Sector Report | November 2014 Media: Pay TV...

Media: Pay TV Operators

Sector Report | November 2014

Don't flip! Best is yet to comeShobhit Khare ([email protected]); +91 22 3982 5428

Don't flip! Best is yet to come

2November 2014

Index: Don't flip! Best is yet to come

Page No.

Summary .................................................................................................... 3

Executive summary .................................................................................... 4

Story in charts ............................................................................................ 6

Digitization: Well begun and half done .................................................... 10

Broadband: Significant untapped potential ............................................. 12

Expect 23% digital subscriber CAGR over CY13-17 ................................. 14

Cable ruled phase I/II; closer fight in phase III/IV .................................. 15

Expect industry consolidation in medium term ...................................... 19

Phase I/II net ARPUs soar 5-10x ............................................................. 22

Recurring EBITDA/subscriber to increase many-fold .............................. 23

Regulations, Star RIO implementation to be catalyst for price hikes ..... 24

Companies ......................................................................................... 25-75

Den Networks ........................................................27

Hathway Cable & Datacom ....................................43

SITI Cable Network ................................................56

Dish TV India ..........................................................68

Investors are advised to refer through disclosures made at the end of the Research Report.

November 2014 3

Media | Pay TV Operators: Don’t flip! Best is yet to come

Don’t flip! Best is yet to come 90m digital adds by CY17; net ARPU to jump 3-5x; huge BB opportunity

Indian cable Multi-system operators (MSOs) are amid two major technology revolutions sweeping the country today – cable digitization and data traffic explosion:

Pay TV: Potential USD9-11b incremental annual revenue opportunity Digitization, a game changing event for the Indian Television sector, represents

potentially a USD9-11b incremental annual revenue opportunity for the TV distribution sector, implying scope for tripling of TV subscription revenue from ~USD5b in CY13 to USD14-16b by CY19. Moreover, bulk of the revenue in the unorganized sector pre-digitization would move to the organized sector.

Indian TV distribution is one of the most fragmented industries, consisting of 50,000+ Local Cable Operators (LCOs) and 1,900+ Multi System Operators (MSOs). Almost 65% of the ~140m Cable & Satellite (C&S) households in the country are serviced by cable and its fragmented industry structure and lack of transparency has been the key impediment for sector growth. ARPU has been stagnant and lack of monetization opportunity deters broadcasters from making big ticket content investments. Indian pay TV ARPU of USD3 has significant room to grow as the low levels are primarily due to supply side fragmentation rather than lack of customer value proposition/paying ability.

Assuming industry reaches ~200m subscriber base by CY19 (~140m as of CY13) and the ARPU increases from currently depressed levels of INR175 (USD3) to INR350-400 (USD5.8-6.7) led by consolidation of industry structure, the industry TV subscription revenue can jump from USD5b currently to USD14-16b by CY19.

Not unexpectedly, the sector is currently going through teething execution and regulatory challenges as the two decade long structure is being disrupted and industry participants are jostling for space in the new paradigm. However, once the dust settles, we believe the stage will be set for the sector to take-off. MSOs as well as DTH operators will be the key beneficiaries of these reforms.

Broadband: INR15-23b value creation opportunity for each of Top-3 MSOs Top-3 Indian MSOs together have a 35m+ universe and can conservatively reach

a 4-5m potential broadband subscriber base as compared to ~0.5m currently. Cable reaches 90m+ households in India as compared to ~28m households

reached by wire line telephones, making it a much more potent medium for delivering broadband. Out of the 252m internet connections in India, only 19m are on wire-line out of which cable has mere ~5% share (only ~0.9m cable broadband subs).

The entire globe is witnessing data explosion led by increasing smart phone penetration and India is no exception to this trend. Global mobile data traffic is growing at 60%+ YoY. Indian mobile incumbents are witnessing much higher data traffic growth rates at ~100% or more on a YoY basis.

However, mobile data represented only 5% of the total data traffic in 2013. Much of the mobile data usage happens inside buildings and it is estimated that by 2017, 45% of the mobile data would be offloaded to fixed networks through Wi-Fi. Wi-Fi offloading (using fixed network to service a mobile connection) would be even more relevant in the Indian context given spectrum constraints.

Media

Companies Covered Pg

Den Network 27

Hathway 43

Siti Cable 56

Dish TV 68

November 2014 4


Executive summary Digitization: Well-begun and half-done; deadline extension broadly in line India’s CY13 digital C&S subscriber base is estimated at ~70m, implying that almost half of the ~140m connections were already receiving signals digitally. While phase III/IV deadline has been relaxed to December 2015/16, this was broadly in line with expectations as the new government intends to provide sufficient time for efforts pertaining to local manufacturing of set-top boxes. Mandatory pan-India digitization will become a reality from the start of CY17, entailing significant growth opportunity as well as investment requirement.

Broadband: Huge untapped value creation opportunity for MSOs Of the 252m internet connections in India, only 19m are on wire-line out of which cable has ~5% share (~0.9m subs). Increased focus on broadband can tap significant latent demand in the home broadband segment for the MSOs. Broadband segment enjoys superior steady-state margin of 35-40% as compared to 20-25% in cable TV. Assuming ARPU of INR600/month and assigning an 8x EV/EBITDA to broadband business, per subscriber value creation opportunity is ~INR15,000. 10-15% potential conversion for the MSO universe would imply incremental broadband value creation opportunity of 35-90% (INR15-23b) for each MSO as a percentage of the current market capitalization.

Best yet to come; expect 23% digital subscriber CAGR over CY13-17 Over CY13-17E, ~90m new digital subscribers are likely to be added. Of these, ~35m would be due to organic market growth (C&S HHs to increase from 140m in CY13 to 175m in CY17) and ~55m would be due to expected phase-out of the analog subscriber base, which is expected to decline from ~68m in CY13 to ~13m in CY17 due to mandatory digitization.

Digital cable ruled phase I/II; expect more balanced outcome in phase III/IV During CY11-13, digital cable dominated the overall digital net additions with ~90% of the incremental share on a pan-India basis. This was led by presence of better-prepared national MSOs in the phase I/II (markets that were digitized during this timeframe). However, given the connectivity challenges likely to be faced by cable in rural markets and relatively lower presence of national MSOs in phase III/IV, we expect a more balanced share of incremental digital subscribers for cable and DTH. We model 40m DTH net additions and 50m cable net additions over CY13-17. This implies huge growth opportunity for both platforms: digital cable subscriber base would grow at a CAGR of ~32% from ~25m in CY13 to ~75m in CY17, and DTH subscriber base would grow at ~20% CAGR from ~37m in CY13 to ~77m in CY17.

