30 May 2017
4QFY17 Results Update | Sector: Media
SITI Network
Neutral
BSE SENSEX
31,159
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
9,625
SITINET IN
Re-aligning Phase III/IV monetization expectations; Maintain Neutral
872
Operational performance below expectations
27.4 / 0.4
EBITDA (ex-activation) misses estimates:
Consol. EBITDA grew 5% QoQ to
41 / 30
INR580m (est. of INR669m). EBITDA (ex-activation) grew 16% QoQ to
-15/-31/-35
INR96m (est. of INR127m), led by higher content payout. Opex grew 10%
17.2
26.4
QoQ to INR2.67b (est. of INR2.42b). Net losses increased significantly QoQ
CMP: INR31
TP: INR36 (+14%)
Financials & Valuations (INR b)
2016
2017E 2018E
Y/E Mar
Net Sales
11.9
15.1
17.9
EBITDA
2.0
3.5
4.7
EBITDA#
0.3
1.6
3.8
PAT
-1.6
-0.5
0.1
EPS (INR)
-1.8
-0.5
0.1
Gr. (%)
NM
NM
NM
BV/Sh (INR)
7.2
6.6
6.7
RoE (%)
-23.5
-7.8
1.5
RoCE (%)
-4.1
1.3
4.0
EV/EBITDA
20.6
12.6
9.5
EV/EBITDA#
127.4
27.4
11.8
EV/Sub (INR)
3,156
3,387 3,414
* Based on attributable EBITDA and subs post minority
stake
# (ex-activation)
Estimate change
TP change
Rating change
to INR649m (est. of INR323m).
Subscription up 9% QoQ, exceeds expectations:
Subscription income grew
9% QoQ to INR1.6b (3% above est. of INR1.55b) as Phase III monetization
picked up. Carriage revenue surprised positively (+9% QoQ) as negative
arbitrage v/s peers narrowed down.
Phase I collections stagnant; broadband disappoints:
Phase I collections
remained largely stagnant at INR105 (v/s INR103 in 3Q). Phase II collections
improved from INR78/subscriber/month to INR82. Phase III/Phase IV
collections stood at INR50/INR25 per sub per month. Broadband revenue
grew 3% QoQ to INR0.27b (est. of INR0.29) as competitive pressure from
RJio kept subscriber additions weak. SITINET added 15k broadband (BB)
subscribers in 4Q, taking the total to 228k.
Box seeding remained healthy; in-line:
SITINET seeded 0.8m set-top boxes
in 4Q (in-line). Management expects to seed ~3m boxes in FY18. We believe
SITINET would exit FY18 with 12m digital subscribers.
FY17 capex at ~INR5b; STB inventory at 1m:
SITINET incurred capex of
INR5b in FY17 and holds an inventory of ~1m set-top boxes.
Re-aligning Phase III/IV monetization expectations; maintain Neutral:
We
expect digital subscriber base to increase from 10m in FY17 to 12.1m in
FY19. SITINET trades at EV/EBITDA (ex-activation/minorities) of 27.4x/11.8x
FY18E/FY19E. We have cut our EBITDA estimates significantly for FY18/FY19
to re-align our Phase III/IV monetization expectations. Maintain
Neutral
with
a revised DCF-based price target of INR36 (earlier INR40).
(INR Million)
FY16
2Q
2,339
6.7
1,943
395
-4.0
16.9
367
348
87
-233
35
-14.9
-315
3Q
3,440
55.2
2,486
954
97.8
27.7
391
351
49
262
2
0.8
147
4Q
3,389
32.4
2,572
818
769.6
24.1
538
357
70
-7
7
-101.3
-15
1Q
2,820
22.7
2,395
425
23.5
15.1
547
297
49
-370
65
-17.7
-536
FY17
2Q
2,890
23.6
2,416
473
19.7
16.4
572
280
24
-355
22
-6.1
-469
FY16
3Q
4QE
2,985 3,255
-13.2
-4.0
2,434 2,676
550
580
-42.4 -29.1
18.4 17.8
625
667
360
338
71
115
-364 -310
-30
135
8.1 -43.6
-263 -649
11,890
8900
2,990
25.1
1,632
1,378
240
220
131
59.6
-16
FY17E
11,949
9,921
2,028
17.0
2,412
1,274
259
-1,399
193
-13.8
-1,792
Quarterly Performance (Consolidated)
Y/E March
Sales
YoY (%)
Operating Expenses
EBITDA
YoY (%)
EBITDA margin (%)
Depreciation
Interest
Other Income
PBT
Tax
Effective Tax Rate (%)
Reported Net Profit
1Q
2,297
9.9
1,953
344
0.5
15.0
358
344
24
-334
5
-1.6
-367
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.
Jay Gandhi
(Jay.Gandhi@MotilalOswal.com); +91 22 6129 1546
Aliasgar Shakir
(Aliasgar.Shakir@motilaloswal.com); +91 22 3982 5423

