15 February 2017
3QFY17 Results Update | Sector: Media
SITI Network
BSE SENSEX
28,156
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
Financials & Valuations (INR b)
2016
2017E
Y/E Mar
Net Sales
11.9
11.9
EBITDA
3.0
2.3
EBITDA#
0.9
0.5
PAT
0.0
-1.4
EPS (INR)
0.0
-1.7
Gr. (%)
NM
NM
BV/Sh (INR)
9.1
8.7
RoE (%)
0.1
-19.3
RoCE (%)
6.4
-2.8
EV/EBITDA
19.3
10.9
EV/EBITDA#
86.1
13.6
EV/Sub (INR)
3,581
3,695
stake
# (ex-activation)
S&P CNX
Downgrade to Neutral
8,725
SITINET IN
Re-aligning Phase III monetization expectations; downgrade to Neutral
794
Operational performance below expectations
30.9 / 0.5
EBITDA (ex-activation) misses estimates:
Consol. EBITDA grew 16% QoQ to
41 / 31
INR550m (est. of INR637m). EBITDA (ex-activation) declined 9% QoQ to
0/5/-5
INR82m (est. of INR197m), led by lower-than-expected broadband and other
15.7
operating revenue. Opex remained flat QoQ at INR2.43b (est. of INR2.39b).
29.0
CMP: INR38
TP: INR40(+4%)
2018E
14.9
4.1
3.3
0.0
0.1
NM
10.3
0.6
4.9
7.2
8.1
3,747
* Based on attributable EBITDA and subs post minority
Estimate change
TP change
Rating change
Net billing implementation in Phase I completed; subscription up 6% QoQ:
SITINET completed net billing implementation in Phase I in 3QFY17.
Consequently, subscription revenue and related distribution costs for 3Q
were netted off. Subscription income grew 6% QoQ to INR1.48b (in-line).
Phase I/II collections stagnant; broadband disappoints:
Phase I/II
collections have largely remained stagnant at INR103/INR78 per
subscriber/month over past four quarters, as the MSO:LCO revenue share
squabble continues. Management expects improvement in Phase II/III
collections to INR90/INR50 by March 2017. Phase I collections are expected
to remain flat. Broadband revenue grew 4% QoQ to INR0.26b (est. of
INR0.28b) as competitive pressure from RJio’s freebies kept subscriber
addition under check (especially in Kolkata). SITINET added 18k broadband
(BB) subscribers in 3Q, taking BB subscriber base to 213k.
Set-top box seeding subdued, below expectations:
SITINET seeded 0.54m
set-top boxes in 3Q (est. of 0.8m). Management expects to seed ~2m boxes
in FY17. We believe SITINET would exit FY17 with 10m digital subscribers.
3QFY17 capex at INR0.6b; STB inventory at 1.4m:
SITINET incurred capex of
INR0.6b in 3QFY17 and holds an inventory of ~1.4m set-top boxes, which is
largely intended to be deployed by 4QFY17.
85%+ underlying EBITDA CAGR over FY16-19; downgrade to Neutral:
We
expect digital subscriber base to increase from 7.9m in FY16 to 11.6m in
FY19. Increase in net subscription post-digitization should drive 85%+
recurring EBITDA CAGR over FY16-19E. SITINET trades at EV/EBITDA (ex-
activation/minorities) of 13.6x/8.1x FY18E/FY19E. We cut EBITDA
significantly for FY18E/FY19E to re-align our Phase III/IV monetization
expectations and downgrade the stock to
Neutral
with a DCF-based TP of
INR40 (earlier INR45). Recent stock run-up leaves limited valuation upside.
Jay Gandhi
(Jay.Gandhi@MotilalOswal.com); +91 22 6129 1546
Aliasgar Shakir
(Aliasgar.Shakir@motilaloswal.com); +91 22 3982 5423
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