Expect industry consolidation; Star RIO implementation strong catalyst for ARPU increases We expect the industry to consolidate in the medium term, given significant scale requirement post-digitization towards higher investments, sophisticated systems/processes, and bargaining power for content. The cable industry is already witnessing this trend, with top-5 MSOs accounting for ~55% of overall cable subscribers but ~75% of digital subscribers. Consolidation and requirement of increased content pay-out to broadcasters given increased transparency post digitization could drive the second leg of upside from improved segmentation/pricing at the end-subscriber level. Recent move from Star to migrate

November 2014 5


to reference interconnect offer (RIO) based pricing can become a significant catalyst in driving up the consumer level pricing and attaining addressability. Phase I/II net ARPU soars 5-10x; universe net ARPU to jump 3-5x The analog regime made monetization difficult for cable MSOs, given no control on LCOs. Tax arbitrage available to cable also adversely impacted DTH ARPU. However, post digitization, continued increase in net realizations for national MSOs in phase I/II cities reflects substantial progress. Net ARPU for cable MSOs in these cities has increased from INR10-15 earlier to INR50-100 currently, with further upside, as gross billing gets implemented in more cities. By FY18, we expect universe net ARPU of ~INR120 for national MSOs – a 3-4x jump from INR24-40 in FY14, led by increase in the proportion of digital subscribers and better monetization. Recurring EBITDA/subscriber to improve from INR2-10 in FY14 to INR40-50 by FY18, despite increase in net content cost With significant increase in net ARPU and operating leverage, cable EBITDA (ex-activation) for MSOs is expected to increase from INR2-10/subscriber in FY14 to INR40-50/subscriber by FY18. Our estimates factor in higher net content costs at INR30-40/subscriber per month by FY18 v/s -6 to +7 in FY14. TRAI regulation requiring disaggregation of content from different broadcasting groups is positive for MSO/DTH operators, given increased bargaining power. Also, continued audience fragmentation and new channel launches are a reality in the digitized scenario. These factors should prevent any run-away inflation in content costs. EBITDA CAGR of 50-110% for MSOs, 28% for DITV; prefer DITV, HATH, SCNL We expect 50-110% recurring EBITDA CAGR for MSOs (DEN, HATH, SCNL) and 28% CAGR for DITV led by strong growth in digital subscriber base/net ARPU and operating leverage. We initiate coverage on DEN (Neutral with a TP of INR165; 10% upside), HATH (Buy with a TP of INR430; 22% upside), and SCNL (Buy with a TP of INR40; 39% upside). We maintain Buy on DITV, with a TP of INR75 – 20% upside.

Summary valuation

Rating CMP (INR)

Target (INR)

Upside (%)

Mcap (USD m)

Subscriber universe (m) Digital subscribers (m) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E

Den Networks Neutral 150 165 10 445 12.5 14.4 15.0 15.4 7.0 12.4 14.8 15.4 Dish TV India Buy 63 75 20 1079 12.9 14.3 15.5 16.6 12.9 14.3 15.5 16.6 Hathway Cable. Buy 354 430 22 983 12.2 14.0 14.7 15.0 9.2 13.0 14.5 15.0 SITI Cable Buy 28 40 39 283 10.2 10.5 10.8 11.0 5.4 9.0 10.6 11.0

Revenue (INR b) EBITDA ex activation/one-offs (INRb) Adjusted PAT (INRb) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E Den Networks Neutral 12.7 22.8 33.5 44.6 1.2 1.6 3.1 7.2 0.1 1.5 1.0 2.2 Dish TV India Buy 27.7 31.9 36.9 41.5 6.4 9.3 12.8 14.9 -0.1 2.2 5.6 8.0 Hathway Cable. Buy 17.9 23.8 28.6 37.0 1.5 2.5 6.0 11.7 -1.6 0.4 1.6 5.9 SITI Cable Buy 10.8 15.9 24.6 30.6 1.0 1.5 3.2 5.8 -0.6 1.1 1.0 2.6 EV/Sales (x)* EV/ recurring EBITDA (x)* P/E (x) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E Den Networks Neutral 3.3 2.2 1.3 0.9 31.2 24.3 13.4 5.2 368 17 28 12 Dish TV India Buy 2.8 2.3 1.9 1.5 12.0 8.1 5.4 4.1 NM 30 12 8 Hathway Cable. Buy 5.4 4.5 3.3 2.3 60.7 37.2 14.9 6.9 -35 141 36 10 SITI Cable Buy 3.2 2.5 1.5 1.1 30.4 21.8 10.7 5.4 -32 19 19 8

Source: Company, MOSL

November 2014 6


Story in charts

Exhibit 1: India Pay TV: Potential USD9-11b incremental annual revenue opportunity

CY13 CY19L* CY19H*

End of period subscribers (m)

140 200 200

Monthly ARPU (INR) 174 350 400

Revenue (INR b) 281 819 936

Revenue (USD b) 4.7 13.7 15.6

* L/H= ARPU at lower/higher end of the range

Exhibit 2: India PAY TV Revenue: Growth rate can accelerate

Exhibit 3: India: TV and C&S households (m)

Exhibit 4: C&S connections mix: Analog v/s Digital (%)

Exhibit 5: Significant shift expected in subscriber base to digital (m)

Exhibit 6: 23% digital subscriber CAGR from 72m to 162m

29 21 15 13 7 15 10 15 15

88 101122

140158 169

194213

245281

CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13

YoY (%) Subscription revenue

238 241 243 245 247 249 251

119 130 140 148 157 165 175

148 153 161 169 177 185 193

CY11 CY12 CY13 CY14E CY15E CY16E CY17E

Total HHs (m) C&S HHs (m) TV HHs (m)

62 53 49 4419 12 7

5 15 18 20

3841 43

26 26 26 30 38 42 44

7 6 7 6 6 5 6


Analog Digital cable DTH Other digital

68

13

72162

140

175

CY13E CY17E

Analog Digital

72

35

55

162

CY13E digital Market growth Analog phase-off

CY17E Digital

90m net susbcriber adds

November 2014 7


Story in charts

Exhibit 7: Phase III/IV: Current break-down of private DTH and cable

Exhibit 8: Phase III/IV: Expected incremental share of DTH/cable

Exhibit 9: Share of top-5 MSOs

Exhibit 10: 5-10x increase in phase I/II MSO ARPUs

Exhibit 11: Expect 3-5x jump in net ARPU EBITDA per subscriber to grow manifold

28.525%

84.575%

Private DTH Cable and other digital

40.044%50.0

56%

DTH Digital Cable

52

22

95

30

0 20 40 60 80 100

Universe (m)

