Monday, June 27, 2016

India Ready for HD Eco-System

We believe all catalysts necessary to propel growth of HD are in place—(1) cost of high-definition (HD) STB has converged with that of standard definition (SD) STB (versus 3X five years ago), (2) HD TV set has become the ‘default’ TV set; it is available at all price points and non-HD variants have largely been discontinued, (3) supply of HD channels has gone up to 63 from 15-20 in FY2011 and it will cross 100 in the next two years. Subscription cost per HD channel is trending down, and (4) broadcasters have begun tapping into the HD ad inventory, a separate and incremental ad revenue stream. Monetization potential of HD channel far outweighs the associated costs.

India has about 6.5 mn active HD subs (FY2016-end) as compared with stretched potential target segment of 78 mn NCCS A and NCCS B households (HHs). We expect trebling of HD subs to 19 mn over the next 3-4 years, assuming (1) 4% growth in NCCS A+ B HHs, (2) 18% HD penetration in the same, and (3) 10% multiple TV connections. Our understanding of affluence levels based on car ownership and 3G subscriber data has fed into these assumptions. While seemingly stretched, in view of the current annual run-rate of 1.5 mn sub adds, we believe our expectations are within the realm of possibility given the strong ecosystem development.

HD subscription garners an additional `140/month. Trebling of HD subs can add incremental `25 bn to the industry’s subscription kitty. Additionally, higher HD penetration will boost HD viewership that can command higher ad yields (2-2.5X premium) once critical mass is attained. We estimate potential upside of `35 bn to TV ad revenues after factoring cannibalization of advertising attributable to shift to HD from SD.

Friday, June 10, 2016

Videocon d2h - Healthy Momentum

Recent results suggest healthy business momentum for the top DTH-based satellite operators. VDTH mgmt
highlights that ~70% of the digitalized consumers in phase 3 markets thus far have opted for a DTH service (as per government releases).

Dish, VDTH and Airtel added 0.51, 0.59 and 0.62m net adds in 4Q, which has been the key driver of revenue growth. From an incremental sub adds perspective, the major players appear to be neck and
neck; taking Dish's higher sub base and stable churn, we estimate its gross addition is 0.8m / 2.7m in 4Q / FY16, same or slightly higher than peers

VDTH mgmt appeared more guarded with its guidance for FY17E – perhaps a function of phase 3 + 4 digitalization timing and also in light of the pending regulatory tariff order. That said, mgmt expects the
company to turn PAT and FCF positive in FY17E and aims to add at least 2.5m gross adds (upside subject to pace of digitalization). Per mgmt, the regulator is making attempts to bring transparency to the pay TV market (incl. cable & carriage fee norms), which works well for the entire industry – besides also working on
service quality, inter-connect offers, et al. Zee mgmt also kept its domestic subscription revenue guidance in mid-teens for FY17E given same uncertainties