SITI Network
Exhibit 1: Summary of estimate change (INR b)
FY17E
Cable subscription revenue
Old
New
Change (%)
Revenue
Old
New
Change (%)
EBITDA
Old
New
Change (%)
EBITDA (ex-activation)
Old
New
Change (%)
Adjusted PAT
Old
New
Change (%)
5.9
5.9
0.0
12.2
11.9
-2.0
2.6
2.3
-14.2
0.7
0.5
-23.8
-1.1
-1.4
28.5
FY18E
11.1
9.1
-18.4
17.4
14.9
-14.1
6.5
4.1
-36.1
5.4
3.3
-39.0
2.4
0.1
-97.5
FY19E
13.5
11.7
-13.0
21.0
18.8
-10.4
8.5
6.4
-25.1
7.5
5.6
-25.1
2.9
1.1
-60.2
Source: Company, MOSL
Exhibit 2: SITINET: Consolidated quarterly performance (INR m)
Revenue
Operating costs
-Carriage sharing/Pay channel/cost of material
-Employee cost
-Other costs
EBITDA
EBITDA margin (%)
EBITDA ex-activation
EBITDA margin ex-activation (%)
Depreciation and amortization
Other income
Finance cost
PBT
Exception Items
Tax
Prior period items
PAT
Minority Interest
PAT after minority interest
Other comprehensive income
Total comprehensive income
Digital subs and revenue break-up
Digital Subs (m)
Subscription revenue
Carriage revenue
Activation revenue
Broadband revenue
Other operating revenue
3QFY16
3,440
2,486
1,635
143
707
954
27.7
168
4.9
391
49
351
262
0
2
260
113
147
2QFY17
2,890
2,416
1,455
207
754
473
16.4
90
3.1
572
24
280
-355
0
22
-376
93
-469
0.1
-469
8.7
1,397
757
383
249
104
3QFY17
2,985
2,434
1,444
191
800
550
18.4
82
2.8
625
71
360
-364
0
-30
-335
-71
-263
0.1
-263
9.2
1,475
726
468
259
57
YoY (%)
-13
-2
-12
34
13
-42
-34
-51
-214bps
60
44
3
-239
-1453
-229
-163
-280
QoQ (%)
3
1
-1
-8
6
16
13
-9
-37bps
9
198
28
3
-237
-11
-177
-44
3QFY17E
3,027
2,390
1,441
201
748
637
21.0
197
6.5
566
80
276
-126
0
42
-168
-15
-153
vs est (%)
-1
2
0
-5
7
-14
-260bps
-58
-374bps
10.5
-11.6
30.1
189.4
-170.2
NM
376
NM
6.8
1,091
602
786
145
816
36
35
21
-40
79
-93
6
6
-4
22
4
-45
9.5
1,481
719
440
284
104
-2.7
-0.4
1.0
6.4
-8.6
-45.4
Source: Company, MOSL
15 February 2017
2

SITI Network
Story in charts
Exhibit 3: Platform-wise industry ARPU (FY16E-19E)
FY16
DTH ARPU (INR)
Analogue Cable
(INR)
Phase I
Phase II
Phase III/IV
Other Digital ARPU (INR)
285
ARPU
163
FY17
305
165
FY18E
327
166
FY19E
343
166
346
263
210
165
210
284
229
181
231
312
252
208
254
343
277
240
280
23
123
67
132
FY15E
389
24
151
86
128
FY16
445
24
194
121
106
FY17E
Exhibit 4: India Pay TV subscription revenue split (INR b)
Analogue Cable
DTH
Total Subscription Revenue
Digital Cable
Other Digital
612
27
315
233
37
FY19E
Source: MOSL
Digital Cable ARPU (INR)
520
24
251
172
74
FY18E
Source: MOSL
Exhibit 5: India: TV and C&S households (m)
236
238
148
241
153
243
161
245
169
149
247
177
158
249
185
166
251
193
174
253
201
182
Exhibit 6: C&S connections mix: Analog v/s Digital (%)
Analogue Cable (%)
DTH (%)
8
27
5
62
7
26
5
62
7
26
15
53
FY13
6
27
18
49
FY14
7
27
19
47
FY15
Digital Cable (%)
Other Digital HH (%)
6
30
25
38
5
35
32
28
5
40
40
16
4
46
45
142
105
119
130
139
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Source: MOSL
FY11
FY12
5
FY16 FY17E FY18E FY19E
Source: MOSL
Exhibit 7: Phase wise subscribers (FY16-19E)
DTH HH (m)
Cable HH (m)
Analogue Cable (m)
Digital Cable (m)
-Phase I
-Phase II
-Phase III/IV
Other Digital HH (m)
Digital HH
FY16E
48
101
61
40
8
15
17
9
97
FY17E
58
100
47
54
9
15
30
8
120
FY18E
70
96
27
69
9
15
45
8
147
FY19E
83
91
10
81
9
15
57
8
172
Source: MOSL
Exhibit 8: 17% digital subscriber CAGR from 79m to 172m
51
24
97
75m net sub adds
172
FY16E Digital Market growth Analog phase- FY19E Digital
off
Source: MOSL
15 February 2017
3

