Institutional

Equity
Research

Den Networks Ltd
DEN IN; DENN.BO

Media | India

2QF15 result review
Rs
Rs
%

144
210
46
Revised

Rs bn
'000
Rs
mn
mn
%
%
Rs

25.6
1749.4
246.5 / 110.45
178.2
106.8
40.0
20.3
10.0

3m
6.1
(10.9)
(17.0)

6m
15.4
(23.2)
(38.6)

Current price (19 Nov)
Target price
Upside/(downside)
Earning estimate

Market data
Mkt capitalisation
Average daily vol
52-week H/L
Shares O/S
Free float
Promotor holding
Foreign holding
Face value

BUY

Price performance (%)
Nifty (abs)
Stock (abs)
Relative to Index

1m
7.7
(20.1)
(27.9)

1yr
35.1
0.9
(34.2)

Performance
250

(Rs)

(%)

60
30

200
0
150
(30)
100
Nov-13 Feb-14 May-14 Aug-14
DEN Networks (LHS)

(60)
Nov-14

Rel. to Nifty (RHS)

Source: Bloomberg, SSLe

November 19, 2014

Weak performance; maintain BUY
Den Networks reported a weak performance for 2QF15. Revenues grew 7.3% YoY to
Rs2,917mn (SSLe of Rs3,137mn). Revenues declined 2.4% QoQ mainly due to lower
activation revenue and distribution revenue. Cable subscription revenues came at
Rs1,470mn, growing 48.3% YoY and flat QoQ. Placement revenues came at
Rs1,180mn flat YoY/QoQ. The company added ~220k digital subscribers taking the
total digital subscriber base to 6.6 million. EBITDAM declined to 14% (SSLe of 15.5%)
vs. 32.3% YoY, impacted by a) lower activation revenue, b) higher pay channel cost,
and c) losses from broadband soccer businesses. The company reported loss at net
level of Rs205mn vs. profit of Rs112mn YoY. We have introduced F17e, building in
48.3% subscription revenue CAGR over F14–F17e. Considering a strong balance
sheet and ensuing benefits from digitization, we maintain BUY with TP of Rs210.
Focus on improving net ARPU: The net ARPU (including taxes) for Delhi, Mumbai
and Phase II remained unchanged QoQ at Rs120, Rs80–85 and Rs60–65,
respectively. Going ahead, the management expects the consumer ARPU to increase
on the back of re-organizing its packages leading to increase in net ARPU. The
announcement of the new packages is expected by next week and the benefit of the
same could be seen in subsequent quarters. The management expects net collection
to increase by at least Rs10–15 per month per subscriber. The management expects
the shifting from net billing to gross billing to be gradual and the focus would remain on
increasing net ARPU.
Clarity on content costs in couple of quarters: Den Networks has signed a CPS
deal for Zee and Indiacast bouquets of channels and RIO deal for Star bouquet of
channels. The exact impact on content cost due to shift to RIO model would be known
within the next couple of quarters. In addition, the management expects growing
number of channels and smaller broadcasters (niche/regional) would help largely
compensate for expected decline in carriage revenue due to the RIO deal with Star.
Earnings call highlights: a) Broadband subscriber base was 9.6k, with an ARPU of
Rs740; b) broadband homes passed at 200k and targeting 2 million subscriber base in
the next few years; c) paying digital subscriber base was stable at ~5.0 million; d)
Den–Snapdeal JV reached an annualized gross merchandise value (GMV) in excess
of Rs800mn; e) analog subscription revenue Rs220mn; and f) dross debt of Rs10bn.
Valuation: The stock currently trades at EV/EBITDA of 11.0x/7.4x F16e/F17e
EBITDA. We have tweaked F15e/F16e estimates to factor in a) H1 performance, b)
delay in digitization and c) losses in soccer business. Considering a strong balance
sheet and ensuing benefits from digitization, we maintain BUY with a target price of
Rs210, valuing the company at an EV/EBITDA of 10x F17e EBITDA.