Digital subs (m)

Industry

Top-5 aggregate

10-15

50-60

80-100

Pre-DAS Current Phase II Current Phase I

20

50

80

110

140

FY14E FY15 FY16 FY17 FY18

Den Hathway SITI

0

15

30

45

60


Den Hathway SITI

EBITDA payback analysis (per subscriber; INR)

MSO DTH

Target Yearly EBITDA 500-600

700-800

Net Capex 800 1800

Working Capital 250 -300

Total Investment 1,050 1,500

EBITDA Pay-back (years)

1.8-2.1

1.9-2.1

November 2014 8


Story in charts

Exhibit 12: India: Internet connections (m)

Exhibit 13: Broadband: Per subscriber metrics and value creation opportunity

Yearly ARPU (@INR600/month) 7,200 EBITDA margin (%) 35 Yearly EBITDA 2,520 EV/EBITDA multiple (x) 8 Value per subscriber 20,160 Acquisition cost per subscriber 5,000 Potential value creation per subscriber 15,160

Exhibit 14: Broadband: Incremental value creation opportunity of 35-90%

Universe (m) Current BB

base (m) Conversion

potential (m) Potential BB

base (m) BB subs

upside (m)

Value creation

potential (INR b)

Current M Cap (INR b)

BB potential/M

cap (%)

Hathway 12 0.4 15% 1.8 1.4 21 59 35

Den 15 - 10% 1.5 1.5 23 27 84

SITI Cable 10 - 10% 1.0 1.0 15 17 89

Exhibit 15: Stocks trading at 8-12x FY18 P/E and 4-7x EV/EBITDA


19

187

46

252

Wireline 2G Wireless 3G/4G Wireless Total

5

12

4

87

10

58

FY18 EV/recurring EBITDA FY18 P/E

Den Dish TV Hathway SITI Cable

November 2014 9


Exhibit 16: Detailed Company valuation

Rating CMP (INR)

Target (INR)

Upside (%)

Mcap (USD m)

Subscriber universe (m) Digital subscribers (m) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E

Den Networks Neutral 150 165 10 445 12.5 14.4 15.0 15.4 7.0 12.4 14.8 15.4 Dish TV India Buy 63 75 20 1079 12.9 14.3 15.5 16.6 12.9 14.3 15.5 16.6 Hathway Cable. Buy 354 430 22 983 12.2 14.0 14.7 15.0 9.2 13.0 14.5 15.0 SITI Cable Buy 28 40 39 283 10.2 10.5 10.8 11.0 5.4 9.0 10.6 11.0

Revenue (INR b) EBITDA ex activation/one-offs (INRb) Adjusted PAT (INRb) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E Den Networks Neutral 12.7 22.8 33.5 44.6 1.2 1.6 3.1 7.2 0.1 1.5 1.0 2.2 Dish TV India Buy 27.7 31.9 36.9 41.5 6.4 9.3 12.8 14.9 -0.1 2.2 5.6 8.0 Hathway Cable. Buy 17.9 23.8 28.6 37.0 1.5 2.5 6.0 11.7 -1.6 0.4 1.6 5.9 SITI Cable Buy 10.8 15.9 24.6 30.6 1.0 1.5 3.2 5.8 -0.6 1.1 1.0 2.6 Revenue growth (%) EBITDA growth (%) PAT growth (%) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E Den Networks Neutral 13 80 47 33 -17 33 87 134 -85 2023 -37 124 Dish TV India Buy 14 15 16 12 28 34 36 16 -92 -2563 154 45 Hathway Cable. Buy 13 33 20 29 58 66 143 95 NM NM 293 262 SITI Cable Buy 56 47 55 25 226 44 111 83 NM NM -3 154 Gross ARPU (INR/month) Net ARPU (INR/month) EBITDA/sub (INR/month) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E Den Networks Neutral 167 176 189 207 31 42 68 113 12 14 16 37 Dish TV India Buy 175 184 196 204 175 184 196 204 44 57 72 77 Hathway Cable. Buy 175 186 202 222 49 59 82 121 5 9 26 55 SITI Cable Buy 171 182 197 216 36 47 75 108 8 10 22 41 Content cost/sub (INR/month) C&P revenue/sub(INR/month) Net content cost/sub (INR/month) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E Den Networks Neutral 29 32 45 59 30 29 27 26 -1 3 18 33 Dish TV India Buy 55 56 58 60 NA NA NA NA 55 56 58 60 Hathway Cable. Buy 53 57 62 72 41 39 37 35 11 18 24 36 SITI Cable Buy 27 33 47 58 18 17 16 15 9 16 31 43 Recurring EBITDA margin (%) Adjusted PAT margin (%) Capex/Sales (%) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E Den Networks Neutral 9.8 7.2 9.2 16.1 0.6 6.7 2.9 4.8 20 38 14 5 Dish TV India Buy 23.0 29.2 34.8 35.9 -0.3 6.9 15.1 19.4 28 24 20 18 Hathway Cable. Buy 8.3 10.4 21.0 31.7 -9.0 1.8 5.7 16.0 18 29 14 7 SITI Cable Buy 9.6 9.4 12.8 18.9 -5.1 5.8 3.7 7.5 21 33 12 5 Gross adds (m) Net adds (m) Capex/sub (INR) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E Den Networks Neutral 1.2 5.8 2.9 1.2 1.0 5.4 2.4 0.6 1,411 1,341 1,341 1,341 Dish TV India Buy 2.6 2.6 2.6 2.6 1.5 1.4 1.2 1.1 2,709 2,655 2,515 2,380 Hathway Cable. Buy 1.6 4.2 2.0 1.2 1.2 3.8 1.5 0.6 1,550 1,450 1,400 1,350 SITI Cable Buy 1.5 3.9 2.0 0.9 1.4 3.6 1.6 0.4 1,200 1,200 1,200 1,200 EV/Sales (x)* EV/ recurring EBITDA (x)* P/E (x) FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E FY15E FY16E FY17E FY18E Den Networks Neutral 3.3 2.2 1.3 0.9 31.2 24.3 13.4 5.2 368 17 28 12 Dish TV India Buy 2.8 2.3 1.9 1.5 12.0 8.1 5.4 4.1 NM 30 12 8 Hathway Cable. Buy 5.4 4.5 3.3 2.3 60.7 37.2 14.9 6.9 -35 141 36 10 SITI Cable Buy 3.2 2.5 1.5 1.1 30.4 21.8 10.7 5.4 -32 19 19 8

* Excluding activation revenue and post attributable minority interest

November 2014 10


Digitization: Well begun and half done ~70m of the ~140m C&S connections already receiving signals digitally

India’s CY13 digital C&S subscriber base is estimated at ~70m, implying that almost

half of the ~140m connections were already receiving signals digitally.

