each compared to

market leader Tata Sky’s 80+ HD channels. Following our recent interaction with the

Tata Sky management, we surmise that its 864MHz transponder capacity is

sufficient to meet its target of doubling HD channel count. Comparing this with

DITV-VDTH’s 1,440MHz transponder capacity, we believe it is well placed to rev up

its HD channel count to match Tata Sky’s even if it shaves off its capacity by ~30%.

Our transponder lease savings of INR1.4b-1.5b per year assumes a capacity of

1,000MHz. Another way of looking at the potential savings is that a standard 36MHz

transponder can uplink/downlink 24-28 SD channels and 12-14 HD channels. To

increase HD channel offerings to 150, DITV-VDTH would need a transponder

capacity of ~415MHz. The remaining 585MHz is sufficient to cater to the SD needs.

However, Dish TV and Videocon d2h currently operate on different satellites, which

have a 7-degree gap in orientation. For a common platform, DITV-VDTH would need

one of the following:

1. A converter (low-noise block) to cover the gaps in content feeds. However, this

is an expensive proposition, as DITV-VDTH would have to fork out INR300-

350/VDTH net subscriber (a one-time outlay of INR4.9b-5.7b).

2. Change in orientation of DITV antennas so that they are aligned with VDTH’s and

cover VDTH subscribers as well. This would entail a cost of ~INR100/net

subscriber (INR1.6b-1.7b). We expect DITV-VDTH to make a one-time outlay of

INR5b, considering the logistical challenges in aligning antenna orientations.

Our

FY19E capex includes an INR5b outlay towards LNB converters. Simulcrypting

of signals will enable VDTH’s subscribers to decode DITV’s signals.

Exhibit 9: Expect transponder lease savings of INR1.4b-1.5b per year in FY18/FY19

Dish TV

Transponder Lease costs (INR m)

Transponder Capacity (Mhz)

Transponder lease cost per Mhz (INRm)

As % of rev

Savings (bp)

FY19E

1,993

828

2.4

4.8%

FY20E

2,053

828

2.5

4.5%

Videocon

d2h

FY19E

FY20E

1771

1860

612

2.9

3.0

4.3%

4.0%

Dish TV Videocon Dish TV Videocon

ex-synergies

(with synergies)

FY19E

FY20E

FY19E

FY20E

3,764

3,912

2,243

2,552

1,440

1,000

2.6

2.7

2.5

2.6

4.5%

4.2%

2.7%

2.8%

Synergy

benefits

FY19E

FY20E

-1521

-1360

-187bps -147bps

Source: Company, MOSL

Expect DTH to move to new license regime before merger consummation;

license fee payouts could be 160bp lower than current levels

While the government has mandated DTH operators to pay 10% of gross revenue as

license fees, DITV and VDTH exclude certain non-recurring and pass-through

revenues for the computation of gross revenue and effectively pay 6-7% of revenue

as license fees. While we expect marginal-to-no synergies in license payouts, our

assumption of a 160bp annual saving factors in a shift of the industry to the

recommended license regime of 8% of AGR (currently 10% of adjusted gross

revenue) before the merger is consummated.

4 January 2017

Dish TV India

While DITV provides for the difference between the 6% cash payment towards

license fees and the government-mandated 10% of gross revenue in its balance

sheet, VDTH keeps this off-the-book. The incremental provisions for the combined

entity should reduce from ~4% of AGR to 1.5-2% of AGR, once the DTH industry

moves to the TRAI-recommended license regime.

Exhibit 10: License fee payouts could be ~160bp lower in the TRAI-recommended 8% of AGR regime

Dish TV

License fees (INR m)

As % of rev

As % of subscription rev

Savings (bp)

FY19E

2,993

7.2%

7.7%

FY20E

3,313

7.2%

7.7%

Videocon

d2h

FY19E

FY20E

2908

3256

7.0%

7.5%

Dish TV Videocon Dish TV Videocon

ex-synergies

(with synergies)

FY19E

FY20E

FY19E

FY20E

5,901

6,569

4,614

5,061

7.1%

5.5%

7.6%

5.8%

Synergy

benefits

FY19E

FY20E

-1287

-1509

-163bps -162bps

Source: Company, MOSL

Ad spends and employee costs could be trimmed by INR1.3b-1.9b

FY19 could see some ad spends towards increasing awareness of the combined

offerings. Yet, we expect savings of ~INR0.8b versus the pro-forma in FY19. In FY20,

ad spends should drop further, as competitive intensity increasingly cools off. We

expect DITV-VDTH to cumulatively save INR2.25b in ad spends in FY19 and FY20

(101bp in FY19 and 155bp in FY20).

While most of the sales force of both entities is likely to be retained, we expect

some savings from reduction in overlapping positions such as Divisional/Zonal Heads

(64bp/58bp margin savings in FY19/FY20).

