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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.
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.