SITI Network
Exhibit 1: Summary of estimate change (INR b)
FY18E
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 (%)
9.1
7.9
-13.1
14.9
15.1
1.1
4.1
3.5
-13.8
3.3
1.6
-50.5
0.0
-0.5
NM
FY19E
11.7
10.6
-9.7
18.7
17.9
-4.6
6.3
4.7
-25.4
5.6
3.8
-31.9
1.1
0.1
-92.1
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
Digital subs and revenue break-up
Digital Subs (m)
Subscription revenue
Carriage revenue
Activation revenue
Broadband revenue
Other operating revenue
4QFY16
3,389
2,572
1,833
180
558
818
24.1
213
6.3
538
70
357
-7
-2
7
-14
2
-15
7.9
1,109
634
605
159
882
3QFY17
2,985
2,434
1,444
191
800
550
18.4
82
2.8
625
71
360
-364
0
-30
-335
-71
-263
9.2
1,475
726
468
259
56
4QFY17
3,255
2,676
1,674
244
757
580
17.8
96
2.9
667
115
338
-310
202
135
-446
1
-649
10.0
1,600
790
484
266
115
YoY (%)
-4
4
-9
35
36
-29
-26
-55
-334bps
24
64
-5
4322
1801
3054
-44
4316
27
44
25
-20
67
-87
QoQ (%)
9
10
16
28
-5
5
-3
16
18bps
7
63
-6
-15
-558
33
-102
146
9
8
9
3
3
104
4QFY17E
3,088
2,419
1,451
200
768
669
21.7
127
4.1
657
50
356
-293
0
47
-340
-17
-323
10.0
1,549
653
542
294
50
vs est (%)
5
11
15
22
-1
-13
-386bps
-25
-118bps
1.6
130.6
-5.0
5.8
187.6
NM
-107
NM
0.0
3.3
20.9
-10.7
-9.5
130.4
Source: Company, MOSL
30 May 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
Exhibit 4: India Pay TV subscription revenue split (INR b)
Digital Cable ARPU (INR)
263
210
165
210
284
229
181
231
312
252
208
254
343
277
240
280
Source: MOSL
Source: MOSL
Exhibit 5: India: TV and C&S households (m)
Exhibit 6: C&S connections mix: Analog v/s Digital (%)
Source: MOSL
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
75m net sub adds
Source: MOSL
30 May 2017
3

SITI Network
Story in charts
Exhibit 9: FY16 revenue break-up
Exhibit 10: FY18 revenue break-up
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: Net subscription revenue (INR b)
Exhibit 12: EBITDA ex-activation/one-offs (INR b)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 13: Capex and Capex/sales (INR b, %)
Exhibit 14: FCFF (INR b)
Source: Company, MOSL
Source: Company, MOSL
30 May 2017
4

SITI Network
Exhibit 15: SITINET - Key Operating Metrics
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
FY14
2.2
1.5
0.3
4.0
6.0
10.0
193
175
160
150
165
63
40
16
8
23
20
19
1
3
165
142
23
1
20
21
2
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
5
FY16
2.2
1.5
4.2
7.9
4.3
12.2
198
184
160
172
176
2
79
53
12
8
29
-4
26
19
7
25
176
146
29
7
17
24
5
FY17
2.0
1.6
6.4
10.0
3.2
13.2
237
221
184
160
190
8
102
79
35
8
35
19
33
20
14
38
190
155
35
14
21
35
1
FY18E FY19E FY20E
2.1
1.6
8.4
12.1
1.1
13.2
236
221
184
160
193
1
102
82
40
8
50
42
38
19
19
39
2.2
1.6
8.9
12.7
0.5
13.2
248
227
190
160
202
5
112
91
57
8
67
34
43
19
24
36
2.2
1.6
9.3
13.1
0.1
13.2
261
234
195
160
210
4
130
101
68
8
81
21
49
19
30
37
193
202
210
143
135
129
50
67
81
19
24
30
23
23
21
42
47
51
8
20
30
Source: Company, MOSL
FY20E
21.5
20
6.6
39
30.6
5.8
52
27.0
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
FY15
9.0
30
1.4
20
15.0
0.7
135
8.3
FY16
11.9
32
3.0
121
25.1
0.9
14
7.2
FY17 FY18E FY19E
11.9 15.1 17.9
1
26
19
2.0
3.5
4.7
-32
75
34
17.0 23.5 26.5
0.3
1.6
3.8
-62
397
134
2.7
10.8 21.3
2.3
2.9
6.1
5.4
5.2
3.3
3.5
33
32
51
46
34
18
16
1.6
1.5
2.9
2.4
2.5
1.1
1.0
1.6
1.4
2.6
2.1
2.1
0.6
0.4
1,200 1,300 1,681 1,770 1,100 1,250 1,250
19.9
2.8
3.4
0.8
2.3
0.5
7.0
21.2
3.8
5.4
0.6
2.5
0.6
9.0
23.9
4.0
5.6
2.1
2.6
1.6
11.9
29.1
5.4
5.7
1.7
3.0
1.6
11.9
30.5
7.9
7.9
1.9
3.0
2.2
15.1
32.0
10.6
10.6
0.9
3.0
3.3
17.9
33.3
12.9
12.9
0.8
3.0
4.9
21.5
Source: Company, MOSL
30 May 2017
5