SITI Network
Story in charts
Exhibit 9: FY16 revenue break-up
Others
13%
Exhibit 10: FY18 revenue break-up
Susbcriptio
n
63%
Susbcriptio
n
47%
Others
19%
Carriage
22%
Activation
18%
Source: Company, MOSL
Carriage
14%
Activation
4%
Source: Company, MOSL
Exhibit 11: Net subscription revenue (INR b)
5.6
Exhibit 12: EBITDA ex-activation/one-offs (INR b)
11.7
9.1
5.2
3.3
4.0
0.9
0.5
FY17E
FY18E
FY19E
FY16
FY17E
FY16
FY18E
FY19E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 13: Capex and Capex/sales (INR b, %)
Capex
51
33
32
Capex/Sales (%)
Exhibit 14: FCFF (INR b)
3.2
4.5
1.4
28
30
20
-1.1
-1.8
2.0
0.4
2.3
FY14
2.9
FY15
6.1
FY16
3.4
FY17E
4.4
FY18E
3.8
FY19E
FY15
-6.5
FY16E FY17E FY18E FY19E FY20E FY21E FY22E
Source: Company, MOSL
Source: Company, MOSL
15 February 2017
4

SITI Network
Exhibit 15: SITINET - Key Operating Metrics
FY14 FY15 FY16 FY17E FY18E FY19E
Phase wise subscriber base (m)
Phase I
Phase II
Phase III/IV
Digital
Analog
Total Universe
Phase wise gross ARPU (INR)
Phase I
Phase II
Phase III/IV
Analog
Total Universe
YoY (%)
Phase wise net ARPU (INR)
Phase I
Phase II
Phase III/IV
Analog
Total Universe
YoY (%)
Per susbcriber carriage and content cost (INR)
Content cost/subscriber/month
C& P revenue/sub/month
Net content cost/sub/month
Net content cost/net ARPU
Per susbcriber monthly metrics
Gross revenue
LCO share
Net revenue
Net content cost
Other cost
Total operating cost
EBITDA
2.2 2.3 2.2
1.5 1.6 1.5
0.3 1.5 4.2
4.0 5.4 7.9
6.0 5.1 4.3
10.0 10.5 12.2
193
175
160
150
165
199
184
160
161
172
4
76
55
16
8
31
32
24
20
3
10
172
142
31
3
22
25
5
198
184
160
172
176
2
79
53
12
8
29
-4
26
19
7
25
176
146
29
7
17
24
5
2.0
1.6
6.4
10.0
2.2
12.2
238
211
176
185
194
10
102
77
30
8
35
20
33
20
13
37
194
159
35
13
20
33
2
2.1
1.6
7.4
11.1
1.1
12.2
249
235
202
198
214
10
112
94
53
8
62
76
38
19
19
30
214
152
62
19
24
43
20
2.2
1.6
7.8
11.6
0.6
12.2
261
246
213
212
226
5
131
99
70
8
80
29
43
18
24
30
226
145
80
24
23
47
33
63
40
16
8
23
20
19
1
3
165
142
23
1
20
21
2
Source: Company, MOSL
15 February 2017
5

SITI Network
Exhibit 16: SITINET - Key Financial Metrics
Key Financials (INR b)
Revenue
YoY (%)
EBITDA
YoY (%)
EBITDA margin (%)
EBITDA ex activation/one-offs
YoY (%)
EBITDA margin ex activation (%)
Capex analysis (INR b)
Capex
Capex/Sales (%)
Gross STB adds (m)
Net STB adds (m)
STB Capex/gross add (INR)
Revenue break-up (INR b)
Gross subscription revenue (incl LCO share)
Net subscription revenue (excl LCO share)
Reported subscription revenue (post gross billing)
Activation revenue
Carriage and placement revenue
Other revenue (incl broadband)
Total revenue
FY14
7.0
48
1.1
56
16.2
0.3
NA
4.6
2.3
33
1.6
1.6
1,200
19.9
2.8
3.4
0.8
2.3
0.5
7.0
FY15
9.0
30
1.4
20
15.0
0.7
135
8.3
2.9
32
1.5
1.4
1,300
21.2
3.8
5.4
0.6
2.5
0.6
9.0
FY16
11.9
32
3.0
121
25.1
0.9
14
7.2
6.1
51
2.9
2.6
1,681
23.9
4.0
5.6
2.1
2.6
1.6
11.9
FY17E
11.9
0
2.3
-24
19.0
0.5
-40
4.3
3.4
28
2.4
2.1
572
28.4
5.2
5.9
1.8
2.9
1.4
11.9
FY18E
14.9
25
4.1
82
27.6
3.3
552
22.2
4.4
30
1.5
1.0
1,250
31.3
9.1
9.1
0.8
2.8
2.3
14.9
FY19E
18.8
26
6.4
54
33.9
5.6
70
30.0
3.8
20
1.0
0.6
1,250
33.0
11.7
11.7
0.7
2.7
3.6
18.8
Source: Company, MOSL
15 February 2017
6