Financial summary

Dipesh Mehta
+91 22 4227 3311
dipesh.mehta@sbicapsec.com
Neerav Dalal
+91 22 4227 3458
neerav.dalal@sbicapsec.com

SBICAP Research on Bloomberg SBICAP <GO>

Y/E Mar (Rs mn)
Sales
Growth YoY (%)
EBIDTA margin (%)
Net income
EPS (Rs)
Growth YoY (%)
P/E (x)
EV/EBIDTA (x)
Dividend yield (%)
RoE (%)
RoCE (%)

F13
8,965
(20.6)
22.0
623
4.6
324.8
31.8
11.5
7.4
5.5

F14
10,980
22.5
26.0
384
2.2
(53.6)
68.6
8.5
2.8
3.6

F15e
12,084
10.1
14.0
(873)
(4.9)
NM
NM
15.7
(4.8)
2.9

F16e
15,445
27.8
17.3
(532)
(3.0)
NM
NM
11.0
(3.1)
(8.2)

F17e
20,654
33.7
20.8
558
3.1
NM
47.3
7.4
3.2
3.4

Source: Company, SSLe

Please refer to our disclaimer given at the last page.

4) 3.1 NM 3.6 33 NM 1.3% YoY.160 1.4 10 - 12 (17.3 2.3 33.137 (7.137 454 NM 4. SSLe dipesh.mehta@sbicapsec.177 Other Expenses EBITDA 409 877 EBITDAM (%) 14.3) 2.460 Broadband revenue Total 1QF15 48.7 294 (45.4) 130 (69.dalal@sbicapsec. whereas activation revenue declined 45.4) (7.0) 486 (15.470 991 Placement revenue 1.0) 4.6) 1.7 1.0) 105 52.com I neerav.1) 57 105 (45.160 615 1.0) EPS (Rs) (1.160 1.199 (1.0 32.0) Source: Company.5 Activation revenue 160 10 - Distribution revenue 40 130 (69.com November 19.1 0.7 (132) 225 84 3 Extraordinary/exceptional Profit before tax Tax expense ETR (%) PAT Minority interest Net profit Non-recurring items 72 113 (205) 112 - NM 127 NM 73 NM - 11 28 NM 34 NM (31) NM (31) NM NM 11 NM Adjusted net profit (205) 112 NPM (%) (7.3) 19.4) (28.089 977 1.180 Var (%) 0. SSLe Revenue mix Particulars (Rs mn) Flat net ARPU led to flat subscription revenues QoQ 2QF15 2QF14 YoY (%) Cable subscription 1.7) 2.6) 200 (20.3 1QF15 Revenue 572 (2.8) 15.6 48 18.0 Other income 225 (13) 187 191 Interest expenses 227 215 198 196 (63) 279 69 54 43 24 (109.3 7.1) 0.988 (2.3 Depreciation and amort.7 1.6) 1.5 433 139 Var (%) 1. 2014 | 2 .719 Others QoQ (%) 2QF15e 1.6% YoY 2QF15 2QF14 YoY (%) 2.6 (53.917 Employee benefits exp.1 (0.064 258 250 285 296 1.2) Source: Company.917 2.068 1.719 Operating Cost 1.4 (1.6 0.2) 90 (55.SBICAP Securities Ltd Den Networks Ltd Quarterly Financials Particulars (Rs mn) Subscription revenue grew 48. 7. 470 370 EBIT (61) 507 EBITM (%) (2.988 QoQ (%) 2QF15e 2.8 87.721 (14.6) 28 103.177 19.1) 18.

