10 November 2015
2QFY16 Results Update | Sector:
Media
SITI Cable Network
BSE SENSEX
25,743
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float
S&P CNX
7,783
SCNL IN
678.3
23.7/0.4
39 / 25
-4/-5/31
24
34.0
CMP: INR31
TP: INR48 (+53%)
Buy
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
EBITDA#
Adj. NP
Adj.EPS (INR)
2016E 2017E 2018E
11.6
3.2
1.3
0.2
0.3
15.4
3.9
2.6
0.3
0.5
71.3
4.6
11.5
8.7
9.4
20.4
6.6
6.0
2.5
3.7
660.2
8.8
55.7
24.2
8.5
5.0
Adj.EPS Gr (%) NA
BV/Sh (INR)
4.0
RoE (%)
RoCE (%)
P/E (x)
7.5
8.7
110.4 64.4
EV/EBITDA(x)* 10.9
* Based on attributable EBITDA and subs
post minority stake; # (ex-activation)
Estimate change
TP change
Rating change
Subscription beats estimates; box seeding picks up; recurring EBITDA in line
EBITDA (ex-activation) in line:
SCNL’s EBITDA (ex-activation) was largely in line at
INR234m, primarily led by a gradual pick-up in subscription revenue.
Subscription growth at 7% QoQ beats estimates, activation picks up:
SCNL
reported a resilient 7% QoQ growth in subscription (INR1.39b v/s estimate of
INR1.36b) v/s 2% QoQ for Hathway and decline of 3% QoQ for Den Networks.
SCNL has changed its accounting for the carriage/content deal with India Cast to a
‘net of carriage’ basis. Consequently, while carriage revenue on a reported basis
declined 17% QoQ to INR0.60b, the deal was largely EBITDA-neutral. Broadband
revenue grew 50% YoY/3% QoQ to INR93m. Activation revenue grew 78% QoQ to
INR194m, as seeding of boxes picked up in 2Q.
Phase I/II collections largely flat; content deals for Phase III tied up:
Realizations
in Phase I/II have been largely flat at INR103/INR76; the management expects
improvement to INR110/INR90 by March 2016. All major content deals for Phase
III/IV (Zee, Sony, Colors) have been negotiated on a fixed-fee basis.
Box seeding picks up:
SCNL seeded 0.33m set-top boxes in 2Q, taking boxes
seeded in 1HFY16 to 0.53m (Hathway/Den Networks seeded 0.07m/0.35m in 2Q).
Inventory as on 2QFY16 stood at ~0.5m and an order of 3.5m boxes is already
placed.
Subscriber addition guidance maintained; net debt at INR10.4b:
During FY16,
SCNL is targeting digital cable subscriber addition of ~5m and broadband addition
of 0.2m. The company had earlier given a gross capex guidance of ~INR10b (net
capex of ~INR5.5b). Current gross/net debt stands at INR12.4b/INR10.4b.
98% underlying EBITDA CAGR over FY15-18; maintain Buy:
We expect the digital
subscriber base to increase from 5.4m in FY15 to 11m in FY18. Increase in net
subscription income in the post-digitization scenario should drive ~98% recurring
EBITDA CAGR, with EBITDA (ex-activation) expected to improve from ~INR0.8b in
FY15 to ~INR6b in FY18. SCNL trades at EV/EBITDA (ex-activation/ minorities) of
27.6x/13.6x/5.5x FY16E/FY17E/FY18E. Our EBITDA estimates are largely
unchanged. Maintain
Buy
with a DCF-based price target of INR48 (unchanged).
(INR Million
FY15
1Q
2,090
47.5
1,748
342
19.6
16.4
290
304
20
-231
70
-30.4
-301
16
-317
-317
2Q
2,192
36.7
1,780
412
35.7
18.8
309
296
45
-147
-3
1.9
-144
85
-229
-229
3Q
2,217
34.2
1,734
483
110.6
21.8
387
299
18
-185
-26
13.9
-160
84
-243
-204
4Q
2,560
9.7
2,466
94
-56.1
3.7
339
311
227
-328
125
-38.1
-454
-112
-342
-342
1Q
2,281
9.1
1,924
357
4.4
15.7
358
339
24
-316
5
-1.7
-322
28
-349
-371
FY16
2Q
2,342
6.8
1,913.8
428
4.0
18.3
367
343
87
-195
35
-17.8
-229
48
-277
-277
3Q
3,218
45.2
2,133.8
1,084
124.7
33.7
429
343
50
363
20
5.5
343
47
296
296
4Q
3,730
45.7
2,370.9
1,359
1,345.9
36.4
602
348
38
448
23
5.1
425
-97
522
522
FY15
9,059
7685
1,374
15.2
1,328
1,209
311
-852
167
-19.6
-1,019
72
-1,091
-1,091
FY16
11,572
8,340
3,231
27.9
1,756
1,372
199
303
83
27.5
220
26
194
194
Quarterly Performance (Consolidated)
Y/E March
Sales
YoY (%)
Opera ti ng Expens es
EBITDA
YoY (%)
EBITDA ma rgi n (%)
Depreci a ti on
Interes t
Other Income
PBT
Ta x
Effecti ve Ta x Ra te (%)
PAT
Mi nori ty Interes t
Adj PAT
Reported net profit
Shobhit Khare
(Shobhit.Khare@MotilalOswal.com); +91 22 3982 5428
Jay Gandhi
(Jay.Gandhi@MotilalOswal.com); +91 22 3089 6693
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