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
11,949
0.5
9,921
2,028
17.0
-32.2
2,412
-384
1,274
259
-1,399
193
-13.8
-1,592
-2
-1,590
-1,590
-46,886.7
2018E
15,072
26.1
11,528
3,543
23.5
74.7
2,763
780
1,280
161
-339
202
-59.6
-541
-70
-471
-471
-70.4
(INR Million)
2019E
17,886
18.7
13,155
4,731
26.5
33.5
3,175
1,556
1,398
150
309
212
68.7
97
13
84
84
-117.9
(INR Million)
2019E
873
14,608
-10,494
4,987
863
18,835
6,466
120
31,270
35,463
15,689
4,111
23,885
51
14,469
5,390
1,500
7,579
7,144
5,062
2,082
7,325
31,270
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
873
14,608
-10,107
5,373
920
15,696
3,276
120
25,385
27,034
9,751
4,111
21,395
51
9,934
3,631
1,707
4,596
6,012
4,087
1,925
3,922
25,385
2018E
873
14,608
-10,578
4,902
850
18,432
4,812
120
29,116
32,197
12,514
4,111
23,794
51
12,106
4,542
1,500
6,064
6,843
4,842
2,001
5,263
29,115
30 May 2017
6

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
2017
-1.8
0.9
7.2
0.0
0.0
2018E
-0.5
2.6
6.6
0.0
0.0
2019E
0.1
3.7
6.7
0.0
0.0
-17.4
49.1
32.7
116.0
5.3
6.0
11.7
3,689
-19.1
99.6
27.3
49.2
4.1
4.4
8.6
3,528
7,492.7
15.3
11.9
41.6
3.0
3.6
3.5
2,899
-17.3
33.4
20.6
127.4
3.5
4.1
4.4
3,156
-58.3
12.0
12.6
27.4
3.0
3.4
4.8
3,387
325.8
8.4
9.5
11.8
2.5
2.7
4.7
3,414
-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
-23.5
-4.1
-3.0
111
0.82
-7.8
1.3
6.2
110
0.75
1.5
4.0
2.3
110
0.84
-14.8
6.6
3.7
1.1
2.2
2.9
3.0
(INR Million)
2019E
4,731
150
-1,398
-212
-408
2,864
-3,266
0
0
-3,266
0
403
0
403
1
1,500
1,500
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
2017
2,028
259
-1,274
-237
-2,612
-1,836
-9,474
-35
0
-9,509
751
4,240
117
5,108
-6,237
3,728
1,707
2018E
3,543
161
-1,280
-202
-12
2,210
-5,162
0
0
-5,162
0
2,736
0
2,736
-216
1,707
1,500
30 May 2017
7

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 (%)
Mar-17
Promoter
DII
FII
Others
73.6
5.5
12.5
8.4
Dec-16
71.0
6.1
13.8
9.1
Mar-16
71.0
6.2
13.1
9.7
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Morgan Stanley Asia (Singapore) PTE
HDFC Trustee Company Limited-HDFC Equity
Fund
Swiss Finance Corporation (Mauritius)
Limited
Polus Global Fund
DSP Blackrock Micro Cap Fund
% Holding
3.8
3.7
1.5
1.4
1.4
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)
FY18
FY19
MOSL
forecast
-0.5
0.1
Consensus
forecast
-
-
Variation (%)
-
-
Source: Bloomberg
Source: Capitaline
30 May 2017
8

SITI Network
NOTES
30 May 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
Motilal Oswal Securities Ltd
30 May 2017
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
10