0 2.9 (million) 1.650 F16e 18. delay in digitization and losses of soccer business Net sales EBITDA Revised Old F15e 12.1 Content cost (% of sales) 36.0) 4.mehta@sbicapsec.9) (3.674 4.6 0.3 0.1 11.0 9.336 (53.1 9.0 17.0 2.693 Change (%) F15e 14.3 25.com I neerav.5 0.1 28.5 7.SBICAP Securities Ltd Den Networks Ltd Digital subscriber base remains steady Weak addition of digital subscribers 7. PAT (873) (532) 856 1.3 (1106) bps (602) bps Adj.5) F16e (16.0 0.0 17.1 23.3 41.0 3QF13 4QF13 1QF14 2QF14 3QF14 4QF14 1QF15 2QF15 3QF13 4QF13 1QF14 2QF14 3QF14 4QF14 1QF15 2QF15 Digital subscriber base Net addition Source: Company.7 14.dalal@sbicapsec.084 F16e 15.2 Digital subscriber addition (million) 1.8 NM NM Source: SSLe Key assumptions Y/E Mar We have introduced F17e building in 48. SSLe Change in estimates (Rs mn) We have tweaked F15e/F16e estimates to factor H1 performance.676 3.9) (38.3) EBITDA margin (%) 14. 2014 | 3 .5 0.8 6.221 NM NM EPS (Rs) (4.9) 2.9 6.0 Employee cost (% of sales) EBITDA margin (%) ETR (%) Source: SSLe dipesh.3% subscription revenue CAGR over F14–F17e F15e F16e F17e Closing digital subscriber base (million) 7.0 2.8 NM NM 30.577 F15e (17.5 Other operating costs (% of sales) 40.2 33.0 5.7 44.2 (million) 10.3 20.com November 19.445 1.

com I neerav.0x/7.SBICAP Securities Ltd Den Networks Ltd 1.year forward EV/EBITDA chart 360 The stock currently trades at 11. SSLe dipesh.4x F16e/F17e EV/EBITDA (Rs) 270 180 Price 9x 13x 17x Oct-14 Jul-14 May-14 Jan-14 Nov-13 Aug-13 May-13 Feb-13 Nov-12 Aug-12 Feb-12 May-12 Aug-11 5x Nov-11 Feb-11 May-11 Aug-10 Nov-10 Feb-10 May-10 0 Nov-09 90 21x 60 50 40 30 (x) We value the stock using 10x F17e EV/EBITDA 20 10 (10) Nov-09 Jan-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Mar-14 May-14 Jul-14 Sep-14 Nov-14 0 EV/1 yr fwd EBITDA Mean +1 SD -1 SD +2 SD -2 SD Source: Bloomberg.dalal@sbicapsec.mehta@sbicapsec.com November 19. 2014 | 4 .