SITI Network
Financials and Valuations
Income Statement
Y/E March
Revenues
Change (%)
Total Expenses
EBITDA
% of Revenue
Change (%)
Depn. & Amortization
EBIT
Net finance cost
Other Income
PBT
Tax
Rate (%)
Reported PAT
Minority interest
Reported Net profit
Adjusted Net profit
Change (%)
2013
4,696
37.0
3,973
724
15.4
-375.6
563
161
864
140
-563
46
-8.2
-609
32
-641
-641
NA
2014
6,972
48.5
5,844
1,128
16.2
55.8
838
290
1,191
131
-770
64
-8.3
-834
107
-941
-941
NA
2015
9,037
29.6
7,685
1,351
15.0
19.8
1,328
23
1,209
311
-875
167
-19.0
-1,042
72
-1,114
-1,114
NA
2016
11,890
31.6
8,900
2,990
25.1
121.3
1,632
1,358
1,378
240
220
131
59.6
89
85
3
3
NA
2017E
11,947
0.5
9,680
2,267
19.0
-24.2
2,370
-103
1,293
194
-1,202
105
-8.7
-1,307
105
-1,412
-1,412
-41,648.2
2018E
14,948
25.1
10,816
4,133
27.6
82.3
2,795
1,337
1,342
170
165
110
66.6
55
7
48
48
-103.4
(INR Million)
2019E
18,786
25.7
12,417
6,369
33.9
54.1
3,241
3,128
1,522
221
1,826
548
30.0
1,279
166
1,112
1,112
2,217.0
(INR Million)
2019E
903
17,126
-8,566
9,463
1,084
14,505
1,317
164
26,532
32,915
15,747
330
17,498
16
16,533
6,948
3,000
6,585
7,526
4,569
2,958
9,007
26,532
Balance Sheet
Y/E March
Share Capital
Add. Paid up Capital
Reserves
Net Worth
Minority Interest
Loans
Other Liabilities
Deferred Tax Liability
Capital Employed
Gross Block
Less : Depreciation
CWIP
Fixed Assets
Investments
Curr. Assets
Debtors
Cash & Bank Balance
Other Current Assets
Curr. Liab. & Prov.
Creditors
Other Current Liabilities
Net Curr. Assets
Appl. of Funds
2013
453
4,200
-5,313
-660
132
9,094
861
29
9,456
7,253
2,741
691
5,204
16
6,737
968
1,294
4,475
2,500
1,984
516
4,236
9,456
2014
521
5,502
-4,900
1,123
271
12,673
405
23
14,495
12,059
4,380
1,702
9,381
16
8,832
1,954
3,529
3,350
3,735
2,449
1,286
5,098
14,495
2015
678
9,426
-8,298
1,807
678
13,470
837
101
16,891
14,990
5,708
1,661
10,942
16
11,405
3,283
4,337
3,785
5,449
2,614
2,835
5,956
16,891
2016
795
13,434
-7,815
6,414
805
11,456
2,316
164
21,155
21,312
7,341
360
14,331
16
11,320
3,643
3,728
3,949
8,949
3,322
5,626
2,371
21,156
2017E
852
15,377
-9,727
6,502
910
11,222
1,527
164
20,325
24,715
9,711
330
15,334
16
11,085
4,319
1,728
5,038
6,118
2,971
3,147
4,968
20,325
2018E
903
17,126
-9,679
8,350
917
13,173
1,404
164
24,009
29,151
12,506
330
16,975
16
13,847
5,529
2,500
5,818
6,838
3,927
2,911
7,009
24,008
15 February 2017
7

