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Dish TV 10 bagger stock

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Dish TV – A 10 bagger in the making

When you hear that Dish TV stock is a 10 bagger in the making and howl in protest, it is fully understandable. Dish TV is part of Subash Chandra’s Essel Group well known for its poor governance record. You might protest that no one has ever made money investing in these companies. In fact investors have only lost money in Essel group stocks. Hold on. It will soon no more be an Essel Group company. There are new owners, a new board of directors and the prospects are very exciting.

First a quick business recap. Dish TV is India’s second largest DTH company with 2 crore subscribers. It is an incredible franchise and makes Rs2400 crore in EBITDA annually. The EBITDA margins are an incredible 61%. It has deep moats and is a growth business. It has two competitors – OTT content and Cable TV. OTT content is unaffordable to the masses. A combination of Netflix and a few other subscriptions along with a month fibre broadband connection costs Rs2500 per month. Dish TV’s monthly ARPU is a meagre Rs150. Dish TV also dominates the Hindi hinterland and rural areas where both affordability and fibre availability are decades away. Cable TV has many issues in terms of technology interface, customer service, frequent breakdowns and lesser content choice. There are still 10 crore cable subscribers in India and 5-7% of these customers are annually converting to DTH.

Now, a recap of the Essel group issues. The Essel promoters pledged the shares of Dish TV to fund its infrastructure businesses. These businesses ran into trouble and the banks have invoked the pledges and taken control of the shares of Dish TV. The promoter stake has come down from 57% in 2019 to a mere 6% today, and even that is substantially pledged. Today, Yes Bank has 25.5%, HDFC has 4.75%, IndusInd bank has 3.78% and smaller creditors control another 11% of the company. The promoters have been controlling the company with an effective stake of less than 3%.
This is where the governance problems began to get more serious. Dish TV in an unusual move for a content distribution company, decided to get into content production. They started an OTT platform called Watcho and diverted large funds to it (If you haven’t heard of Watcho, don’t worry. Nobody I know has heard of it either). These funds diversion has been unexplained and the company stopped investor calls abruptly in 2019. The auditors have qualified these diversions. They have pointed to the unexplained intangible assets under development of Rs550 crore and capital advances of Rs693 crore in FY21 besides many other similar significant qualifications in the previous years.
The promoters did not stop here. They decided they need a higher stake in the company to continue to plunder unchecked. They announced a rights issue of Rs1000 crore at par. They bet that given the poor experience of investors in their group, nobody will subscribe to the rights and they, with the help of their Dalal Street cronies can corner a controlling stake in the company as mentioned in an article today in Mint newspaper (Why Yes Bank wants to get a new owner for Dish TV)

The Indian banks led by Yes Bank and HDFC woke up to their plans and objected to this blatant attempt to dilute them and their claims. Yes Bank has written to the Dish TV board asking for the removal of the entire board of directors and to replace them with a new board (BSEINDIA)

Yes Bank is proposing to replace the current board with a very reputed board. The name that struck me first is Girish Paranjpe, the ex CEO of Wipro. You don’t get to be the CEO of Wipro without a combination of very high integrity and knowing how to fix businesses. There is Vijay Bhatt a highly reputed retired senior partner at KPMG. There is Haripriya Padmanabhan whom I Googled and found out to be a very reputed Supreme Court lawyer who has been part of some very landmark cases. The list goes on. My bet is this board will fix the governance issues, bring new management and report true numbers.

This is what makes Dish TV a very exciting story. Look the numbers for a minute. Dish TV has a market cap of Rs2700 crore. It makes an EBITDA of Rs2500 crore and has negligible debt. Dish TV’s EBITDA margins are 61% which is much lower than the 69% of Airtel DTH and 71% of Tata Sky indicating either fund diversion or mismanagement. Assuming a 5% growth and an improvement of EBITDA margins to 65%, this business should report a Rs3500 crore EBITDA in the next 2 years. The stock trades at 0.8x EV/EBITDA. Bharti, in February bought a stake in Airtel Dish from Warburg Pincus at 8X EV/EBITDA. Assuming Dish gets traded at 8X EV/EBITDA in 2 years, that is a market cap of Rs28,000 crore which is the ten bagger. If Yes Bank, HDFC and Girish Paranjpe were to work this out and sell to a global strategic player, the upside could be much more.

This is also a testament to the new India where banks are fighting for their rights. In the past, promoters would have gotten away with this. With IBC and other reforms, the Modi government has sent the right message to banks and promoters. By prosecuting Vijay Mallya and other unscrupulous businessmen, the government has sent the message of zero tolerance to the markets. Kudos to Yes Bank, HDFC and other creditors for fighting for their rights and protecting minority shareholders.

