No correlation here. The bank is trying to recover its due. So, they might speed up the process
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Do you mean to say Dish TV will shut down if not bought by any other company? As per mkt rumors they had already got an offer for 20 rs. few years back.
the main point to be noted here is the high rates they offer for savings and FDs compared to other banks. In the financial world risk-return is always proportionate. To take equity risk on yes bank is still understandable but why do people take debt risk on yes bank when returns are so low? fail to understand.
@Shivacii
Sorry for over simplifying the post and giving hard numbers. I meant above 20 it seems to be overvalued and close to 15 the margin of safety is high. I also said 2x/3x so I don’t have 45 in my mind but 30 to 45. You see selling above and buying close to 15 was a good strategy at least for me it turned out good
@Aarti Dist tv in my view has a very low probability to shut down because it is debt free or going to be and second it has positive on an operational level. They constantly purchasing fixed asset and paying off debt. What I meant to say that if they don’t sell dish tv then you might loose money here. One notional loos and two opportunity cost . You will be stuck here for a long time because for them to get into growth phase will almost take 2yrs.
I think this explains why the stock fell on 27.09.22. Need to research a bit into the reason behind why L&T Finance and Uno Metals are selling stake.
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20% Upper circuit today
I think JC flower is going to settle but a large overhang in the stock of debt seems over and if ZEE and Sony merger goes through. I think the stock should rally from this price.
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DISH TV
Dhaval.Mehta80@proton.me
An emerging tech stock mistaken for an old economy play, Dish TV is a cheap but very complex investment case. But then high returns are seen in the stock markets for those who can unravel the complexity. If you can digest complex investments cases and that too that involves technology, distress debt and turnarounds, read on.
The media industry stands out as the one sector that has been conspicuously absent from the recent bullish trend on Dalal Street. This entire domain is perceived as being heavily impacted by the rise of streaming services and the prevalence of the internet. Whether it’s stalwart newspaper firms such as HT Media, television giants like Sun TV, cable providers such as Hathway, or multiplex enterprises like PVR, all find themselves trading at historically low valuations.
Despite the looming threat posed by technology, it’s important to recognize that not all players in the media sector will be equally affected. Certain traditional media companies may sustain their dominance for significantly longer durations than current market expectations suggest. Additionally, there is potential for transformation within the industry, with companies like Dish TV possibly evolving into cutting-edge technology entities poised for hyper growth.
Background
The promoters of Dish TV and Zee Entertainment, Subash Chandra and family, have been making headlines for all the wrong reasons over the past few years. They pledged their holdings in Dish and Zee to enter the infrastructure sector, a move that proved highly unsuccessful. By 2019, they had defaulted on their loans, leading to discontent among banks and minority shareholders, prompting efforts to change the management of both companies. Faced with the risk of losing their business empires, the promoters took drastic steps, including the widely reported merger of Zee with Sony to salvage their broadcasting interests. What remains less known is their resolution to settle outstanding debts with Yes Bank’s ARC, JC Flowers.
Dish Settlement terms with creditors
In August of this year, Subash Chandra signed a settlement deal with JC Flowers, offering to purchase their 26% stake in DISH TV for Rs1500 crores1. Stripping out the value of some residential properties and other small loans, the amount paid for the Dish TV shares works out to Rs1275 crores or Rs27 per share. According to the terms, the promoters are obligated to make an immediate payment of Rs250 crores with the remaining balance to be settled by March 31st, 2024. Since signing the agreement, the promoters have paid Rs200 crore and committed to settling the remaining Rs50 crores by the end of November.
1 https://www.business-standard.com/companies/news/subhash-chandra-to-settle-jc-flowers-debt-to-reclaim-dish-tv-report-123080800188_1.html)
Notably, JC Flowers will transfer the shares to the promoters only upon the successful completion of the final payment. Failure to fulfill the financial obligations by the specified date will result in the complete forfeiture of the initial Rs250 crore payment by the promoters.
As reported in various newspapers, the pivotal question arises: why did the promoters, who had steadfastly refused to pay for the past four years, suddenly wake up and settle? Their consistent position with bankers has been that the Direct-to-Home (DTH) business is on a decline and does not merit the valuation demanded by financial institutions. Notably, their prior best offer was Rs12 payable over five years. The intriguing aspect is understanding why they now perceive significant value in the company at Rs27 per share. Also, why the urgency in paying up?
There are a few reasons for the promoter’s urgency in paying up. Before we go into these reasons, it is important to illustrate why the markets are fundamentally mistaken in their apprehensions about Over-The-Top (OTT) services overshadowing DTH platforms.