Exhibit 11: Expected savings in employee costs and ad spends

Dish TV

Employee Cost (INR m)

As % of rev

Savings

Ad Expenses

As % of rev

Savings

FY19E

1,756

4.2%

1,039

2.5%

FY20E

1,896

4.1%

1,152

2.5%

Videocon

d2h

FY19E

FY20E

1662

1861

4.0%

1246

3.0%

1395

3.0%

Dish TV Videocon Dish TV Videocon

ex-synergies

(with synergies)

FY19E

FY20E

FY19E

FY20E

3,417

3,757

2,926

3,219

4.1%

3.5%

2286

2.7%

2547

2.8%

1,468

1.7%

1,110

1.2%

Synergy

benefits

FY19E

FY20E

-491

-538

-64bps

-817

-58bps

-1438

-101bps -155bps

Source: Company, MOSL

Potential savings of 90-160bp in other opex, and business promotion and

administration expenses in FY19/FY20

Other opex synergies are largely expected to flow from savings related to call center

charges, which are fixed at a certain rate per call/hour. Scale should help DITV-VDTH

to negotiate favorable rates; we assume 27-31bp of scale-led savings flowing

through in call center charges in FY19/20. We also expect scale-led savings in

business promotion and customer support costs (~60bp annually).

In terms of admin expenses, we do not anticipate synergies in FY19, as there could

be merger-related expenses. However, in FY20, we expect savings of ~70bp

(INR0.64b).

4 January 2017

Dish TV India

Exhibit 12: Expected savings in admin costs and other opex

Dish TV

Commission

As % of rev

Savings

Business promotion/customer support

As % of rev

Savings

Other opex (incl.

purchases/uplinking/call centre charges

As % of rev

Savings

Admin expenses

As % of rev

Savings

FY19E

1,860

4.5%

1,039

2.5%

957

2.3%

1,743

4.2%

FY20E

2,059

4.5%

1,106

2.4%

1,015

2.2%

1,830

4.0%

Videocon

d2h

FY19E

FY20E

0.1%

1706

4.1%

1031

2.5%

938

2.3%

1945

4.2%

1124

2.4%

1031

2.2%

Dish TV Videocon Dish TV Videocon

ex-synergies

(with synergies)

FY19E

FY20E

FY19E

FY20E

1896

2102

2,784

3,054

2.3%

3.3%

2746

3.3%

1988

2.4%

2681

3.2%

3051

3.3%

2139

2.3%

2861

3.1%

2,279

2.7%

1,761

2.1%

2,705

3.2%

2,496

2.7%

1,884

2.0%

2,219

2.4%

Synergy

benefits

FY19E

FY20E

889

952

102bps

-467

-60bps

-228

-31bps

-2bps

103bps

-554

-60bps

-255

-27bps

-643

-69bps

Source: Company, MOSL

4 January 2017

Dish TV India

Phase III/IV: Tailor-made opportunity for DTH

Private operators to add 30-35m subscribers in DAS IV; DITV-VDTH to grab ~12m



Phase III/IV presents an incremental opportunity to grab 75-80m subscribers

(~USD3b incremental subscription opportunity for distribution platforms).

Unlike phase I/II markets, DTH is likely to take the lead in phase III/IV markets,

as cable economics fall apart deeper in India’s hinterland.

Private DTH operators are likely to add 30-35m subscribers in DAS IV, with

DITV-VDTH adding ~12m subscribers (net). We expect DITV-VDTH to house

20% of the C&S households by FY19-20. Its subscriber share gain would be

largely at the expense of marginal DTH operators and MSOs.

While round-1 would go to DTH operators, further industry consolidation

could drive the second leg of upside from improved segmentation/pricing at

the consumer level.

We expect DITV-VDTH to clock 12% revenue CAGR and 24% EBITDA CAGR over

FY16-20.

DTH operators to rule in phase III/IV markets

Phase III/IV digitization presents improved monetization opportunity from an

incremental 75-80m households (HH) – an incremental ~USD3b subscription

opportunity (~USD2b ex broadcasters’ share) for distribution platforms. With the

top-3 national MSOs expected to restrict their ambitions to digitizing their existing

cable universe (MSOs’ capital allocation increasingly moving in favor of broadband),

the largely cable-dark phase IV market would be DTH-ruled. Cable economics fall

apart deeper in India’s hinterland. (The top-3 MSOs are estimated to have only

~25m of the incremental 75m subscriber base of phase III/IV markets).

Exhibit 13: India: Estimated C&S subscribers (m)

166

174

182

Exhibit 14: India: Estimated C&S subscriber mix (%)

Analogue Cable (%)

DTH (%)

Digital Cable (%)

Other Digital HH (%)

119

105

130

139

149

158

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Source: Company, MOSL

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Source: Company, MOSL

4 January 2017

Dish TV India

Exhibit 15: DTH to contribute ~50% of the Indian

subscription pool

Analogue Cable

DTH

Total Subscription Revenue

346

123

132

FY15E

389

151

128

FY16

445

194

121

106

FY17E

Digital Cable

Other Digital

520

251

172

FY18E

Exhibit 16: Top-3 national MSOs’ phase III/IV presence

estimated at ~25m subscribers

612

315

SITINET

10.2

DEN Networks

8.0

233

FY19E

Hathway

6.7

Source: Company, MOSL

Expect private DTH operators to add 30-35m subscribers in DAS IV, DITV-

VDTH to add ~12m

We expect private DTH operators to grab 30-35m subscribers in DAS IV markets.

