Re: {LONGTERMINVESTORS} Den Networks - Thread
Rajesh Desai
3QFY13 Results Review - Antique
Den Networks Limited - "Cash flows" to commence from 4Q; reiterate BUY
Den Networks Ltd. (Den) reported an inline 3Q. Revenues improved 13% QoQ to INR2.4bn led by higher activation (hardware) and subscription revenues. 3Q also reflected steady progress by MSOs - set top boxes seeding is done with and billing has been also commenced. Cash flows to MSO likely to commence from 4QFY13e. 4Q should also reflect the full impact of Phase I digitalisation and we expect recurring EBITDA of at least INR560m (excluding hardware) from 4Q onwards which should help rerate the stock. Management commentary on Phase II is quite encouraging and undue delay is unlikely in our view. We raise FY14E earnings by 15% to factor lower churn in Phase II and raise our DCF led target prices to INR252. Reiterate BUY.
Results highlights
Inline quarter
Consolidated revenues for 3QFY13 stood at INR2.4bn, up 13% QoQ. EBITDA for the cable business grew 26% QoQ to INR545m led by higher activation fees and increase in subscription revenues. Cable business EBITDA margin expanded 246bps QoQ to 23%. Consolidated PAT stood at INR172m (+10% QoQ) which includes unrealised forex loss on buyers credit (INR55m) as against a gain of INR50m reported in the previous quarter.
Mumbai, Delhi and now Kolkata to go digital by month end
Phase I (Metro markets) implementation has been much smoother than expected. Till date, Den has seeded around 1.8m digital boxes in Metros including 1.3m in Delhi, 0.3m in Mumbai, and 0.2m in Kolkata. Management highlighted that contrary to media reports, nearly 85% of Kolkata households (HHs) have been digitalised and it expects the city to be fully compliant by month end. In Kolkata, multi service operators (MSOs) have already switched off majority of the channels to ensure complete digitisation. Over the next one month, management expects to cross over 2m digital subscribers in Metros. This includes potential addition from second TV set as well.
Phase II: Government keen on meeting deadlines
Management highlighted that Phase II (38 cities) is on track and likely to roll out from April 2013. I&B ministry is keeping a tight control over roll out of Phase II and likely to monitor progress on weekly basis vs. every ten days currently. Key initiatives launched recently includes launch of media awareness program in nine languages and a one day interactive workshop arranged for all the nodal officers (from 38 cities) to interact with the stakeholders. Given the scale of implementation, we have still assumed a six month delay in our assumptions. Den has a strong presence in Phase II locations like Meerut, Bangalore, Agra, Kanpur, etc., with 4m subscribers and has already procured STB for a million subscribers. Demand from LCOs continued to remain strong as per the management.
Valuation and outlook
We expect number of paying subscribers to increase from ~2.4m to 6.1m (vs. ~5.9m earlier) by 2QFY14e (full impact of Phase II). While revenues/EBITDA likely to jump ~2x during FY13-15e, earning trajectory is expected to be strong beyond FY15e with full impact likely to be realised in FY16e. We raise our target prices to INR252 led by DCF valuations. Reiterate BUY.
Den Networks has reported results for third quarter ended December 31, 2012.
On the consolidated basis, the company has posted growth of over four-fold in its net profit at Rs 17.17 crore for the quarter ended December 31, 2012 as compared to Rs 3.53 crore for the same quarter in the previous year. However, the total income also has decreased by 14.77% at Rs 237.13 crore for quarter under review as compared to Rs 278.22 crore for the quarter ended December 31, 2011.
The company currently offers up to 180 channels through its digital platform compared with up to 100 channels on its analog platform. This allows it to offer a wider range of channels and as a result it can cater to a wider variety of genres and demographics
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CA. Rajesh Desai
Rajesh Desai
The Ministry of Information and Broadcasting (I&B) has given approval to DEN Networks for $110 million investment from Goldman Sachs which will help the company to clear off its debt which stands at approximately Rs 200 crore.
After the clearance, the company will now be well funded sitting on a cash pile of approximately Rs 500 crore. This cash infusion is expected to help the company fund its digitization expansion and implement its broadband services.
CA. Rajesh Desai