SITI Cable Network
Exhibit 1: Summary of estimate change (INR b)
FY16E
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 (%)
6.0
6.0
0.0
11.6
11.6
-0.6
3.2
3.2
0.1
1.3
1.3
0.2
0.2
0.2
2.6
FY17E
10.1
10.1
0.0
15.5
15.4
-0.5
3.9
3.9
-0.7
2.7
2.6
-1.1
FY18E
15.0
15.0
0.0
20.4
20.4
-0.3
6.7
6.6
-0.3
6.1
6.0
-0.3
0.3
2.5
0.3
2.5
2.4
0.0
Source: Company, MOSL
Exhibit 2: SITI Cable: Consolidated quarterly performance (INR m)
Revenue
Operating costs
-Carriage sharing/Pay channel
-Employee cost
-Other costs
EBITDA
EBITDA margin (%)
EBITDA ex-activation
EBITDA margin ex-activation (%)
Depreciation and amortization
Other income
Finance cost
PBT
Tax
Prior period items
PAT
Minority Interest
PAT after minority interest
Digital subs and revenue break-up
Digital Subs (m)
Subscription revenue
Carriage revenue
Activation revenue
Broadband revenue
Other operating revenue
2QFY15
2,192
1,780
1,174
128
478
412
18.8
281
12.8
309
45
296
-147
-3
0
-144
85
-229
4.6
1,350
587
131
62
62
1QFY16
2,281
1,924
1,357
133
433
357
15.7
248
10.9
358
24
339
-316
5
0
-322
49
-371
5.6
1,290
729
109
90
63
2QFY16
2,342
1,914
1,242
171
501
428
18.3
234
10.0
367
87
343
-195
35
0
-229
48
-277
5.9
1,385
603
194
93
67
YoY (%)
7
8
6
33
5
4
-3
-17
-281bps
19
91
16
32
-1310
59
-43
21
28
3
3
48
50
8
QoQ (%)
3
-1
-8
28
16
20
17
-6
-88bps
2
266
1
-38
557
-29
-3
-25
6
7
-17
78
3
7
2QFY16E
2,520
2,003
1,384
143
477
517
20.5
242
9.6
390
36
342
-179
15
0
-194
35
-229
vs est (%)
-7
-4
-10
20
5
-17
-223bps
-3
40bps
-5.8
144.0
0.1
8.5
130.8
17.9
37
21
6
-2.8
1,355
2.3
672
-10.3
275
-29.5
119
-21.7
100
-32.9
Source: Company, MOSL
10 November 2015
2

SITI Cable Network
Story in charts
Exhibit 3: Platform-wise industry ARPU (FY15E-18E)
DTH ARPU (INR)
Analogue Cable ARPU (INR)
Digital Cable ARPU (INR)
Phase I
Phase II
Phase III/IV
Other Digital ARPU (INR)
FY15E
267
160
250
200
160
200
FY16E
285
163
263
210
165
210
FY17E
305
165
289
231
181
231
FY18E
327
166
Exhibit 4: India Pay TV subscription revenue split (INR b)
Analogue Cable
DTH
Total Subscription Revenue
346
23
123
67
132
FY15E
389
24
151
86
128
FY16E
Digital Cable
Other Digital
529
447
24
198
124
102
FY17E
24
259
318
254
214
254
Source: MOSL
180
66
FY18E
Source: MOSL
Exhibit 5: India: TV and C&S households (m)
236
238
148
241
153
130
243
161
139
245
169
149
247
177
158
249
185
166
251
193
174
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
6
27
18
49
FY14
7
27
19
47
Digital Cable (%)
Other Digital HH (%)
6
30
25
38
5
36
33
26
5
41
142
105
119
41
13
FY11
FY12
FY13
FY14
FY15
FY16E FY17E FY18E
Source: MOSL
FY11
FY12
FY13
FY15 FY16E FY17E FY18E
Source: MOSL
Exhibit 7: Phase wise subscribers (FY15-18E)
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
FY15E
40
99
70
29
8
14
7
10
79
FY16E
48
101
61
40
8
15
17
9
97
FY17E
60
98
43
56
9
15
32
8
124
FY18E
72
94
23
71
9
15
47
8
151
Source: MOSL
Exhibit 8: 24% digital subscriber CAGR from 79m to 151m
47
25
79
FY15E Digital
151
72m net
susbcriber
adds
Market growth Analog phase-
off
FY18E Digital
Source: MOSL
10 November 2015
3