Even if DITV-VDTH maintains existing subscriber share of ~33% within the DTH

industry, it could add 11-12m subscribers over the next 3-4 years (exit FY20E).

Exhibit 18: DITV-VDTH to add ~12m subscribers (net) over

FY16-20

11.7

6.8

172

-1.5

FY16E

Digital

Cable

DTH

Analog

Cable

Others

FY19E

Digital

Dish TV

Videocon

Airtel

TataSky Reliance Sun Direct Freedish

DTH

Source: Company, MOSL

6.8

8.0

Exhibit 17: DTH to add ~35m subscribers over FY16-19

0.0

Source: Company, MOSL

DITV-VDTH to serve 20% of C&S households by FY20; share gains to come

largely at the expense of marginal players

We expect DITV-VDTH to gain ~320bp in subscriber market share over FY16-20

(FY16 subscriber market share was ~17% and revenue market share was 19%) and

command a reach of ~20% of the estimated ~191m C&S households in FY20. The

subscriber share gain is largely expected to come at the expense of Reliance Digital

TV, Sun Direct, and marginal cable MSOs.

4 January 2017

Dish TV India

Exhibit 19: DITV-VDTH holds ~17% subscriber share (FY16)

26.4%

16.7%

7.4% 7.0%

7.7% 6.8%

5.0% 6.0%

3.1%

13.9%

19.9%

9.8%

3.4% 2.0%

16.8%

7.0%

4.0% 4.2%

Exhibit 20: DITV-VDTH holds ~19% revenue share (FY16)

33.0%

Source: Company, MOSL

Exhibit 21: Lion’s share of the DITV-VDTH subscriber share gain to come at the expense of marginal distribution platforms

2.3%

16.7%

2.4%

1.3%

1.8%

8.7%

1.7%

19.9%

FY16 Dish TV

VDTH net sub

Airtel

TataSky

Reliance DTH

Sun Direct

Free Dish

Cable pack

Others

FY20E Dish TV

VDTH net sub

Source: Company, MOSL

Consolidation – round-1 goes to DTH…

DITV-VDTH is the first major exercise of active consolidation in the highly

fragmented distribution space. This could perhaps be an inkling of more to come,

with Reliance Jio’s cable outfit lurking around the corner – the ~6k MSOs/60k LCOs

could be its pond to fish. Besides, over the past few years, we have witnessed

passive consolidation within the cable industry, with the top-3 national MSOs

accounting for 70% of the digital cable subscribers, despite owning only ~30% of the

total cable subscribers.

…could drive second leg of upside from improved segmentation/pricing at

consumer level

The DTH industry has done better in terms of tiering of packs and segmenting its

subscriber base than its cable peers. The MSOs will have to match up gradually if

they intend to increase on-ground collections significantly. While ARPU benefits

from pack-tiering have eluded the cable industry, given competitive pressures,

increased consolidation should drive packaging and give the distribution industry

much-needed headroom to increase share of the consumer wallet.

Also, within the DTH industry, Dish TV could benefit from Videocon d2h’s higher

tiering of packs post the merger and capture subscribers at more price points. The

table below suggests that Videocon d2h offers more options to subscribers post

the INR320 price point, which Dish TV can take advantage of.

4 January 2017

Dish TV India

Exhibit 22: DTH pack segmentation and prices (INR)

Dish TV

Pack A (SD)

Pack B (SD)

Pack C (SD)

Pack D (SD)

Pack E (SD)

Pack F (SD)

270

315

365

435

535

Videocon d2h

275

305

320

365

410

435

500

Source: Company, MOSL

TataSky

215

285

350

380

425

560

Airtel Digital Reliance Digital TV

285

321

366

399

456

260

290

340

390

430

550

Sun Direct

260

279

379

Exhibit 23: Top three MSOs’ pack segmentation and prices (INR)

Hathway

BST (Free channels)

Pack A (SD)

Pack B (SD)

160

330

425

SITINET

155.0

299

333

Den Networks

100

230

280

Source: Company, MOSL

Expect DITV-VDTH’s revenue to grow at 12%, EBITDA to grow at 24% over

FY16-20

We expect DITV-VDTH’s revenue to grow at 12% over FY16-20 to INR92.4b. Given

the synergies of INR6.9-7.6b, EBITDA is likely to grow at a CAGR of 24% to ~INR43b.

Exhibit 24: DITV-VDTH’s revenue to grow at 12% CAGR over

FY16-20

Revenue

27.1%

22.2%

15.6%

7.4%

32,963

FY13

41,902

FY14

51,193

FY15

59,158

FY16

63,547

FY17E

18144

FY16

21467

FY17E

26208

FY18E

37,948

FY19E

43,023

FY20E

30.7%

33.4%

35.6%

37.4%

YoY

Exhibit 25: Cost synergies to aid margins significantly

EBITDA

EBITDA margin

EBITDA margin (ex-synergies)

45.0%

46.5%

38.3%

Source: Company, MOSL

4 January 2017

Dish TV India

Merger to only further tilt odds in favor of DTH in HD penetration race

With just 4-5% of the 175m+ TV households (HH) subscribing to HD services (v/s 60-

70% in the US), India remains an underpenetrated HD market. However, with (1)

dwindling pricing differentials between HD and SD (a) television sets, and (b) set-top

boxes, and (2) increasing HD content offerings, this is set to change. As per industry

estimates, of the ~8m HD subscribers, DTH enjoys 95%+ share. The DITV-VDTH

merger is expected to further tilt the odds in favor of DTH in the HD penetration

race.