It is not OTT but free DTH that is the problem
The chart above, sourced from a Bank of America media report on September 12, 2023, highlights a crucial insight. The combined viewership of Over-The-Top (OTT) programs like Netflix, Amazon Prime, Disney Hotstar, etc., represents only 20-22 million homes in a market comprising 210 million homes. Within this segment, 78% of users have acquired OTT subscriptions either for free or as part of bundled offers with their mobile connections, credit cards, or other subscriptions. Despite the significant attention and substantial losses incurred by OTT companies, penetration remains below 10% of TV households, with only a fifth of users paying for the services.
The primary reason for the limited penetration of OTT lies in the straightforward economics. A DTH connection, providing access to several hundred channels, costs a mere Rs200 per month (exactly
Dish TV’s Average Revenue Per User - ARPU). In contrast, a standalone broadband connection capable of delivering a few hours of streamed content daily in India costs at least Rs1000 per month. Additionally, the cumulative expense of various OTT subscriptions can range from Rs750-1000 per month. In a country where the per capita income is $2000, OTTs are ten times more expensive than their alternatives, contributing to a slow adoption rate. Furthermore, in a country like India, reliable broadband connections are seldom available outside of big cities, leading to 96% of OTT subscribers maintaining their DTH or cable connections.
If OTT is not a threat to DTH, then why have the number of subscribers declined? The answer lies in free DTH provided by Doordarshan, the government broadcaster. The decline in the number of DTH subscribers, despite OTT not posing a significant threat, can be attributed to the availability of free DTH services provided by Doordarshan, the government broadcaster. DTH services were first introduced in India by DISH TV in 2003, with subsequent entries from Tata SKY, Airtel, and Sun Direct in the following years. This shift was fuelled by the unorganized and technologically lagging nature of cable TV, marked by a cumbersome customer interface (all of which continue to exist). Over time, DTH providers successfully captured a significant market share from cable services, and before the onset of the Covid-19 pandemic, there was an annual migration of 5-7% of cable subscribers to DTH, making it a slow growing industry with a promising future.
However, the landscape changed dramatically with the advent of Covid-19. The Free DTH services offered by Doordarshan (DD Free Dish - Wikipedia), available to viewers since 2004, were initially met with limited interest as they primarily telecast Doordarshan channels along with a few free-to-air channels. The pandemic brought about a large-scale economic impact, particularly affecting the poor and leading to reverse migration. Many individuals moving back from cities opted to give up their paid DTH connections and instead chose the free Dish service upon returning to villages. The lockdown-induced unemployment further exacerbated the situation for the economically vulnerable. This surge in popularity for Free DTH added 35 million viewers, all at the cost of paid DTH viewers.
Notably, the migration from cable to DTH also came to a standstill during this period. Dish TV, with its focus on the deep Hindi and rural hinterlands, experienced more significant effects than Tata Sky, which is geared towards metro audiences. The confluence of economic challenges, reverse migration, and the availability of free DTH services played a pivotal role in the decline of DTH subscribers in this particular context.
The worst is over
Over the past six months, there has been a significant reversal in the trend, marked by the gradual recovery of the poor and rural economy from the disruptions caused by COVID. During the pandemic, numerous popular channels opted to provide their content on free dish platforms, aiming to compensate for the loss of subscribers in paid cable and DTH services by generating revenue through advertising on free dish. However, with the rural economy showing signs of recovery and advertisers not showing a strong inclination towards free dish, channels are swiftly withdrawing their content.
This year has already witnessed the exit of major channels like Star Utsav, Zee Anmol, Colors Rishtey, Sony Pal, and others have pulled out of free Dish.2 The acceleration of this trend is further propelled
2 This is not the first time this has happened. Post GFC till 2012, there was a stress in the rural economy leading to a surge in free Dish of Doordarshan. The numbers later collapsed and DTH regained the subscribers from
by Doordarshan’s decision to impose a fee, starting at a base price of Rs16 crore, for channels broadcasted on free dish. Dish TV’s second-quarter results, disclosed on November 9, 2023, indicate a substantial 41% increase in subscribers, signalling a reversal of the downward trend that commenced with the onset of the pandemic.
While it is clear that Direct-to-Home (DTH) services are on a recovery trajectory poised to gain momentum in the upcoming quarters, it is crucial to highlight information derived from the earlier presented BoA chart. This data reveals that there are currently 110 million households in India lacking television access, and a significant portion of these households is anticipated to acquire television ownership over the next decade.
Entertainment, as underscored by Nobel laureate Abhijeet Banerjee in his book, is considered a fundamental necessity in India, often prioritized even above children’s education and food among the economically disadvantaged3. As India experiences economic growth in the next decade, it is reasonable to assume that a substantial proportion of the 110 million households currently without television access will be able to afford television sets. The initial choice for many is likely to be DTH services, and the transition to Over-The-Top (OTT) services is expected to take decades.