While phase III/IV deadline has been extended as the government intends to provide

sufficient time for efforts pertaining to local manufacturing of cable set-top boxes,

mandatory pan-India digitization should become a reality in CY17.

This entails significant growth opportunity as well as investments.

C&S penetration at 58%; leaving room for upside As of CY13, India had an estimated 140m cable and satellite (C&S) connections, implying a C&S penetration of ~58% out of the ~240m households. Of these 140m C&S connections, ~49% were in the analog mode, ~26% were on DTH, ~18% were on digital cable, and the balance ~7% were on other digital platforms including DD Direct (free DTH service) and IPTV. Given scope for increase in C&S penetration as well as high mix of analog connections, there is significant room for growth of digital platforms, both cable and DTH till CY17. Exhibit 17: India: TV and C&S households (m)

238 241 243 245 247 249 251

119 130 140 148 157 165 175

148 153 161 169 177 185 193


Total HHs (m) C&S HHs (m) TV HHs (m)

Source: FICCI Frames, MOSL

Exhibit 18: C&S connections mix: Analog v/s Digital (%)

62 53 49 4419 12 7

5 15 18 20

3841 43

26 26 26 30 38 42 44

7 6 7 6 6 5 6


Analog Digital cable DTH Other digital


India had an estimated 140m cable and satellite

(C&S) connections, implying a C&S penetration of ~58%

out of the ~240m households.

November 2014 11


Post phase I/II digitization, phase III/IV next growth drivers Post mandatory digitization in phase I (4 metros; digitization deadline: 31 October 2012) and phase II (38 cities, with 1m+ population; digitization deadline: 31 March 2013), ~27m subscribers across these phase I/II cities are now fully digitized. The only exception is Tamil Nadu (Chennai, Coimbatore), where the digitization mandate could not be implemented due to the ongoing legal proceedings. As per the revised deadline, an estimated 113m C&S connections across phase III/IV would come under mandatory digitization by December 2016. While ~29m of these could be already on DTH, a significant portion of the balance ~85m is currently on analog and required to be digitized as per the mandate. Exhibit 19: Phase-wise subscribers (CY13E)

Source: Companies, TRAI, MOSL

Delay of 12/24 months in phase III/IV digitization With the new government giving a strong thrust towards local manufacturing of set-top boxes (STBs), the deadlines for mandatory digitization have been extended from December 2014 to December 2015 for phase III and December 2016 for phase IV. Recent muted pace of new digital subscriber additions from leading MSOs as compared to the huge STB requirement was already indicating the fact that the industry was in a wait-and-watch mode. However, with fresh deadlines in place, we expect the phase III/IV digitization process to get completed by March 2017. Exhibit 20: Digitization deadline

Phase Areas proposed Digitization Deadline

I Delhi, Mumbai, Kolkata & Chennai 31-Oct-12

II Urban areas with population > 1m (38 cities)

31-Mar-13

III All other Urban areas Rescheduled to 31-Dec-15

IV Rest of India Rescheduled to 31-Dec-16

Source: Govt of India, MOSL

3 529 366 14

85104

918

113

140

Phase I (ex-Chennai) Phase II Phase III/ IV Aggregate


As per the revised deadline, an estimated 113m C&S

connections across phase III/IV would come under

mandatory digitization by December 2016.

November 2014 12


Broadband: significant untapped potential INR15-23b value creation opportunity for each MSO

Of the 252m internet connections in India, only 19m are on wire-line out of which

cable has ~5% share (~0.9m subs).

Increased focus on broadband can tap significant latent demand in the home

broadband segment for the MSOs.

Broadband segment enjoys superior steady-state margin of 35-40% as compared to

20-25% in cable TV.

Assuming ARPU of INR600/month and assigning an 8x EV/EBITDA to the broadband

business, per subscriber value creation opportunity is ~INR15,000.

10-15% potential conversion for the MSO universe would imply incremental

broadband value creation opportunity of 35-90% (INR15-23b) for each MSO as

compared to the current Market Capitalization.

Wire-line broadband significantly underpenetrated in India Of the 252m internet connections in India, 187m are on 2G wireless, 46m are on 3G/4G wireless and only 19m are on wire-line (<8% house-hold penetration). In the wire-line internet segment, cable currently has ~0.9m broadband subscribers (5% of wire line). While wireless is likely to remain the preferred mode given infrastructure bottlenecks, strong execution from MSOs can drive significant growth given untapped potential.

Exhibit 21: India: Internet connections (m)

19

187

46

252

Wireline 2G Wireless 3G/4G Wireless Total

Source: TRAI, MOSL

Exhibit 22: Growth driven by wireless internet subs (m)

177 188

220233

1QFY14 2QFY14 3QFY14 4QFY14

Source: TRAI, MOSL

Exhibit 23: Technology wise wire line subscribers (m)

13.271%

3.117%

1.26%

0.95%

0.21%

DSL

Wireless/WiFi

Ethernet

Cable Modem

Others

Source: TRAI, MOSL

Exhibit 24: Operator wise wire line subscribers (m)

13.271%

1.58%

1.16%

0.42%

0.42%

0.42%

1.69% BSNL

Bharti

MTNL

You

Beam

hathway

Others

Source: TRAI, MOSL

Of the 252m internet connections in India, 187m

are on 2G wireless, 46m are on 3G/4G wireless and only

19m are on wire-line (<8% house-hold penetration).

November 2014 13


Opportunity to scale-up high margin business Broadband business being incremental in nature, requires much lower revenue sharing with local cable operators as compared to cable TV. Gross margins are also higher as no pay-outs are required to broadcasters etc. Structurally, this leads to higher broadband EBITDA margins of 35-40% as compared to 20-25% steady state margins expected in cable TV. Exhibit 25: Broadband: Per subscriber metrics and value creation opportunity

Yearly ARPU (@INR600/month) 7,200

EBITDA margin (%) 35

Yearly EBITDA 2,520

EV/EBITDA multiple (x) 8

Value per subscriber 20,160

Acquisition cost per subscriber 5,000

Potential value creation per subscriber 15,160

Source: MOSL

INR15-23b value creation opportunity for each MSO Docsis-3 technology being deployed by leading MSOs provides 50-100 Mbps speeds and ARPU is conservatively expected to be ~INR600 with steady-state EBITDA margin of ~35% and subscriber acquisition cost of ~INR5000. Assigning an 8x EV/EBITDA to broadband business, per subscriber value creation opportunity is ~INR15,000. Assuming 10-15% potential conversion for the MSO universe, this implies incremental broadband value creation opportunity of 35-90% (INR15-23b) as compared to the current market capitalization.