7 11.727 14.131 Tax 294 379 Effective tax rate (%) 27.061 33.mehta@sbicapsec.8 Equity Multiplier (x) 1.751 2.470 15.484 Investments 1.741 13.7 Net fixed assets 8.931 6.986) (3.9 (8.3 2.166 Borrowings 7.390 12.708 PBT - Total assets Current liabilities 5.250 Other income (net) 381 642 840 574 334 22.6) 58.506) FCF (3.1) 3.5 8.128 10.994 7.7 Asset turnover (x) 0.040 3.871 3.965 10.1) 3.285) 1.0 30.987) (3.356 4.708 910 1.2 3.615 1.104) (2.131 1.8) (3.115 296 339 335 Other non-current liabilities 350.708 Interest expenses 471 890 901 819 764 - - Depreciation & amortisation EBIT Extraordinary/Exceptional - - 1.4 0.042 2.819) (1.7 Total tax paid 7.415) 3.355 (4.654 Y/E Mar (Rs mn) F13 F14 F15e F16e F17e Cash & bank balance 3.776 1.494 222 167 183 200 212 13.331) (4.128 22. 2014 | 5 .4 Other operating activities Operating CF RoIC 6.452 5.8 33.776 1.355 EBITDA 1.313 5.905 2.084 15.295 795 18.753 1.9) (3.445 20.5 Depreciation & amortisation Chg in working capital NPM RoE 6.4 Inc/(dec) in cash & bank bal.169 11.2 2.com November 19.776 1.974 2.148 15.630 6.1 99.2 7.500 Other ratios D/E (x) 0.795 2.0) Profit after tax 779 752 (593) (242) 781 Minority interest 156 367 280 290 223 Share capital 1.8) (3.6 1.073 growth (%) (20.6 NM NM 47.6) 22.946) (7.474 F15e F16e (296) 97 1.9) (6.1 18.335 1.810 35.8 - - Financial ratios Y/E Mar Cash flow statement F13 Profitability and return ratio (%) EBITDAM 22.1 10.0 60. SSLe dipesh.9 0.253) (1.698) (14) (343) (779) (764) (735) (296) (339) (335) 603 799 232 416 600 1.000) (435) - - - 164 (500) - (901) (819) (764) 11.6 0.4 2.554 2.8 12.682 17.588) (3.4 2.074 1.314 3.2 96.5 0.751 1.4 Capital expenditure Per share data (Rs) F13 1.795 2.6 0.928 F17e (2) (1.0 Total liabilities Non-recurring items - - - Shareholders' funds Adjusted net profit 623 384 (873) (532) 558 Minority interest (53.7 10.394 2.953 2.852 1.810 35.378 (235) 343 1.6 65.753 Goodwill and intangible assets 2.676 4.4 33.5 (7.2) 3.3 104.620 8.4) 3.657) (888) (2.5 10.0) 3.3 44.622 - - 4.2) (3.475 10. tax) Other financing activities Financing CF 31.2 1.5 0.150 17.364 8.519) (5.4) 2.424 16.980 12.084) (4.9 3.5 2.000 500 670 404 O/s shares (mn) 134 178 178 178 178 Chg in investments Other investing activities EPS 4.872 (296) 97 1.776 Reported Net profit 623 384 (873) (532) 558 Reserves & surplus 7.356 Other current assets 4.358 9.555 17.772 (1.771 1.752 18.6 (1.9 10.074 842 F14 1.0 17.8 (4.5 Closing cash & bank bal.328 1.8 1.991 8.541 (2.6) NM NM NM Total equity & liabilities F15e F16e F17e growth (%) 324.8 (4.5 0.4 5.0 EBITM 13. 2.751 2.630 6.134 7.769 16.0 14.764 14.693 2.016) (2.617 34.5 (100.163 1.4 (40.870 35.435 (2.264) 358 5.333 2.6 0.9 3.075) (1.994 7.5 1.5 RoE (%) 7.9 1.154) (1.1 27.dalal@sbicapsec.5 1.615) (3.170) (5.814 15.551 (854) 1.355) (1.164 3.1 Investing CF (5.2 RoCE 5.5 (7.4 - - - - - Equity raised/(repaid) Debt raised/(repaid) Dividend (incl.779 15.5 1.115 2.4 1.RoE Source: Company.770 2.0 F14 Y/E Mar (Rs mn) PBT 26.932 8.061 33.6 2.5 2.2 (4.0) 3.com I neerav.333 2.656 811 1.616 5.2 (4.364 8.546 Other non-current assets 2.6 (1.617 34.042 2.3 20.247 8.814) FDEPS CEPS BV DPS Valuation ratios (x) PE P/BV EV/EBITDA EV/Sales 3.9) 2.751 2.5 15.928 2.587 6.5 1.2 99.5 3.2 Du Pont Analysis .2) (3.375 15.771 1.4) 2.474 1.5 11.299 growth (%) 139.SBICAP Securities Ltd Den Networks Ltd Financials Income statement Y/E Mar (Rs mn) Revenue Balance sheet F13 F14 F15e F16e F17e 8.6 2.7 Operating expenses 6.271) (1.8 68.918 2.3 1.753 969 1.870 35.907 15. 25 195 68 9.0 7.9) (3.4 DSO (days) 133 130 125 120 120 NPM (%) 6.