Videocon d2h’s better brand positioning in HD services is expected to rub off on the

combined entity. Typically, HD ARPUs are 2-2.5x SD ARPUs.

Exhibit 26: Operator-wise HD

subscriber base

4.3

1.4

0.4

0.6

Exhibit 27: Operator-wise HD channels

Exhibit 28: SD v/s HD ARPU differential

0.0

0.3

Dish TV

Source: Company, MOSL

VDTH

Tata Sky Reliance

Digital

Source: Company, MOSL

4 January 2017

Dish TV India

CCI approval likely in 3-6 months

HHI index indicates adequate competition even post-merger



In India, presence of premium brands such as Tata Sky and free public DTH service

provider FreeDish form two extremes of the ARPU spectrum. This should keep the

combined entity’s ability to abuse pricing power in check, despite its might (~17%

subscriber and ~20% revenue share).



A broad HHI index suggests that the distribution space is well within global

benchmarks of a concentrated market. Consequently, we believe CCI’s approval to the

amalgamation of Dish TV and Videocon d2h is a high probability event. We expect CCI

approval to take 3-6 months from the date of announcement (November 11, 2016).

Free-to-premium distribution offerings in India to keep combined entity’s

pricing power in check

In India, pay TV distribution services range from free-to-premium. Public DTH service

provider FreeDish, which offers only free-to-air channels, and premium brands such

as Tata Sky form two extremes of the ARPU spectrum. Besides, there are three

national MSOs (~70% subscriber market share in digital cable) that are still

struggling to improve on-ground collections (current phase I/II/III&IV collections at

INR100-105/INR75-80/<INR30). Such a competitive landscape is expected to curb

any intention of DITV-VDTH to abuse might-led pricing power.

Exhibit 29: Estimated platform-wise industry consumer-level ARPUs

FY15E

DTH ARPU (INR)

Analogue Cable ARPU (INR)

Digital Cable ARPU (INR)

Phase I

Phase II

Phase III/IV

Other Digital ARPU (INR)

250

200

160

200

263

210

165

210

284

229

181

231

312

252

208

254

343

277

240

280

267

160

FY16E

285

163

FY17E

305

165

FY18E

327

166

FY19E

343

166

Source: Company, MOSL

Expect CCI approval to come through

The pay TV distribution space is fragmented, with seven DTH operators (six private +

one public), three national MSOs, ~6,000 regional/marginal MSOs, and ~60k LCOs.

Given the highly fragmented distribution space, we expect the Dish TV-Videocon

d2h merger to pass the CCI net comfortably.

Even based on a broad Herfindahl-Hirshman (HHI) index which is typically used to

gauge the changes in concentration of an industry in the event of a merger, the pay

TV distribution market has a pre-merger/post-merger HHI of 779/979 (HHI delta =

200), significantly lower than global benchmarks of a concentrated market

(assuming India to be the relevant market, as DTH services are pan-India and the

entire distribution space considered as competition, offering substitutable services).

Even if one assumes only the DTH industry as relevant market and DTH services as

relevant product, the pre/post-merger HHI stands at 1,663/2,182, implying a

moderately concentrated market.

4 January 2017

Dish TV India

Exhibit 30: HHI using C&S market as relevant market

FY19E

Dish TV

VDTH

Dish TV VDTH

Airtel

TataSky

Reliance DTH

Sun Direct

Hathway

SITINET

Den Networks

Freedish

Others

Sum of squares of sub mkt

sh.

Inc/(Dec) in HHI

Pre-merger

Post-

HHI merger HHI

10.5

109

9.1

19.80

9.24

8.85

2.14

6.70

6.76

6.49

7.01

15.38

17.62

237

0.05

779

392

237

0.05

979

200

Source: Company, MOSL

Exhibit 31: HHI using DTH market as relevant market

Pre-merger

FY19E

HHI

Dish TV

VDTH

Dish TV VDTH

Airtel

TataSky

Reliance DTH

Sun Direct

Freedish

Sum of squares of sub mkt sh

Inc/(Dec) in HHI

16.8

14.6

31.9

14.9

14.2

3.4

10.8

24.8

221

203

116

613

1663

283

213

1016

221

203

116

613

2182

519

Source: Company, MOSL

Post-

merger

HHI

Note:

HHI Index is computed as the summation of the squares of subscriber market share of each industry participant.

# An HHI Index <1,500 indicates a competitive market

# An HHI Index between 1,500 and 2,500 indicates a competitive and moderately concentrated market

# An HHI Index >2,500 indicates a highly concentrated market

# As a general rule, mergers that increase the HHI Index by more than 200 points in a highly concentrated industry (HHI >2,500) could raise

anti-trust concerns.

4 January 2017

Dish TV India

FCFE, return ratios to surge…

…as synergies play out close on the heels of a Digitized India



Post the “land grab” in DAS IV markets over FY16-20, capex intensity should reduce

significantly to just replacement-related capital spending.