SITI Cable Network
Story in charts
Exhibit 9: FY15 revenue break-up
Others
7%
Carriage
27%
Susbcription
59%
Carriage
12%
Activation
3%
Others
11%
Susbcription
74%
Exhibit 10: FY18 revenue break-up
Activation
7%
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: Net subscription revenue (INR b)
13.2
Exhibit 12: EBITDA ex-activation/one-offs (INR b)
6.0
8.3
4.3
0.3
FY14
FY15
FY16E
FY17E
FY18E
FY14
0.8
1.3
2.6
2.8
3.8
FY15
FY16E
FY17E
FY18E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 13: Capex and Capex/sales (INR b, %)
Capex
53
Capex/Sales (%)
Exhibit 14: FCFF (INR b)
4.1
4.0
4.4
33
32
25
12
-0.3
-1.1
FY15
-1.7
FY16E
FY17E
FY18E
FY19E
FY20E
2.3
FY14
2.9
FY15
6.2
FY16E
3.9
FY17E
2.4
FY18E
Source: Company, MOSL
Source: Company, MOSL
10 November 2015
4

SITI Cable Network
Exhibit 15: SCNL - Key Operating Metrics
FY14
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 subscriber monthly metrics
Gross revenue
LCO share
Net revenue
Net content cost
Other cost
Total operating cost
EBITDA
2.2
1.5
0.3
4.0
6.0
10.0
193
175
160
150
165
FY15
2.3
1.6
1.5
5.4
5.1
10.5
199
184
160
161
172
4
76
55
16
8
31
32
24
20
3
10
172
142
31
3
22
25
6
FY16E
2.4
1.6
5.0
9.0
1.5
10.5
198
184
160
172
176
2
79
58
16
8
34
11
27
21
5
15
176
142
34
5
20
25
9
FY17E
2.4
1.7
6.5
10.6
0.2
10.8
218
202
176
184
190
8
96
93
53
8
65
92
47
20
26
40
FY18E
2.5
1.8
6.8
11.0
0.0
11.0
240
222
194
197
209
10
132
111
87
8
100
54
57
19
38
37
63
40
16
8
23
20
19
1
3
165
142
23
1
20
21
2
190
209
125
108
65
100
26
38
20
20
47
58
18
43
Source: Company, MOSL
10 November 2015
5

SITI Cable Network
Exhibit 16: SCNL - Key Financial Metrics
FY14
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
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
9.1
30
1.4
22
15.2
0.8
143
8.5
2.9
32
1.5
1.4
1,300
21.2
3.8
5.4
0.6
2.5
0.6
9.1
FY16E
11.6
28
3.2
135
27.9
1.3
64
10.9
6.2
53
3.9
3.6
1,250
FY17E
15.4
34
3.9
19
25.0
2.6
108
17.1
3.9
25
2.0
1.6
1,250
FY18E
20.4
32
6.6
72
32.6
6.0
129
29.6
2.4
12
0.9
0.4
1,250
22.1
24.3
27.4
4.3
8.3
13.2
6.0
10.1
15.0
2.0
1.2
0.6
2.7
2.6
2.5
0.9
1.5
2.3
11.6
15.4
20.4
Source: Company, MOSL
10 November 2015
6