Exhibit 26: Broadband: Incremental value creation opportunity of 35-90% Universe

(m) Current BB

base (m) Conversion

potential (m)

Potential BB base

(m)

BB subs upside (m)

Value creation

potential (INR b)

Curent M Cap (INR

b)

BB potential/ Mcap (%)

Hathway 12 0.4 15% 1.8 1.4 21 59 35 Den 15 - 10% 1.5 1.5 23 27 84 Siticable 10 - 10% 1.0 1.0 15 17 89

Source: MOSL

Assuming 10-15% potential conversion for the MSO

universe, this implies incremental broadband

value creation opportunity of 35-90% (INR15-23b) as compared to the current

market capitalization.

November 2014 14


Expect 23% digital subscriber CAGR over CY13-17 ~90m digital adds – market growth to contribute ~35m; analog phase-out ~55m

Over CY13-17, ~90m new digital subscribers are likely to be added.

Of these, ~35m would be due to organic market growth (C&S HHs to increase from

140m in CY13 to 175m in CY17) and ~55m due to expected phase-out of the analog

subscriber base.

The analog subscriber base is likely to decline from ~68m in CY13 to ~13m in CY17 due

to mandatory digitization.

C&S penetration to improve from 58% to 70% The Indian C&S subscriber base is likely to increase from 140m in CY13 to 175m by CY17, implying addition of ~35m new subscribers over the period and marking an increase in C&S penetration from 58% in CY13 to 70% in CY17. Given the expected analog phase-out, the incremental additions would be on digital platforms. Analog phase-out implies ~55m opportunity for digital CY13 analog subscriber base is estimated at ~68m. Given the mandatory digitization, we expect this to decline to ~13m by CY17, even after factoring in likely challenges in full digitization that could come up in specific regions or far-flung areas. This implies an ‘analog-to-digital’ conversion opportunity of ~55m for the digital cable and DTH platforms. Combined digital opportunity of 90m incremental subscribers With C&S universe expansion expected to contribute ~35m subscriber additions and analog phase-off likely to contribute ~55m, the digital subscriber addition opportunity over CY13-17 is estimated at ~90m. This implies a potential 23% CAGR in digital subscriber base from ~72m in CY13 to ~162m in CY17. Given the traditionally different focus areas for cable and DTH, we believe both platforms will have an important role to play in the process of pan-India digitization.

Exhibit 27: Significant shift expected in subscriber base to digital (m)

68

13

72162

140

175

CY13E CY17E

Analog Digital

Source: FICCI Frames, Companies, MOSL

Exhibit 28: 23% digital subscriber CAGR from 72m to 162m

72

35

55

162

CY13E digital Market growth Analog phase-off

CY17E Digital

90m net susbcriber adds

Source: FICCI Frames, Companies, MOSL

With C&S universe expansion expected to

contribute ~35m subscriber additions and analog phase-

off likely to contribute ~55m, the digital subscriber

addition opportunity over CY13-17 is estimated at

~90m.

November 2014 15


Cable-ruled phase I/II; closer fight in phase III/IV Digital cable to add ~50m (32% CAGR), DTH 40m (20% CAGR) over CY13-17

Over CY11-13, digital cable dominated overall digital net additions, with ~90% of the

incremental share on pan-India basis. This was led by presence of better-prepared

national MSOs in the phase I/II (markets digitized during this timeframe).

However, given the connectivity challenges likely to be faced by cable in rural markets

and lower presence of national MSOs in phase III/IV, we expect a more balanced share

of incremental digital subscribers for cable and DTH. This implies huge growth

opportunity for both platforms. While the digital cable subscriber base would grow at

32% CAGR from ~25m in CY13 to ~75m in CY17, the DTH subscriber base would grow

at 20% CAGR from ~37m to ~77m.

Significant growth opportunity for both platforms Phase III/IV provides a significant growth opportunity for both digital cable and DTH. Of the 90m digital subscriber addition opportunity, we expect DTH to add ~40m and cable ~50m. We note that both platforms have traditionally been focused on different regions and strength areas. While top national MSOs have largely urban footprint with presence in 80-200 cities, majority of the subscribers for the leading DTH operators come from non-top-50 cities, that is, phase III/IV markets. We expect a more balanced incremental share in phase III/IV as compared to phase I/II, which was dominated by digital cable. Our estimates imply significant growth opportunity for both platforms, with digital cable subscriber base expected to grow at 32% CAGR and DTH at 20% CAGR.

Exhibit 29: India: Television subscriber forecasts CY11 CY12 CY13 CY14E CY15E CY16E CY17E

Total HHs (m) 238 241 243 245 247 249 251

TV HHs (m) 148 153 161 169 177 185 193

TV Penetration (%) 62 63 66 69 72 74 77

C&S HHs (m) 119 130 140 148 157 165 175

C&S (% of TV) 80 85 87 88 89 89 91

Analog Cable (m) 74 69 68 65 30 20 13

Digital Cable (m) 6 19 25 30 59 67 75

Digital Cable net adds (m) 1 13 6 5 29 8 8

DTH (m) 31 34 37 44 59 69 77

DTH Net adds (m) 3 3 3 7 15 10 8

Other Digital (m) 8 9 9 9 9 9 9

Other Digital adds (m) 3 1 0 0 0 0 0

Subscriber mix (%) Analog 62 53 49 44 19 12 7

Digital 38 47 51 56 81 88 93

-Digital Cable 5 15 18 20 38 41 43

-DTH 26 26 26 30 38 42 44

-Other digital 7 6 7 6 6 5 6


Of the 90m digital subscriber addition

opportunity, we expect DTH to add ~40m and cable

~50m.

November 2014 16


Phase I: 9m digital subscribers; cable share at 70%+ Phase I markets (Delhi, Mumbai, Kolkata) have an estimated C&S subscriber base of ~9m. Delhi is the largest phase I market, with an estimated C&S subscriber base of 3.7m followed by Kolkata (~2.8m) and Mumbai (~2.5m). Chennai, which has an estimated C&S base of ~1.1m, is yet to come under mandatory digitization due to ongoing legal proceedings. However, 60%+ of the Chennai market is already digitized through DTH. In the three fully digitized phase I cities excluding Chennai, digital cable accounts for more than 70% of the subscriber base while the balance is primarily on DTH. Based on government data, we estimate that ~90% of the incremental digital subscriber additions post digitization were on digital cable.