Even if DITV-VDTH coughs up almost all its regulatory dues (estimated to be ~INR25b

by FY19), partially pares down debt and continues its annual ~6m gross subscriber

addition in FY19/FY20, it would generate annual free cash flow (FCFE) of ~INR17b

annually in FY19/FY20 respectively.



Synergies playing out coupled with lower capex intensity would support return ratios.

RoCE would improve from ~7% in FY16 to ~26% in FY19.

FY20 to mark the end of growth capex

We expect the private DTH industry to add 30-35m subscribers over the next 3-4

years. Even if DITV-VDTH maintains its existing subscriber share of ~33% within the

DTH industry, it could add 11-12m subscribers over the next 3-4 years. FY16-20 is

consequently expected to be relatively capex-heavy, considering the expected DAS

“land grab”.

However, FY21-25 capex would largely entail just replacement-

related spending. (Expect replacement demand of 3-3.5m set-top boxes annually

over FY21-25, implying 7-8% of net subscriber base). We have assumed a one-time

capex of INR5b in FY19 towards infrastructure integration costs.

Exhibit 32: Capex intensity reducing; to hit steady state by FY22

Capex (INR b)

30.2%

24.8%

22.3%

13.0% 12.0%

28.7%

Capex to sales

9.0%

9.8

FY22E

8.0%

9.3

FY23E

7.5%

9.3

FY24E

7.0%

9.2

FY25E

17.9

FY16

15.9

FY17E

16.4

FY18E

24.2

FY19E

12.0

FY20E

12.1

FY21E

Source: Company, MOSL

Working capital cycle factors in nearly complete payment of regulatory

dues

Currently, DITV and VDTH’s pay license fees at the rate of 6% v/s the government-

mandated 10% of gross revenue. While DITV provides for the remaining 4% in its

balance sheet, VDTH’s balance 4% is off-the-books, as it recognizes this as

contingent liability. Our FY19/FY20E working capital cycle captures the regulatory

dues/(repayments) of both DITV and VDTH; provisions are modeled based on the

expected reduction in difference between the license fee booked in P&L at TRAI-

recommended 8% of AGR (currently 10% of adjusted gross revenue) and 6% annual

payment.

4 January 2017

Dish TV India

Exhibit 33: DITV-VDTH proforma working capital cycle

Inventories

Sundry debtors

Loans and advances

Total Current Assets (ex-cash)

Sundry Creditors

Other current Liabilities

Provisions

Total Current Liabilities

Net working capital (ex-cash)

Regulatory Liabilities

Provisions (ex-reg. liability)

Net working capital (ex-cash

& regulatory liabilities)

FY19E

INR m

751

857

7,513

9,121

3,940

13,744

17,816

35,499

-26,378

15625

2190

-10,752

In Days

FY20E

INR m

950

2,536

18,228

21,713

5,414

18,888

12,192

36,494

-14,781

8526

3666

-6,255

In Days

144

140

144

-239

-117

-189

-126

Source: Company, MOSL

Free cash flow to hit the roof

Even if DITV-VDTH coughs up almost its entire regulatory dues (estimated to be

~INR25b by FY19), pares down debt by ~INR3b in FY20, and continues its combined

gross subscriber addition rate of ~6m annually, we are looking at a free cash flow

(FCFE) generation of ~INR17b annually in FY19 and FY20.

Exhibit 34: Free cash flow to hit the roof

Dish TV Videocon

PBT

Depreciation

Other Income

Interest Paid

Direct Taxes Paid

(Inc)/Dec in Wkg. Cap.

Others

CFO

Capex

FCFF

Less: Interest (1-t)

Net Borrowings

FCFE

FY16

1,596

11,996

-84

5,955

3,995

-7,481

130

16,106

17,854

-1749

5,230

-5,002

-11,981

FY17E

3,968

13,240

370

4,628

-1,091

-1,700

19,415

15,917

3,498

3,903

-3,338

-3,743

FY18E

8,741

14,159

610

3,918

-2,636

929

25,721

16,441

9,279

3,225

-5,679

376

FY19E

18,539

16,156

461

3,714

3,708

-4,133

38,445

18,771

19,674

2,972

-23

16,679

FY20E

24,484

15,742

711

3,509

4,897

-11,597

37,746

14,854

22,892

2,807

-2,938

17,147

Source: Company, MOSL

4 January 2017

Dish TV India

Synergies playing out + lower capex intensity to support return ratios

We expect DITV-VDTH to save 760-820bp in margins in FY19/FY20, as the INR6.9-

7.6b synergies (largely cost-related) play out. Incidentally, completion of DAS IV

digitization is expected to come close on the heels of the merger period, hence

industry’s peak capex is expected to be behind by FY20. Dish TV Videocon’s capex-

to-sales ratio is expected to decline from ~30.2% in FY16 to ~12% in FY20 and even

lower over FY21-25. Consequently RoCE (Regulatory dues included in capital

employed) is expected to improve from ~7% in FY16 to ~26% in FY19.

As favourable operating leverage gains outpace the equity growth; RoEs too are set

to soar. We expect Dish TV Videocon’s RoEs to improve from ~23% in FY17E to ~59%

in FY19.