SITI Cable Network
Financials and valuations (Consolidated)
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 (%)
2012
3,428
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
9,059
29.9
7,685
1,374
15.2
21.8
1,328
46
1,209
311
-852
167
-19.6
-1,019
72
-1,091
-1,091
NA
2016E
11,572
27.7
8,340
3,231
27.9
135.2
1,756
1,476
1,372
199
303
83
27.5
220
26
194
194
NA
2017E
15,448
33.5
11,591
3,857
25.0
19.4
2,272
1,585
1,223
108
470
87
18.6
382
50
333
333
71.3
(INR Million)
2018E
20,361
31.8
13,723
6,637
32.6
72.1
2,591
4,046
1,155
108
2,998
92
3.1
2,907
378
2,529
2,529
660.2
(INR Million)
2018E
678
9,426
-5,241
4,863
1,131
10,658
2,910
101
19,662
27,454
12,328
330
15,457
16
13,036
5,587
1,337
6,111
8,846
4,469
4,378
4,189
19,662
3,691
-263
-7.7
304
-567
566
214
-919
30
-3.3
-949
-35
-913
-913
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
E: MOSL Estimates
10 November 2015
2012
453
4,200
-5,480
-827
100
4,480
28
2
3,784
4,025
2,182
123
1,966
18
3,655
778
1,483
1,395
1,855
1,357
498
1,800
3,784
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
-8,275
1,829
678
13,470
837
101
16,914
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
16,914
2016E
678
9,426
-8,103
2,002
703
12,643
947
101
16,395
21,155
7,464
825
14,515
16
8,543
2,975
1,337
4,230
6,679
3,419
3,260
1,863
16,395
2017E
678
9,426
-7,770
2,334
753
13,633
1,846
101
18,666
25,035
9,736
330
15,629
16
10,548
4,128
1,337
5,083
7,527
3,748
3,779
3,021
18,666
7

SITI Cable Network
Financials and valuations (Consolidated)
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
Turnover Ratios
Debtors (Days)
Asset Turnover (x)
Leverage Ratio
Net Debt/Equity (x)
2012
-2.0
-1.3
-1.6
0.0
0.0
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
2016E
0.3
2.9
4.0
0.0
0.0
2017E
0.5
3.8
4.6
0.0
0.0
2018E
3.7
7.5
8.8
0.0
0.0
-17.5
29.2
103.6
4.7
5.3
11.8
3,295
-19.6
90.5
24.0
42.7
3.6
3.9
8.5
3,152
110.4
11.0
10.9
27.7
3.0
3.7
7.9
3,350
64.4
8.2
9.4
13.7
2.3
2.5
6.9
3,337
8.5
4.2
5.0
5.5
1.6
1.7
3.6
3,000
-50.2
-1.1
-0.7
-55.9
-2.0
7.5
8.7
11.5
8.7
55.7
24.2
83
3.46
75
1.08
102
0.83
132
0.85
94
0.95
98
1.11
100
1.42
-4.1
-14.8
6.6
3.6
4.2
4.0
1.6
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
2012
2013
724
140
-864
-20
-1,793
-1,812
-3,801
2
0
-3,799
808
4,614
0
5,422
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
1,374
311
-1,209
-89
382
768
-2,889
0
-99
-2,988
2,212
797
19
3,028
808
3,529
4,337
2016E
3,231
199
-1,372
-83
1,202
3,178
-5,329
0
0
-5,329
0
-827
0
-827
-2,978
4,337
1,359
(INR Million)
2017E
2018E
3,857
6,637
108
108
-1,223
-1,155
-87
-92
-259
-104
2,396
-3,386
0
0
-3,386
0
990
0
990
0
1,337
1,337
5,394
-2,419
0
0
-2,419
0
-2,975
0
-2,975
0
1,337
1,337
Inc/(Dec) in Cash
-189
Add: Opening Balance
1,483
Closing Balance
1,294
E: MOSL Estimates; * Based on attributable EBITDA and subs post minority stake
10 November 2015
8

SITI Cable Network
Corporate profile: SITI Cable Network
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 17: Sensex rebased
Exhibit 18: Shareholding pattern (%)
Sep-15
Promoter
DII
FII
Others
66.0
7.6
13.9
12.5
Jun-15
66.0
7.8
12.7
13.4
Sep-14
72.8
2.3
7.9
17.0
Exhibit 19: Top holders
Holder Name
HDFC Trustee Company Ltd A/c HDFC Equity Fund
Morgan Stanley Asia (Singapore) Pte
Polus Global Fund
Swiss Finance Corporation (Mauritius) Ltd
DSP Blackrock Micro Cap Fund
Citigroup Global Markent Mauritius Pvt Ltd
% Holding
5.1
3.6
2.2
1.9
1.7
1.1
Note: FII Includes depository receipts
Exhibit 20: Top management
Name
V D Wadhwa
Vinay Chandok
Anil Jham
Designation
CEO
COO Operations
CTO
Exhibit 21: Directors
Name
B K Syngal
Vinod Kumar Bakshi
Suresh Kumar Agarwal
Name
Subodh Kumar
Kavita Kapahi
*Independent
Exhibit 22: Auditors
Name
Walker Chandiok & Co LLP
Type
Statutory
Exhibit 23: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
FY18
MOSL
forecast
0.3
0.5
3.7
Consensus
forecast
-
-
-
Variation
(%)
-
-
-
10 November 2015
9

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