Satellite Broadband Play
Now, back to why the promoters are in a hurry to settle their dues. The first reason is the opportunity in rural broadband. The cost of laying a kilometre of fiber for broadband is around Rs6 lakhs. For telecom companies, investing in broadband only makes economic sense if there is sufficient density and affordability. Even in the United States, 43% of the geographical area lacks fiber broadband and relies on 4G wireless. In India, major cities exhibit both density and affordability, but as one moves to smaller cities, affordability decreases. In rural areas, there is a scarcity of both density and affordability. While 5G was anticipated to offer a solution for fast and reliable broadband, even in South Korea, the first country to embrace 5G four years back, this expectation has not materialized (5G reality bites hard in South Korea | TelecomTV). This is where three satellite broadband companies—Elon Musk’s Starlink, Amazon (Amazon launches Project Kuiper satellite internet prototypes (cnbc.com), and OneWeb—enter the picture. Satellite broadband utilizes the same Ku band as DTH and requires location hardware, including a dish and reception box. A robust ground network is necessary for installation and service provision. Amazon, in collaboration with US listed Dish Network (no connection with Dish TV), has introduced unlimited plans in the United States at half the price of other broadband options (Can AT&T and Verizon escape managed decline?).
Bharti Airtel has invested till date Rs8500 crore in Oneweb, a British company aiming to provide Satellite broadband. The venture has attracted investments from some of the big names including Softbank, Hughes Network and Eutelsat. The annual report off Oneweb provides a lot of data on satellite broadband https://assets.oneweb.net/s3fs-public/2022-08/AnnualReport_2022.pdf
free Dish. Also, the hardware by Doordarshan is of poor quality and difficult to replace or repair. The government sponsored a free giveaway of DTH sets during Covid and as the hardware ages, it will be replaced with paid DTH services
3 ‘TV is more important than food’: This is what won Abhijit Banerjee and Esther Duflo the Nobel Prize
China remains off-limits for satellite broadband, making India a prominent market for its growth in the coming years. All three global satellite broadband companies have applied for permissions to offer services in India. With 900 million people residing in rural areas in India, even a modest 5% opting for satellite broadband at $20 per month over the next decade could create a $10 billion per year market. When considering potential subscribers in smaller towns and cities with inadequate fiber broadband connections, the market is likely to be even more substantial. Typically Telcos have EBITDA margins in the 40-50% and you get the picture of the stakes in the Indian satellite broadband market. As with all technology, the price of offering this satellite broadband services are expected to fall significantly and that could actually lead to a faster scaling up.
Recognizing this opportunity, Dish TV promoters have raised objections to the licensing of satellite broadband services without involving the four Indian DTH operators4. Dish TV, being primarily focused on rural areas compared to Tata Sky and Airtel, which are more city-focused, is well-positioned to tap into this emerging market. The entry of global players like Starlink, Amazon, and OneWeb seems inevitable. Starlink and Amazon may require Indian partners for on-the-ground support. Dish TV is strategically positioning itself as the preferred partner for such ventures. Expect the Dish TV promoters to aim for a JV or the role of India implementation partner for Starlink or Amazon. Dish TV has the spectrum, feet on the ground and penetration in the rural markets.
Cash is King
The second factor behind the promoters’ resolution with creditors stems from the substantial cash flow now being generated by the business. In the initial years of DTH services, the set-top box subsidy resulted in significant negative cash flows and high levels of debt. However, as of 2019, with the maturation of the industry and the steep fall in the price of set top boxes, this trend has reversed. Despite challenges such as governance issues, losses from ventures in Sri Lanka, and questionable investments in the content platform Watcho, Dish TV has transformed from having a peak net debt of Rs3300 crore in FY19 to becoming a net cash company. Despite sectoral challenges and a decline in subscriber numbers, the business has managed to generate nearly Rs4000 crore in cash flows! With the return of subscribers and the potential for sustained cash generation in the coming years, the outlook for cash generation in this business is very strong.
Closure of the AGR case
In India, both telecom and DTH companies were obligated to contribute a portion of their adjusted gross revenues (AGR) to the government. While the government has altered the regulations to discontinue this requirement for DTH companies starting in 2026, the outstanding dues from previous years have posed a challenge. The telecom companies, particularly giants like Bharti and Vodafone, have encountered significantly larger amounts in this regard. Recently, both companies approached the Supreme Court, seeking relief through a petition to waive these taxes5. Notably, the Government of India is aligning with their stance. The government argues that maintaining a healthy market requires the presence of three major telecom companies, and AGR waivers are crucial for the survival of telcos, particularly Vodafone.