Risk:

Competition risk. Tata sky and Airtel are doing much better and their management is better than the current dish tv management.

Market change - in metro cities Alot of people have switched from Television to OTT platform.

Market risk - like any other stock Dish tv also has a market risk involved.

Failure to raise new funds - even though the company has does a Rs.2000 crore of EBITDA every year. It needs need funds to remain in competition.

If YES bank fails to change the BOD in Dish TV, then the stock will come back to where it was.

I think the will easily change the board because they are the majority shareholders now and the current promoters can’t stop this from happening in my view.

Disclosure: invested at lower levels.

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What has happened to the attempted dilution ? Is it cancelled for good?

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Thanks for the analysis.
what is the reason other income is negative?

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Yes. The promoters wanted to raise 1000 crores right issue without asking anyone because they needed a higher stake.

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That’s the goodwill amortization of Videocon.

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Thanks for bringing this up. It will be an interesting situation in terms of corporate governance.

  1. Original promoters have 5.9% stake now.
  2. Largest shareholder (Yes Bank) with 25.6% stake has sent notice for removal of five directors (including CMD) out of six directors at the AGM to be held on 27-Sep-21. It has proposed 7 new directors to be appointed at the AGM.
  3. Dish TV (DTIL) has responded as follows:
    It will be obligatory on the part of the company to take prior permission from the Ministry of Information & Broadcasting before effecting any change in the CEO/ Board of Directors…
    In case the said approval of the MIB is not received within the statutory timelines, then the Company shall not be in a position to place your proposal at the ensuing Annual General Meeting of the Company…"
  4. If the resolution is not placed at the upcoming AGM, then Yes Bank can ask for Extra-ordinary General Meeting to be held with a notice of 21 days.
  5. Number of votes in favour of resolution should be at least 75%.

Question to ponder is whether the promoter will try to drag the process and will there be further shenanigans in the interim while being pushed out.

BTW, in Zee Entertainment Enterprises, the same promoter family has only 4% stake now. MD who is son of the promoter continues to run the show.

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It is 94% vs 6%. The stock can easily be a 3 bagger if they get the votes and it can come back to 14 Rs if they dont.

94% chances of the stock getting a 3 bagger vs 6% chance of losing 25%. This is the probability.

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On the whole a good idea regarding companies that are getting a management change,hopefully it will workout well.

Though there is a lawsuit against the company for license fee to the tune of 4000 crore ,which can lead to depressed valuations if the court votes against the company,most likely a valuation of 6 EVEBITDA.

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The article is beyond paywall, but will be helpful to understand the valuation perspective : -

Assuming mgmt change plan fructifies, shouldn’t a better way to value this is on ARPU multiple vis-a-vis Tata sky. Of course, Tata Sky might command better valuation initially.

Disclosure : - not invested. Studying it as a special situation bet.

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Dish TV might have a lower ARPU than Tata sky. I dont think ARPU is the best multiple to value this. You can have lowest ARPU and get volume or other wise. I dont care much about ARPU.

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I had mentioned this in the thread.

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One is reminded of Satyam Computers.

CNBC-TV18 report:
Yes Bank “strongly suspects” that certain investments made by Dish TV are “dubious”.
Yes Bank is concerned about Dish TV’s Rs 1,378 crore investment in OTT platform Watcho
The lender suspects that certain related party transactions are unreported by Dish TV, and wants to conduct a forensic audit on the nature of the investments
The bank is of the view that the Dish TV management is not cooperating on information disclosure.

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IMO this is positive for shareholders because if this is true and I believe it is true, Yes bank has a strong case against the current promoters which should give more confidence to the market participants that the time is up the current promoters.

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You can disable javascript in your browser settings for mint.com to get through the paywall. :slight_smile:

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Latest from DishTV board - Attempt to postpone the AGM

The Board of Directors of the Company have today approved making requisite applications as per provisions of the Companies Act for seeking extension of time under applicable regulatory provisions for convening the Annual General Meeting of the Company which is presently scheduled to be held on September 27, 2021, so that the Company has sufficient time to evaluate, analyze and to ensure compliance of all applicable regulatory, and other approvals as required by the law and avoid any non-compliance to contractual obligations.

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e voting for DISH TV has started on 23rd and will end at 26th. Please vote.

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AGM Postponed.

Meanwhile, Yes bank has reportedly sent notice to the company to hold an EGM to replace the directors.

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They are generating good cashflows ,why do you think they need to raise funds? company will be debt free next year giving them more cash saving as they dont need to pay interest and debt .

one thing that is hurting the bottomline is the goodwill amortisation which is 2200 cr is it zero or does it have some value?

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