Exhibit 30: Phase I subscriber base pre and post digitization (m)

1.9 2.5

7.1 6.5

9.0 9.0

Pre-digitization Post-digitization

DTH Cable

Source: Industry, MOSL

Exhibit 31: Phase I: Incremental share of analog to digital transition (m)

0.710%

6.590%

DTH

Digital Cable


Exhibit 32: Phase I: City-wise MSO presence

Estimated C&S Set

top boxes (m) Hathway Den Siticable

Delhi 3.7 Mumbai 2.5 Kolkata 2.8 Aggregate phase I 9 3 cities 3 cities 3 cities

Source: Census of India, Industry, MOSL

Phase II: 18m digital subscribers; cable share at 70%+ Phase II markets (38 cities having a population base more than 1m) have an estimated C&S subscriber base of ~18m. Bangalore is the largest phase I market, with an estimated C&S subscriber base of 2.6m, followed by Ahmedabad (~1.3m), Hyderabad (~1m), Pune (~0.9m), and Surat (~0.9m). Hyderabad is currently the most challenging market for the cable MSOs from monetization standpoint due to earlier delays in box seeding due to legal proceedings and adverse political environment.

Exhibit 33: Phase II subscriber base pre and post digitization (m)

4.1 5.0

13.9 13.0

18.0 18.0

Pre-digitization Post-digitization

DTH Cable


Exhibit 34: Phase II: Incremental share of analog to digital transition (m)

0.96%

13.094%

DTH

Digital Cable


In the three fully digitized phase I cities excluding

Chennai, digital cable accounts for more than 70% of the subscriber base while

the balance is primarily on DTH.

November 2014 17


Exhibit 35: Phase II: City-wise MSO presence

Estimated C&S

Set top boxes (m)

Hathway Den SITI

Bangalore 2.6

Ahmadabad 1.3

Hyderabad 1.0

Pune 0.9

Surat 0.9

Jaipur 0.7

Visakhapatnam 0.6

Nagpur 0.6

Lucknow 0.6

Kanpur 0.5

Thane 0.5

Vadodara 0.5

Indore 0.4

Pimpri Chinchwad 0.4

Ludhiana 0.4

Bhopal 0.4

Gaziabad 0.4

Nashik 0.4

Kalyan Dombivli 0.4

Coimbatore 0.3

Rajkot 0.3

Faridabad 0.3

Patna 0.3

Navi Mumbai 0.3

Amritsar 0.3

Agra 0.3

Howrah 0.2

Mysore 0.2

Chandigarh 0.2

Meerut 0.2

Aurangabad 0.2

Jabalpur 0.2

Ranchi 0.2

Srinagar 0.2

Varanasi 0.2

Jodhpur 0.2

Allahabad 0.2

Sholapur 0.2

Aggregate phase II 18 26 cities 24 cities 17 cities

Source: Census, Industry, MOSL

November 2014 18


Phase III/IV: 113m subscribers; growth opportunity for digital Phase III/IV markets have an estimated C&S subscriber base of ~113m, of which ~29m are estimated to be on the six private DTH platforms, while the balance are on cable, DD Direct, et cetera. Bulk of the incremental ~90m digital subscriber growth would come from these markets, as they are yet to come under mandatory digitization. While cable is likely to continue its lead, we expect its incremental share at ~55% compared to 90-95% in phase I/II. This would be led by relatively lower presence of national MSOs and cable footprint in these markets than in phase I/II.

Exhibit 36: Phase III/IV: Current break-down of private DTH and cable

28.525%84.5

75%



Exhibit 37: Phase III/IV: Expected incremental share of DTH/cable

44%

56%

DTH Digital Cable


While cable is likely to continue its lead, we expect

its incremental share at ~55% compared to 90-95%

in phase I/II.

November 2014 19


Expect industry consolidation in medium term Second leg of growth likely from better segmentation/pricing

We expect the industry to consolidate in the medium term, given significant scale

requirement post-digitization towards higher investments, sophisticated

systems/processes, and bargaining power for content.

The cable industry is already witnessing this trend, with top-5 national MSOs

accounting for 55% of overall cable subscribers but 75% of digital subscribers. Industry

consolidation could drive the second leg of upside from improved

segmentation/pricing at end-subscriber level.

14% TV subscription revenue CAGR over CY04-13 TV subscription revenue at the end-consumer level is estimated to have grown at a CAGR of 14% over CY04-13 to INR281b. However, a significant proportion of these revenues was under-declared in the analog regime due to lack of addressability. Pricing power of the industry has been relatively weak due to high fragmentation. We expect digitization to drive industry consolidation.

Exhibit 38: TV subscription revenue and YoY growth (INR b)

29 21 15 13 7 15 10 15 15

88 101122

140158 169

194213

245281

CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13

YoY (%) Subscription revenue


Top-5 MSOs have garnered much higher share of digital subscribers While the top-5 national MSOs (Den, Hathway, Siticable, Incable, Digicable) account for ~50m of the estimated cable universe of ~95m, their share of pan-India digital cable subscribers is higher. We estimate that the top-5 account for ~75% of digital cable subscribers v/s just ~55% of the overall cable subscribers. As digitization progresses in phase III/IV cities, industry consolidation is likely to accelerate.

Exhibit 39: Share of top-5 MSOs

52

22

95

30

0 20 40 60 80 100

Universe (m)

Digital subs (m)

Industry

Top-5 aggregate


Pricing power of the industry has been relatively

weak due to high fragmentation. We expect

digitization to drive industry consolidation.

We estimate that the top-5 account for ~75% of digital

cable subscribers v/s just ~55% of the overall cable

subscribers.