4 TRAI must be careful while allocating spectrum to LEO players: Dish TV - The Hindu BusinessLine
5 AGR dues: Bharti Airtel, Vodafone Idea move Supreme Court again - The Economic Times
If the Supreme Court concurs with this perspective, it would not only benefit the telecom companies but also extend to DTH companies. Dish TV, in particular, stands to gain substantially, with a potential windfall of Rs5200 crore, a significant amount when its current market valuation is a mere Rs3300 crore!
Stock view
Dish TV is poised for a significant enhancement in its financial performance over the next two years. Before the pandemic, Dish TV consistently achieved an EBITDA in excess of Rs2000 crore. With the substantial increase in subscribers observed in the last quarter, it is anticipated that this figure will be surpassed in FY25. Moreover, to meet their settlement obligations with JC Flowers, the promoters have to either borrow, sell personal assets, or secure a robust strategic partner before 31 March 2024. Any of these actions is poised to trigger a notable re-evaluation of the stock. According to our estimate, the current trading value of the stock stands at 1.3 times the normalized EV/EBITDA, suggesting a significant upside potential. Moreover, if a deal with a global satellite company materializes, Dish TV transforms into a comprehensive tech play.
To corroborate our thesis, we examined the shareholding list, attached to this report as an annexure. The roster of shareholders is truly representative of some of India’s finest investors, including Mukul Aggarwal, Ashish Dhawan, Enam, Bhansalis of Enam, the extended Rakesh Jhunjhunwala group (including Alchemy and Amal Parikh), Shyam Sekhar, Goldman Sachs, and several others. It is important to note that many of these investors have multiple vehicles for purchasing, and the list may not provide a complete picture.
Risk Factors
Governance, governance, and governance—historically, the group was not renowned for its impeccable governance practices. However, this deficit was offset by exceptional entrepreneurial skills and execution capabilities. Following the defaults, the promoters found themselves entangled in numerous legal battles with creditors and investors. The current market sentiment reflects a diminished tolerance for governance irregularities, evident in the significantly reduced valuations of Zee TV, the flagship company of the promoters.
There are clear indications that the promoters are actively working to restore the trust of the markets, and the ZEE-Sony merger is a strategic step in that direction. Punit Goenka, the son of Subhash Chandra, is articulating the right messages to minority investors. Our sources reveal that the promoters recognize the gravity of the situation and are intent on a substantial course correction. Observing that the long arm of the law eventually catches up as in Jet Airways, Bhushan Steel and other entities, the promoters are motivated to address the issues at hand. They understand the critical need to rebuild market trust, acknowledging that a failure to do so could lead to their exclusion from the capital and debt markets for generations.
Meanwhile, the board of Dish TV has been diminished to zero elected directors as minority investors continue to vote out all the names proposed by the promoters. This trend is likely to persist even after the promoters buy out JC Flowers, as they require 75% of shareholders to approve directors. The onus is now on the promoters to persuade the markets and minority investors that Dish TV can generate value for all stakeholders. In short, the outcome on governance remains uncertain but then that is why the stock is so cheap!
Annexure 1
Rural Rebound: The Case of DB Corp
The example of DB Corp provides a good example on why the rural economy is likely to bunce back. After all, one segment of the media industry that is supposed to have the worst economics is the print media. With news available around the clock from TV to websites to social media to WhatsApp feeds, newsprint is supposed to die. Look at DB Corp. Post Covid, the numbers got wiped out. Circulation fell from a daily high of 45 lakhs to 15 lakhs. Last quarter, it is back to 43 lakhs6. The numbers tell the story
Financial Highlights - Consolidated Year Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 H1 FY24
Gross Sales
2462.70
2223.83
1507.70
1768.54
2129.22
1140.00
Total Expenditure
1966.75
1764.91
1205.16
1466.07
1810.01
872.00
PBIDT
520.87
493.99
319.26
322.80
361.15
268.00
PAT
273.84
274.98
141.42
142.56
169.09
179.00
Cash Profit
372.47
395.69
256.31
252.52
281.11
For the first half of 2024, DB Corp’s Net Profit has crossed that of full year FY23. H2 is always better than H1 and it looks certain that DB Corp will have its best ever year this year. The stock has gone up 175% in the last one year!
6 https://www.bseindia.com/xml-data/corpfiling/AttachHis/d3cefa33-1c49-4cad-8bd1-15bebbaf693a.pdf
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“Since signing the agreement, the promoters have paid Rs200 crore and committed to settling the remaining Rs50
crores by the end of November.”
Any update on the same, couldn’t find anything on it? Thank you
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