advisory. (IT). hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. authors of this report. incorporated in Singapore is regulated by the Monetary Authority of Singapore as a holder of a capital markets services license and an exempt financial adviser in Singapore. fees or other compensation from the company or companies that are the subject of this material/ report. incorporated in United Kingdom is authorised and regulated by the Financial Services Authority. 289) of Singapore. accounting or tax advice. February 2013) Guide to the expected return over the next 12 months. 26-May-14 185 240 BUY 19-Nov-14 144 210 BUY (Rs) 240 210 180 Oct-14 Nov-14 Oct-14 Sep-14 Sep-14 Sep-14 Aug-14 Aug-14 Jul-14 Jul-14 Jun-14 Jun-14 May-14 Apr-14 May-14 Mar-14 Mar-14 Mar-14 Feb-14 Feb-14 120 Apr-14 150 Source: Bloomberg. Recipients of this report should assume that SBICAP Entities (and/or its Affiliates) is seeking (or may seek or will seek) Investment Banking. M. SSL will not treat recipients as clients by virtue of their receiving this report. Can be expected that some of the estimates on which these were based. that these or their underlying assumptions will be achieved. SSL is a wholly owned subsidiary of SBI Capital Markets Limited (SBICAP). (BSE). SBICAP (Singapore) is a wholly owned subsidiary of SBICAP. Are not prepared with a view towards compliance with published guidelines or generally accepted accounting principles. as a representation or warranty by or on behalf of SSL the authors of this report.mehta@sbicapsec. Are based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. 2014 | 6 . or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. and its proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. not all clients may receive this report at the same time. No independent accountants have expressed an opinion or any other form of assurance on these. dealers. directors and employees.e. and institutional investors in Singapore as defined in section 4A of the Securities and Futures Act (Cap. financial situation/circumstances and the particular needs of any specific person who may receive this document. SBICAP (Singapore) Limited. whatsoever. B. ACA – Analyst. a fellow subsidiary of SSL. project finance or other businesses and may receive commission. and buy or sell the securities or derivatives thereof of companies mentioned herein. This report is for information purposes only and SBICAP Entities accept no liabilities for any loss or damage of any kind arising out of the use of this report. 3=SELL (expected to give absolute returns less then -10 percentage points) DISCLAIMER We. brokerage.a full service Stock Broking Company and a member of National Stock Exchange of India Ltd. Nothing in this report is intended by SBICAP Entities to be construed as legal. 1=BUY (expected to give absolute returns of 15 or more percentage points). may on the date of this report/from time to time.com | www. In reviewing this document. SSL (and/or its Affiliates) and its officers. traders and other professionals may provide oral or written market commentary or trading strategies to its clients that reflect opinion that are contrary to the opinions expressed herein. 3.f. We also certify that no part of our compensation was.SBICAP Securities Ltd Den Networks Ltd Recommendation History Date BUY 270 HOLD Stock Price SELL Target Price Stock Price TP Rec. 2=HOLD (expected to give absolute returns between -10 to 15 percentage points).com KEY TO INVESTMENT RATINGS (w. SBICAP Securities Limited (SSL). which is engaged into the investment banking activities and is registered with the Securities and Exchange Board of India as a “Category I” Merchant Banker. SSL may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different from those made in this report. SSL does not provide tax advice to its clients and you should independently evaluate the suitability of this report and all investors are strongly advised to seek professional consultation regarding any potential investment. SBICAP (Singapore) Limited’s services are available only to accredited investors (other than individuals). including the analysts and others involved in the preparation/issuance of this material and their dependant(s). SBICAP (UK) Limited and SSL are collectively referred to as SBICAP Entities]. Please ensure that you have read “Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. It does not constitute a personal recommendation and does not take into account the specific investment objectives.: 91-22-42273300/01 | Fax: 91-22-42273335 | Email: sbicapresearch@sbicapsec. SBICAP (UK) Limited. will not materialize or will vary significantly from actual results. 2. This report does not solicit any action based on the material contained herein.sbismart. Lower Parel. you should be aware that any or all of the foregoing. 2nd Floor. [SBICAP. SBICAP (Singapore) Limited.com November 19. a fellow subsidiary of SSL. It should not be construed as an offer to sell or solicitation of an offer to buy. This report has been prepared based upon information available to the public and sources. may give rise to potential conflicts of interest. and such variances may increase over time.dalal@sbicapsec. or any other person. Joshi Marg. Should not be regarded. dipesh. act as principal in. The securities discussed in this report may not be suitable for all the investors.com I neerav.E. is. purchase or subscribe to any securities this report shall not form the basis of or be relied upon in connection with any contract or commitment. 4. Dipesh Mehta. MMS (Finance) . among other things. The projections and forecasts described in this report should be carefully evaluated as these 1. believed to be reliable. SSL’s sales people. A-Wing. N. have long/short positions in. (NSE) and Bombay Stock Exchange Ltd. Though disseminated to clients simultaneously. by mere inclusion in this report. Tel. Mumbai -400013. SSLe SBICAP Securities Limited Corporate Office: Mafatlal Chambers.Analyst and Neerav Dalal.

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