SITI Network
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout %(Incl.Div.Taxes)
Valuation (x)
P/E
Cash P/E
EV/EBITDA*
EV/EBITDA ex-activation *
EV/Sales*
EV/sales ex-activation*
Price/Book Value
EV/Sub (INR)*
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios
Debtors (Days)
Asset Turnover (x)
Leverage Ratio
Net Debt/Equity (x)
2013
-1.4
-0.2
-1.2
0.0
0.0
2014
-1.8
-0.2
2.7
0.0
0.0
2015
-1.6
0.3
3.7
0.0
0.0
2016
0.0
2.1
9.1
0.0
0.0
2017E
-1.7
1.1
8.7
0.0
0.0
2018E
0.1
3.1
10.3
0.0
0.0
2019E
1.2
4.8
11.7
0.0
0.0
-23.7
123.1
32.1
57.9
4.8
5.1
10.6
4,153
9,255.6
18.9
14.1
49.2
3.5
4.3
4.3
3,433
-23.4
34.5
19.3
86.1
3.7
4.3
4.5
3,581
731.0
12.3
10.9
13.6
3.0
3.2
3.8
3,695
31.6
8.1
7.2
8.1
2.4
2.5
3.3
3,747
-1.1
4.0
75
1.08
-0.7
3.7
102
0.83
-57.5
-2.1
0.3
133
0.85
0.1
6.4
5.2
112
1.13
-19.3
-2.8
-0.9
132
0.91
0.6
4.9
2.5
135
0.84
11.2
10.3
10.9
135
0.93
-14.8
6.6
3.7
1.1
1.3
1.2
1.1
(INR Million)
2019E
6,369
221
-1,522
-548
-1,585
2,934
-3,764
0
0
-3,764
0
1,332
0
1,332
502
2,500
3,000
Cash Flow Statement
Y/E March
Op.Profit/(Loss) bef Tax
Other Inc/excep. items
Interest Paid
Direct Taxes Paid
(Inc)/Dec in Wkg. Cap.
CF from Op.Activity
(inc)/Dec in FA + CWIP
(Pur)/Sale of Investments
Other investing activity/adj
CF from Inv.Activity
Issue of Shares
Inc/(Dec) in Debt
Others
CF from Fin.Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2013
724
140
-864
-20
-1,793
-1,812
-3,801
2
0
-3,799
808
4,614
0
5,422
-189
1,483
1,294
2014
1,128
131
-1,191
-70
918
916
-5,016
0
-20
-5,036
2,745
3,578
32
6,355
2,236
1,294
3,529
2015
1,351
311
-1,209
-89
382
745
-2,889
0
-99
-2,988
2,212
797
19
3,028
785
3,529
4,337
2016
2,990
240
-1,378
-68
4,454
6,238
-5,021
0
0
-5,021
4,625
-2,013
-22
2,589
3,806
4,337
3,727
2017E
2,267
194
-1,293
-105
-5,385
-4,322
-3,374
0
0
-3,374
1,500
-235
0
1,265
-6,430
3,728
1,727
2018E
4,133
170
-1,342
-110
-1,392
1,459
-4,436
0
0
-4,436
1,800
1,951
0
3,751
774
1,728
2,500
15 February 2017
8

SITI Network
Corporate profile
Company description
SITI Cable Network Limited (SCNL) is one of India's
leading Multi System Operator (MSO). With 61 analog
and 15 digital head ends and a network of more than
14,600 Kms of optical fibre and coaxial cable, it provides
its cable services in India's 130 key cities and the
adjoining areas, reaching out to over 10.5 million cable
universe. SCNL is a part of the Essel Group, which is one
of India's leading business houses with a diverse portfolio
of assets in media, packaging, entertainment,
technology-enabled services, infrastructure development
and education.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Sep-16
Promoter
DII
FII
Others
71.0
6.2
13.3
9.5
Jun-16
71.0
6.2
13.0
9.8
Sep-15
66.0
7.6
13.9
12.5
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Morgan Stanley Asia (Singapore) PTE
HDFC Trustee Company Limited-HDFC Equity
Fund
Polus Global Fund
Swiss Finance Corporation
Limited
DSP Blackrock Micro Cap Fund
(Mauritius)
% Holding
4.9
4.1
1.9
1.6
1.5
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
V D Wadhwa
Suresh Kumar
Designation
Executive Director
Company Secretary
Exhibit 5: Directors
Name
Sandeep Khurana
Kavita Kapahi
Vinod Kumar Bakshi
Name
B K Syngal
Suresh Kumar Agarwal
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Amit Agrawal & Associates
Walker Chandiok & Co LLP
Type
Secretarial Audit
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
FY19
Source: Capitaline
MOSL
forecast
-1.7
0.1
1.2
Consensus
forecast
-
-
-
Variation (%)
-
-
-
Source: Bloomberg
15 February 2017
9

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SITI Network
Disclosure of Interest Statement
Analyst ownership of the stock
No
Served as an officer, director or employee -
No
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SITI NETWORKS
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15 February 2017
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10