Exhibit 35: DITV-VDTH - Return ratios set to improve

RoE

RoCE

58.8

56.0

34.8

20.7

6.8

8.8

FY17E

12.3

26.4

32.6

FY16

FY18E

FY19E

FY20E

Source: Company, MOSL

#Capital employed includes regulatory liabilities

4 January 2017

Dish TV India

Attractively priced at 10% FY19E post-dilution FCFE yield

Expect 21% upside from current valuations if merger goes through



The stock is attractively priced at 9.6x FY19E FCFE adjusted for dilution (FCFE yield of

10% in FY19E adjusted for dilution); Buy.

Pending approvals, we retain our target price. However, on successful consummation

of the merger, our target price would see an upward revision of 22% to INR140 (EV of

7.8x FY19E EBITDA; largely in line with global peers).



Our DITV-VDTH DCF valuation assumes 4% CAGR each for net subscribers and ARPUs

and 8% EBITDA CAGR over FY19-25. WACC is assumed at 12.2%.

Attractively priced at 10% FY19E post-dilution FCFE yield

We expect DITV-VDTH to deliver an annual FCFE of ~INR17b in FY19/FY20. The stock

is attractively priced at 9.6x FY19E FCFE (FCFE yield of 10% in FY19E) post dilution.

Given the pending approvals – the most crucial being that of Competition

Commission of India (CCI), we retain our DCF-based target price of INR115. If the

merger is successfully consummated (to which we ascribe high probability), our

target price would see an upward revision of 22% to INR140 (EV of 7.8x FY19E

EBITDA; largely in line with global peers).

Exhibit 36: Attractive on FCFE yield and FCFE per share basis

FCFE/share (INR)

FCFE Yield

10.2%

10.4%

0.35

FY17E

-1%

-1.25

FY18E

FY19E

FY20E

Source: Company, MOSL

8.67

8.91

4 January 2017

Dish TV India

DCF valuation: Key assumptions

Our DITV-VDTH DCF valuation assumes 4% CAGR each for net subscribers and ARPUs

and 8% EBITDA CAGR over FY19-25. WACC is assumed at 12.2%.

Exhibit 37: DITV-VDTH – DCF valuation

INR b

Net subscribers (m)

YoY (%)

ARPU (INR/month)

YoY (%)

Revenue

Revenue growth (%)

EBITDA

EBITDA margin (%)

EBITDA growth (%)

Capex

Capex/Sales (%)

Change in working capital

Tax outflow

Tax rate (%)

FCF

FCF growth (%)

Terminal value

Mar' 19E

PV of FCF

Net Debt (Mar-19E)

PV-Explicit Period

PV-Terminal Value

Equity Value

Equity Value per Share (Mar-19E)

Implied FY19 EV/EBITDA

Implied FY19 EV/Sub (INR)

FY19E

36.0

102

175

84.4

129

37.9

179

24.2

4.1

5.3

FY20E

38.1

183

92.5

43.0

12.0

11.6

13.9

166

FY21E

40.0

190

100.8

47.4

12.1

0.0

23.7

FY22E

41.6

198

108.9

50.1

9.8

0.0

27.0

FY23E

42.8

206

116.5

53.6

9.3

0.0

29.7

FY24E

44.1

212

123.5

56.8

9.3

0.0

31.9

FY25E

45.4

218

130.9

60.2

9.8

0.0

33.8

487

FY19-25

CAGR

204

270

140

7.8x

8,204

Equity

Debt

WACC

WACC Calculations

Wt (%)

Cost Risk Free

0.6

15.2%

7.4

0.4

7.9%

12.3%

ERP

6.5

Beta

1.2

Source: Company, MOSL

4 January 2017

Dish TV India

Annexure

Exhibit 38: FY16 Revenue - Indian Media Value Chain (INR b)

59.2

58.5

29.2

25.7

21.1

20.8

20.5

18.7

Dish TV

Videocon

Zee Ent

Network 18 Airtel Digital

SUN TV

TV18

Broadcast

Jagran

Prakashan

Hathway

DB Corp

PVR

Source: Company, MOSL

Exhibit 39: FY16 EBITDA- Indian Media Value Chain (INR b)

18.3

15.4

9.9

5.8

1.5

Dish TV

Videocon

Zee Ent

Network 18 Airtel Digital

SUN TV

2.4

3.7

5.4

3.3

13.7

TV18

Broadcast

Jagran

Prakashan

Hathway

DB Corp

PVR

Source: Company, MOSL

4 January 2017

Dish TV India

Financials and Valuations (Dish TV Videocon)

Income Statement

Y/E March

Net Sales

YoY (%)

Operating expenses

Cost of goods and services

Employee Cost

Selling & distribution exps

Administrative exps

EBITDA

EBITDA margin (%)

Depreciation

Interest

Other Income

PBT

Tax

Tax rate (%)

Adjusted PAT

Change (%)

Exceptional items

Reported PAT

2019E

84,396

128.7

46,448

32,525

2,926

6,531

4,466

37,948

45.0

16,156

3,694

461

18,560

3,712

20.0

14,848

313.3

14,848

(INR Million)

2020E

92,467

9.6

49,444

35,462

3,219

6,660

4,103

43,023

46.5

15,742

3,457

711

24,536

4,907

20.0

19,629

32.2

19,629

Balance Sheet

Y/E March

Share Capital

Share Premium

Reserves

Net Worth

Loans

Capital Employed

Gross Fixed Assets

Less: Depreciation

Net Fixed Assets

Capital WIP

Investments

Curr. Assets

Inventory

Debtors

Cash & Bank Balance

Loans & Advances

Current Liab. & Prov.

