Merger of Videocon DTH with Dish TV - Synergies

We believe synergies on the cost front (content, transponder and other operating costs) outweigh benefits on the revenue side (subscription, carriage, advertising, VAS etc). Currently, while Dish TV is non-committal about quantifying the synergy benefit, they mentioned sourcing, distribution, backend etc. as areas where savings are possible.

Content costs: Dish TV’s content cost (% of total revenues) at ~30% is ~840bps lower than VDTH’s. Even if we discount for the slightly weaker subscriber profile of Dish TV due to higher rural penetration, Zing and Rs174 pack, we believe there is scope for Videocon d2h’s content costs to reduce by Rs1-1.5bn.

Transponder costs: Dish TV and Videocon d2h operate on separate satellites with slightly different (few degrees apart) orientations. FY16 transponder costs of Dish TV and Videocon d2h were Rs1.7bn and Rs1.55bn, respectively. If the company decides to have only one transponder, we believe there can be a saving of Rs1-1.5bn. We note that shifting satellites will be a one-time tedious task (worth it, in our view) as it would entail visiting each subscriber household and changing the necessary settings.

We note that Dish TV’s incremental market share has been gradually under pressure and acquisition of high-ARPU subscribers would improve its revenue mix. With only three serious private DTH operators
remaining post-merger, we can see higher ability to influence pack as well as STB prices (depends on cable industry dynamics to a large extent).