Dish TV India's open offer an exit opportunity; stock gains over 8%

The offer by Dish TV India’s promoters to acquire about 500 million (26 per cent) shares of the company saw the stock gain over 8 per cent on Thursday. The mandatory open offer comes against the backdrop of the promoter groups’ stake rising beyond 5 per cent in a financial year after they bought 91.5 million shares from the open market and their proposed purchase of five million shares.

Since the offer price of Rs 74 apiece is at a 7-8 per cent discount to the current market price, it certainly does not make any sense for investors to subscribe.

However, given that Dish TV is facing competition amid technological transformation in the telecom space, which has also seen its stock price decline from nearly Rs 100 a year back to Rs 79.8 now, investors can rethink.

Dish TV’s April-December 2017 numbers also provide some reasons to believe so. While its top line fell 3.4 per cent during the period, earnings before interest, tax, depreciation and amortisation (Ebitda) margin contracted 607 basis points. Ebitda was down about 21 per cent year-on-year (y-o-y) to Rs 6.2 billion in the first nine months of FY18.

Average revenue per user (ARPU, a measure of a company’s revenue generation and growth ability per customer) declined 4.6 per cent y-o-y and 3.4 per cent sequentially in the December 2017 quarter to Rs 144. In fact, ARPUs have been on a decline from Rs 172 in FY15 to Rs 154 in FY17.

Some analysts are sceptical of an improvement in the company’s fundamentals in the long run, mainly due to high competition from mobile data service providers such as Reliance Jio, which are offering the internet services at rock-bottom rates, affecting the business of direct-to-home operators like Dish. 

“Given the technological transformation and the situation in the telecom sector, the mobile service providers are likely to offer value-added services with lower tariff to survive and protect their margins. This will take away the market of the companies like Dish TV,” said G Chokkalingam, founder and managing director of Equinomics Research & Advisory.

However, there is a brighter side, too. Some analysts are bullish on the stock primarily because of Dish TV’s merger with Videocon D2H, which is expected to provide synergies in terms of cost benefits (Rs 5.1 billion in FY19 and Rs 7.6 billion in FY20). “The synergy benefits are likely to help the company (the merged entity) to improve on the margin front. Even at 50 per cent of the synergy benefits, the company’s valuation looks attractive,” said Jinesh Joshi, analyst at Prabhudas Lilladher.

Against this backdrop, analysts suggest that patient investors with an appetite for risk can wait for some time (perhaps till the June 2018 quarter). This will enable them to understand whether the expected synergy benefits are playing out as desired. For others, it may be a good time to exit.


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