Creditors

Provisions & other liab.

Net Current Assets

Miscellanous exp

Application of Funds

2019E

1,924

15,434

7,850

25,207

26,619

51,827

152,688

102,465

50,223

11,715

7,868

10,347

751

857

1,226

7,513

35,499

17,683

17,816

-25,152

7,086

51,826

(INR Million)

2020E

1,924

15,434

27,478

44,836

23,553

68,389

169,709

118,207

51,502

6,715

7,868

31,713

950

2,536

10,000

18,228

36,494

24,303

12,192

-4,781

7,086

68,389

4 January 2017

Dish TV India

Financials and Valuations (Dish TV Videocon)

Ratios

Y/E March

Basic (INR)

Adjusted EPS

Growth (%)

Cash EPS

Book Value

DPS

Payout (incl. Div. Tax.) (%)

Valuation

P/E

Cash P/E

EV/EBITDA

EV/EBITDA (excl lease rentals)

EV/Sales

Price/Book Value

EV/net subscriber (INR)

EV/net subscriber (USD)

Profitability Ratios (%)

RoE

RoCE (adj for reg. liab)

RoIC

Turnover Ratios

Debtors (Days)

Inventory (Days)

Creditors. (Days)

Asset Turnover (x)

Leverage Ratio

Debt/Equity (x)

2019E

7.7

-13.2

16.1

13.1

0.0

2020E

10.2

-28.1

18.4

23.3

0.0

11.1

5.3

2.9

1.3

6.6

3,060

8.4

4.7

2.3

1.1

3.7

2,585

58.9

26.4

185

3.8

56.0

32.6

185

2.3

1.1

0.5

Cash Flow Statement

Y/E March

Op.Profit/(Loss) bef Tax

Other Income

Interest Paid

Direct Taxes Paid

(Inc)/Dec in Wkg. Cap.

CF from Op.Activity

(inc)/Dec in FA + CWIP

(Pur)/Sale of Investments

CF from Inv.Activity

Issue of Shares

Inc/(Dec) in Debt

CF from Fin.Activity

Inc/(Dec) in Cash

Add: Opening Balance

Closing Balance

2019E

37,948

461

-3,694

-3,712

477

31,480

-50,306

-5,548

-55,854

858

20,154

21,012

-3,362

5,000

1,638

(INR Million)

2020E

43,023

711

-3,457

-4,907

-11,597

23,774

-12,021

-3,066

8,687

1,226

9,913

4 January 2017

Dish TV India

Financials and Valuations (Dish TV India, ex-merger)

Income Statement

Y/E March

Net Sales

YoY (%)

Operating expenses

Cost of goods and services

Employee Cost

Selling & distribution exps

Administrative exps

EBITDA

EBITDA margin (%)

Depreciation

Interest

Other Income

PBT

Tax

Tax rate (%)

Adjusted PAT

Change (%)

Exceptional items

Reported PAT

2011

14,366

32.4

11,977

7,803

566

2,847

761

2,388

16.6

3,654

1,511

880

-1,897

0.0

-1,897

-27.6

-1,897

2012

19,578

36.3

14,595

9,905

710

2,909

1,071

4,984

25.5

5,180

1,778

386

-1,589

0.0

-1,589

-16.3

-1,589

2013

21,668

10.7

15,873

11,010

822

3,036

1,005

5,795

26.7

6,276

1,284

512

-1,252

0.0

-1,252

-21.2

594

-658

2014

24,258

12.0

18,745

13,098

891

3,321

1,436

5,513

22.7

5,973

1,327

660

-1,127

0.0

-1,127

-10.0

-415

-1,542

2015

27,816

14.7

20,462

13,829

1,013

4,275

1,345

7,354

26.4

6,138

1,754

547

0.0

2016

30,599

10.0

20,350

14,006

1,229

2,836

2,280

10,249

33.5

5,907

2,087

640

2,895

-4,029

-139.2

6,924

2017E

31,656

3.5

20,776

13,740

1,505

3,082

2,448

10,880

34.4

6,509

1,925

470

2,916

817

28.0

2,100

-69.7

2,100

(INR Million)

2018E

36,029

13.8

23,003

15,274

1,626

3,525

2,579

13,026

36.2

7,071

1,344

700

5,310

1,752

33.0

3,558

69.4

3,558

Balance Sheet

Y/E March

Share Capital

Share Premium

Reserves

Net Worth

Loans

Capital Employed

Gross Fixed Assets

Less: Depreciation

Net Fixed Assets

Capital WIP

Investments

Curr. Assets

Inventory

Debtors

Cash & Bank Balance

Loans & Advances

Current Liab. & Prov.

Creditors

Provisions & other liab.

