Sector Indices

Name Value Change %
BSE Carbonex 1,104.40 16.9 1.6
BSE Greenex 1,805.52 24.0 1.3
BSE SME IPO 820.89 [4.5] [0.5]
BSE 100 6,800.10 104.0 1.6
BSE 200 2,718.94 39.6 1.5
BSE 500 8,431.71 122.3 1.5
BSE AUTO 13,494.62 297.3 2.3
 

Den Networks Ltd – Express Idea

India Infoline Research Team / 18:02 , Dec 03, 2012

CMP Rs200, Target Rs225, Upside 12.5%

One of the leading cable distribution companies

Den Networks, one of the leading cable distribution companies, has strong foothold in Delhi, UP and Karnataka with presence also in Maharashtra, Gujarat, Rajasthan, MP, Haryana, Uttarakhand and Kerala. Recently, company entered in West Bengal, Jharkhand and Bihar. Den offers gamut of high quality services - 300 digital channels with high-quality picture and sound, micro-blogging, 24x7 music, interactive gaming, restaurant/event search application, etc. It had entered a 50-50 JV with News Corp's Star TV Group in 2008. In May 2011, Star DEN formed a 50-50 JV with Zee Turner combining the distribution assets of the Star, Zee and Turner groups in India.


Subscription ramp-up during Phase I; Phase II to be a bigger driver

Digital subscription of Den Networks rose from ~0.5mn to 1.6mn during Phase I digitization (covering 4 Metros). With constant demand from Local Cable Operators (LCOs) for more Set Top Boxes (STB), the total number of subscribers in Phase I locations is expected to cross 2mn in the short term. Out of the current subscribers of 1.6mn, Delhi is the core area of presence accounting for 1.1mn, followed by Mumbai (0.3mn) and Kolkata (0.2mn). The full impact of Phase I digitization on Den’s top line would be reflected from Q4 FY13. With company’s strong foothold in Phase II locations (total 38 cities) and lower penetration of digital cable (~10%) within its subscribers, revenue growth would likely be robust in the longer term. Ministry of Information & Broadcasting (MIB) is already in talks with industry on Phase II implementation.



Structural improvement in profitability; Recommend BUY

Digitization has resulted in complete turnaround of the cable industry. With under-declaration of subscription revenues (by LCOs) now being knocked-off (Digital Addressable System identifying each subscriber), Den Networks being one of the leading cable distribution companies is likely to see a meaningful impact on its profitability. This was evident in sharp operating margin improvement during H1 FY13, from 7.3% in FY12 to 20.2%. Full impact of Phase I implementation, commencement of Phase II – a bigger opportunity, significant demand for STBs and margin improvement would be structural earnings growth driver over FY13-14. Recommend BUY on the company with target price of Rs225.  


Financial summary

FY10 FY11 FY12 H1 FY13*
Revenues (Rs m) 9,099 10,218 11,295   4,055
yoy growth (%) 27.8 12.3 10.5 (24.8)
Operating profit 804 901 822   818
OPM (%) 8.8 8.8 7.3   20.2
Reported PAT (Rs m) 301 375 143   278
yoy growth (%) (275.0) 24.6 (61.9) 342.8
         
EPS (Rs) 2.3 2.9 1.1   4.2
BVPS (Rs) 28.5 59.4 61.7   63.4
P/E (x) 86.6 69.5 182.7 47.7
P/BV (x) 7.0 3.4 3.2 3.2
EV/EBITDA (x) 27.0 19.7 23.5 14.8
RoE (%) 6.2 4.9 1.8 6.8
Source: Company, India Infoline Research * EPS & RoE are annualized