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Saturday, June 18, 2011

Dish TV sees Arpu, subscriber base rising this fiscal

This news story first appeared in DNA Money edition on Thursday June 16, 2011.

Dish TV India, the country’s leading direct-to-home broadcaster, sees its average realisation per user (Arpu) rising this fiscal as it takes price increases and expands subscriber base. With its Arpu rising to Rs150 in the fourth quarter of the last fiscal from Rs142 in the preceding third quarter, Dish TV is keen to increase the realisations this year, too. It is understood to have given an Arpu guidance of Rs160-165 for this fiscal.

Also, the company has set a target of adding 3.3-3.5 million subscribers this fiscal after expanding the subscriber base by 3.5 million last fiscal.

Experts said the company’s business outlook for this fiscal has improved considerably owing to strong subscriber additions and hike in subscription price by Rs5-25 in May 2011. Also, the content costs would be almost fixed with just one contract coming up for renewal this fiscal.

Analysts said based on the subscriber addition and Arpu forecast, the company will be in a position to turn a net profit and become free cash flow positive by the fourth quarter.

Nitin Mohta and Atul Soni, analysts with Macquarie Capital Securities India (Pvt) Ltd, said the company) is fast approaching the inflection point on net profit and cash flow and should achieve these milestones this fiscal.

“We have raised the Arpu forecast by 4% in fiscal 2012 and another 4% for fiscal 2013. The management has announced another round of hike in subscription packages last month and we expect it to get fully reflected in the second quarter this fiscal,” said the analysts in their latest report.

They, however, see average realisation at Rs155 for this fiscal. “We believe small but regular price upticks, as done in May, would help the company to meet our forecasts,” the Macquarie report said.

Last February Dish TV launched a high definition (HD) service offering 35 channels at a monthly subscription of Rs450-550. As a result HD’s contribution to the company’s monthly additions improved to 7% as against less than 1% in the thirdquarter.

Targeting customers with HD TVs willing to subscribe to premium packages will have a favourable impact on the Arpu in the current fiscal, experts said.

The DTH industry will see an overall addition of 10-12 million subscribers this fiscal. “Dish TV is likely to have the highest market share of over 25%. As sales increase considerably, we envisage a reduction in their content cost as a percentage of revenues from 39% to 30% in fiscal 2012,” said Rahul Kundnani, analyst, SBICAP Securities Ltd.

The growing DTH subscriber base is led by rising income levels, increasing consumer awareness, a sports heavy calendar in 2011 and lower entry prices for new connections.

For Dish TV, Nupur Agarwal, analyst with UBS Investment Research, said the spurs are in the form of strong financial and operating performance, implementation of mandatory digitisation and likely reduction in licence fee.

“We believe receipt of pending government approval regarding implementation of mandatory digitisation in India is likely to be a catalyst for Dish TV as it could accelerate DTH subscriber growth. DTH is a heavily taxed industry in India, paying service tax of 10.3%, licence fee of 10% on gross revenue, entertainment tax, 5% import duty on set-top boxes, income tax or minimum alternate tax as and when the company starts generating profit before tax. We believe rationalisation of the tax structure or implementation of GST could act as a catalyst,” said Agarwal.

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