Net Current Assets

Miscellanous exp

Application of Funds

2011

1,063

15,314

-15,750

628

10,763

11,390

23,520

9,883

13,637

4,421

2,002

6,808

215

3,074

3,475

15,478

12,471

3,007

-8,670

11,390

2012

1,064

15,336

-17,338

-938

14,003

13,065

29,267

15,063

14,204

3,884

1,500

6,752

286

3,851

2,546

13,275

8,277

4,999

-6,523

13,065

2013

1,065

15,378

-17,996

-1,553

16,330

14,777

35,788

21,449

14,339

6,535

10,676

304

6,403

3,883

16,773

10,099

6,674

-6,097

14,777

2014

1,065

15,378

-19,531

-3,089

14,460

11,371

42,314

27,422

14,891

2,808

1,180

8,831

415

5,399

2,943

16,339

7,837

8,503

-7,508

11,371

2015

1,066

15,418

-19,617

-3,134

14,839

11,705

47,218

32,790

14,428

4,972

2,000

9,985

637

4,286

4,964

19,608

9,038

10,570

-9,623

11,705

2016

1,066

15,434

-12,693

3,807

12,313

16,120

56,683

38,664

18,020

6,100

2,320

8,486

126

725

3,392

4,244

22,612

10,315

12,297

-14,126

4,655

16,120

2017E

1,066

15,434

-10,593

5,907

12,526

18,433

64,812

45,172

19,640

5,000

2,320

11,547

172

692

6,000

4,683

24,435

10,423

14,012

-12,888

18,433

(INR Million)

2018E

1,066

15,434

-7,035

9,465

5,401

14,866

73,888

52,243

21,645

5,000

2,320

11,031

187

753

5,000

5,092

25,130

11,095

14,034

-14,099

14,866

4 January 2017

Dish TV India

Financials and Valuations (Dish TV India, ex-merger)

Ratios

Y/E March

Basic (INR)

Adjusted EPS

Growth (%)

Cash EPS

Book Value

DPS

Payout (incl. Div. Tax.) (%)

Valuation

P/E

Cash P/E

EV/EBITDA

EV/EBITDA (excl lease rentals)

EV/Sales

Price/Book Value

EV/net subscriber (INR)

EV/net subscriber (USD)

Profitability Ratios (%)

RoE

RoCE (adj. for reg. liab)

RoIC

Turnover Ratios

Debtors (Days)

Inventory (Days)

Creditors. (Days)

Asset Turnover (x)

Leverage Ratio

Debt/Equity (x)

2011

-1.8

-44.1

1.7

0.6

0.0

2012

-1.5

-16.3

3.4

-0.9

0.0

2013

-1.2

-21.3

4.7

-1.5

0.0

2014

-1.1

-10.0

4.6

-2.9

0.0

2015

0.0

-100.9

5.8

-2.9

0.0

2016

6.5

12.0

3.6

0.0

2017E

2.0

-69.7

8.1

5.5

0.0

2018E

3.3

69.4

10.0

8.9

0.0

18.7

18.0

21.7

4.1

8,712

133

14.7

13.7

15.5

3.6

7,796

119

13.1

7.1

9.6

10.0

3.2

6,789

104

43.1

10.5

8.8

8.9

3.0

15.3

6,082

25.5

8.5

6.9

2.5

9.6

5,152

-10

380

2.5

-2

207

2.8

1.2

-3

232

2.7

-5.3

-4

153

3.7

9.8

15.3

161

5.4

12.7

23.6

185

5.1

43.2

11.4

20.2

183

5.1

46.3

14.3

26.8

176

5.4

Cash Flow Statement

Y/E March

Op.Profit/(Loss) bef Tax

Other Income

Interest Paid

Direct Taxes Paid

(Inc)/Dec in Wkg. Cap.

CF from Op.Activity

2011

2,388

880

-1,511

3,084

4,841

-9,311

504

-8,807

1,585

1,617

-2,349

5,422

3,074

2012

4,984

386

-1,778

-1,369

2,223

-5,210

502

-4,708

3,240

3,263

778

3,074

3,851

2013

6,390

512

-1,284

2,125

7,743

-9,061

1,500

-7,562

2,327

2,370

2,552

3,851

6,403

2014

5,098

660

-1,327

413

4,844

-2,799

-1,180

-3,978

-1,870

-1,004

6,403

5,399

2015

7,354

547

-1,754

962

7,109

-7,838

-820

-8,658

379

419

-1,129

5,399

4,270

2016

10,249

640

-2,087

4,029

-751

12,080

-10,627

-320

-10,948

-2,526

-2,509

-1,377

4,286

2,909

2017E

10,880

470

-1,925

-817

5,730

14,339

-7,029

213

7,523

3,392

10,914

(INR Million)

2018E

13,026

700

-1,344

-1,752

211

10,840

-9,075

-7,124

-5,360

6,000

640

(inc)/Dec in FA + CWIP

(Pur)/Sale of Investments

CF from Inv.Activity

Issue of Shares

Inc/(Dec) in Debt

CF from Fin.Activity

Inc/(Dec) in Cash

Add: Opening Balance

Closing Balance

4 January 2017

MEDIA REPORT GALLERY

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4 January 2017