November 2014 20


Exhibit 40: Estimates subscriber universe and digital base of national MSOs (m) Universe (m) Digital subs (m)

Den 13.0 6.6

Hathway 11.7 8.4

Siticable 10.0 4.6 Incable 8.5 2.5 Digicable 8.5 2.4 Aggregate 52 22


Fewer head-ends further signifies scale benefit and consolidation Post implementation of digitization mandate in phase I cities of Mumbai/Delhi, it is estimated that the number of head-ends has reduced by ~85%. This signifies industry consolidation as well as scale benefits available for large MSOs in the post-digitization scenario. Exhibit 41: Fewer head-ends post DAS

7

15

50

110

0 20 40 60 80 100 120

Mumbai

Delhi

Post-Das Pre-DAS


DTH: Consolidation process has begun While the top-4 DTH operators account for ~80% of gross subscribers added by the industry till date, their share of net subscribers and incremental share in subscriber additions is higher. While the industry is currently going through virtual consolidation, active consolidation possibilities exist. Exhibit 42: DTH gross subscriber share (%) DTH Operator Gross Subscriber Sh (%) Launch Date Dish TV 27 Oct-03 Tata Sky 20 Aug-06 Airtel Digital TV 19 Oct-08 Videocon D2H 14 Apr-09 Big TV 7 Aug-08 Sun Direct 13 Jan-08


Industry consolidation to drive segmentation/pricing benefits; Star RIO implementation a significant catalyst At ~INR174, India has one of the lowest pay TV ARPUs globally, largely due to its fragmented industry structure and lack of segmentation/up selling opportunities in the analog regime. As these bottlenecks get addressed and the ‘land grab’ phase gets over in the next 2-3 years, we expect focus to shift towards pricing

While the top-4 DTH operators account for ~80%

of gross subscribers added by the industry till date,

their share of net subscribers and incremental

share in subscriber additions is higher.

November 2014 21


improvement at the end-subscriber level. As evident in the exhibits below, DTH operators are already offering a wider choice of packages. We expect similar initiatives from cable MSOs, once package-wise billing is implemented. Consolidation and requirement of increased content pay-out to broadcasters given increased transparency post digitization would accelerate the process. Recent move from Star to migrate to reference interconnect offer (RIO) based pricing for MSOs in phase I/II areas can become a significant catalyst in driving up the consumer level pricing as well as attaining addressability. Exhibit 43: Estimated pay TV ARPU (INR/month)

158

164

174

CY11 CY12 CY13


Exhibit 44: DTH: Monthly pack prices (INR)

Tata Sky Dish TV Videocon D2H Airtel Simple Definition A 230 230 231 230 Simple Definition B 260 245 260 325 Simple Definition C 320 320 310 390 Simple Definition D 360 440 370 450 Simple Definition E 450 499 425 High Definition 125 add on 175-200 add on 550 199 add on


Exhibit 45: MSO: Monthly pack prices (INR)

Hathway Den Networks SITI Cable BST (free channels) 100 100 100 Pack A 180 180 180 Pack B 225 225 222 Pack C 270 270 267


Recent move from Star to migrate to reference

interconnect offer (RIO) based pricing for MSOs in

phase I/II areas can become a significant catalyst in

driving up the consumer level pricing as well as

attaining addressability.

November 2014 22


Phase I/II net ARPUs soar 5-10x Universe net ARPU to jump 3-5x

The analog regime made monetization difficult for cable MSOs, given no control on

LCOs. Tax arbitrage available to cable also adversely impacted DTH ARPU. However,

post digitization, continued increase in net realizations for national MSOs in phase I/II

cities indicates substantial progress. Net ARPU for cable MSOs in these cities has increased from INR10-15 earlier to INR50-

100, with further near-term upside, as gross billing gets implemented in more cities. By FY18, we expect universe net ARPU of ~INR120 for national MSOs – a 3-4x jump

from INR24-40 in FY14, led by increase in proportion of digital subscribers and better

monetization.

MSO net ARPUs increasing steadily Pre-digitization, net ARPU for MSOs was INR10-15, led by under-declaration of the subscriber base by LCOs. While full monetization continues to be a challenge for MSOs, we highlight the substantial progress achieved by MSOs. Currently, MSOs are collecting INR80-100 per subscriber from LCOs in phase I markets and INR50-60 in phase II markets. With package-wise billing (gross billing) getting implemented progressively in several phase II cities, we expect continued increase in net ARPU. Currently, the boxes seeded in phase III/IV markets by the MSOs are also generating same ARPU as analog. This will change once mandatory digitization comes into effect. Growth in digital base as well as increased monetization per box would drive 3-4x increase in the net ARPU per universe subscriber for national MSOs.

Exhibit 46: 5-10x increase in phase I/II MSO ARPUs

10-15

50-60

80-100

Pre-DAS Current Phase II Current Phase I

Source: Company, MOSL Exhibit 47: Expect 3-5x jump in net ARPU

20

50

80

110

140


Den Hathway SITI


Exhibit 48: Digital subscribers as % of total

25%

50%

75%

100%

125%


Den Hathway SITI


Currently, MSOs are collecting INR80-100 per subscriber from LCOs in

phase I markets and INR50-60 in phase II markets.

November 2014 23


Recurring EBITDA/subscriber to improve Expect increase from INR2-10 in FY14 to INR40-50 by FY18

With significant increase in net ARPU and operating leverage, cable EBITDA (ex-

activation) for MSOs is likely to increase from INR2-10/subscriber in FY14 to INR40-

50/subscriber by FY18. Our estimates factor in higher net content costs at INR30-

40/subscriber per month by FY18 v/s -6 to +7 in FY14.

TRAI regulation requiring disaggregation of content from different broadcasting

groups is positive for MSO/DTH operators, given increased bargaining power. Also,

continued audience fragmentation and new channel launches are a reality in digitized

scenario. These factors will likely prevent any run-away inflation in content costs.

Recurring EBITDA/subscriber at INR40-50; payback attractive We estimate cable EBITDA (ex-activation) of INR40-50/subscriber per month for national MSOs on a net ARPU of INR100-120 post LCO commissions and taxes. This takes into account the expected increase in monthly content cost to INR30-40/subscriber. Assuming an investment of INR800 in set-top box subsidy and INR250/subscriber in working capital, the EBITDA payback period is attractive at 1.8-2.1 years for digital cable. Payback period for DTH appears equally attractive, given higher EBITDA per subscriber (no LCO share) and benefit of negative working capital.

Exhibit 49: EBITDA per subscriber to grow manifold…

0

15

30

45

60


Den Hathway SITI


Exhibit 50: ...despite significant increase in net content costs/sub

-20

0

20

40

60


Den Hathway SITI


Exhibit 51: EBITDA payback analysis (per subscriber; INR)

MSO DTH Target Yearly EBITDA 500-600 700-800 Net Capex 800 1800 Working Capital 250 -300 Total Investment 1,050 1,500 EBITDA Pay-back (years) 1.8-2.1 1.9-2.1


We estimate cable EBITDA (ex-activation) of INR40-

50/subscriber per month for national MSOs on a net

ARPU of INR100-120 post LCO commissions and taxes.

November 2014 24


TRAI regulations, Star RIO implementation to act as catalyst for price hikes In February 2014, TRAI issued amendments mandating that only broadcasters

can enter interconnection agreements with MSO/DTH operators and aggregators are not allowed to change the bouquets as offered in the reference interconnect offer of the broadcaster.

There were 239 pay channels offered by 55 pay broadcasters, distributed by 30 broadcasters/aggregators. Top-3 aggregators controlled 59% of the total pay TV channels, which included almost all the popular pay TV channels.

A timeframe of six months was prescribed for the broadcasters to amend their RIOs, enter into new interconnection agreements and file the amended RIOs and the interconnection agreements with TRAI.

Post these regulations, Media-Pro, the erstwhile JV between Zee and Star Group, was discontinued. Zee and Star now distribute their channels independently.

Recently, Star group announced that it will cease to enter independent negotiations with MSOs for phase I/II markets and would distribute its channels only on the basis of a transparent Reference Interconnect Offer (RIO).

Star RIO offers three distinct incentives (discount on card rate) to MSOs on every channel on offer: 1) Penetration incentive (what proportion of subscriber base is the channel reaching), 2) Logical channel number incentive (placement of the channel in its genre and language) and 3) channel count incentive (number of channels attaining a specified penetration slab)

Given Star’s leading viewership share across genres, Star RIO would increase need for addressability of subscribers. It will also be a catalyst for taking price hikes for the MSOs given expected increase in net pay-out to Star.

Exhibit 52: Card rate of popular Star India channels

Channel Genre Rate (INR/month)

Star Plus Hindi GEC 9.1

Star Gold Hindi Movies 8.5

Channel V Hindi GEC (Youth) 0.5

Life OK Hindi GEC 10.6

Movies OK Hindi Movies 8.2

Star Movies English Movies 8.5

NGC Infotainment 3.0

Total 48.4

Source: Company, MOSL Exhibit 53: Sample incentive calculation for Star Plus

Criteria Incentive

A. Penetration incentive > 90% Slab 9%

B. LCN Incentive @ Slab 1 7%

C. Channel Count incentive (i+ii+iii) 8%

i. No. of Channels with penetration>10% 2%

ii. No. of Sports Channels with penetration>10% 4%

iii. No. of Channels with penetration>90% 2%

Total incentive (A+B+C) 24%

Star Plus card rate 9.1

Effective rate per subscriber (INR/month) 6.9


November 2014 25


Companies BSE Sensex: 28,163 S&P CNX: 8,426 November 2014

Companies Covered Pg

Den Networks 27

Hathway Cable 43

SITI Cable Network 56

Dish TV India 68

November 2014 26


THIS SPACE IS INTENTIONALLY LEFT BLANK

Den Networks

November 2014 27

Well placed given scale and balance sheet strength High new business losses a concern; ~50% underlying EBITDA CAGR

Den Networks (DEN) is the largest cable MSO in India, with a subscriber universe of 13m (including 6.6m digital) in over 200 cities.

We expect its digital subscriber base to increase from 6m in FY14 to 15m in FY18, driving 47% CAGR in net ARPU from INR24 to INR113 and 38% CAGR in recurring EBITDA/subscriber from INR10 to INR37.

Focused group presence in cable distribution has driven DEN’s leadership in the industry, despite it being a late entrant (founded in 2007). However, possibility of sustained losses in its new business initiatives (Broadband and Soccer) is a concern (EBITDA loss of INR120-150m per quarter currently).

We initiate coverage with a Neutral rating. Our price target of INR165 implies 10% upside.

~50% recurring EBITDA CAGR: Increase in net subscription income in the post-digitization scenario should drive 48% recurring EBITDA CAGR for DEN, with EBITDA (ex-activation) increasing from ~INR1.5b in FY14 to ~INR7.2b in FY18. Growth would be primarily driven by 47% CAGR in net subscription ARPU (from ~INR24 in FY14 to ~INR113 in FY18). Implied EBITDA per cable subscriber (ex-activation) should improve from ~INR10 in FY14 to ~INR37 in FY18. Largest national MSO despite being late entrant: Mr Sameer Manchanda, who has over two decades of experience in the Indian media and television industry, founded DEN in 2007. Despite being a relatively late entrant, DEN has attained industry leadership, with strong presence in HSM markets and leading market share across its 200-city-13-state footprint. Almost half of the universe base already digitized: DEN’s current digital subscriber base stands at 6.6m of the ~13m universe consisting of ~2m phase I, ~3m phase II, and 1.6m phase III/IV digital subscribers (balance ~6.4m are still in the analog mode). With almost half of the universe digitized, DEN has a blend of investments on the ground and further growth opportunities within its universe. It has operations in 200 cities across 13 states, with strong leadership in the digital subscriber base across HSM markets like Delhi and UP. We expect DEN to add further ~9m net digital subscribers over FY14-18, driving a digital subscriber CAGR of ~26% as compared to expected universe subscriber CAGR of ~4%. Net ARPU to increase by ~3.5x by FY18: The current net ARPU in phase I stands at INR85-100/month while phase II monetization is INR50-55. With increase in digital subscribers, we expect net subscription ARPU to jump from ~INR24 in FY14 to ~INR113 in FY18 (47% CAGR), led by reduction in LCO/distributor share (assuming modest underlying gross universe ARPU CAGR of 6%).

Initiating Coverage | Sector: Media

Den Networks CMP: INR150 TP: INR165 Neutral

BSE Sensex S&P CNX

28,163 8,426

Stock Info

Bloomberg DEN IN

Equity Shares (m) 178.2

52-Week Range (INR) 246/110

1, 6, 12 Rel. Per (%) -15/-33/-58

M.Cap. (INR b) 26.7

M.Cap. (USD b) 0.4

Financial Snapshot (INR b)

Y/E Mar 2015E 2016E 2017E Net Sales 12.7 22.8 33.5 EBITDA 2.0 5.9 5.5 EBITDA# 1.2 1.6 3.1 Adj. Net Profit 0.1 1.5 1.0 Adj. EPS (INR) 0.4 8.7 5.4 Adj. EPS Gr. -87.2 2022.8 -37.1 BV/Sh (INR) 112.7 124.8 132.3 RoE (%) 0.4 7.3 4.2 RoCE (%) 2.8 9.3 6.2 Valuations

P/E (x) 367.9 17.3 27.5 EV/EBITDA (x)* 19.1 6.8 7.5 EV/ rec EBITDA 31.2 24.3 13.4 EV/Sub (INR)* 3,093 2,780 2,748 *Based on attributable EBITDA and subs post minority stake Shareholding pattern (%)

Sep-14 Jun-14 Mar-13

Promoter 40.1 40.1 40.1

DII 2.2 3.2 3.6

FII* 20.3 18.5 16.8

Others 37.4 38.3 39.5

*FII includes depository receipts

Stock Performance (1-year)

100

140

180

220

260

Nov

-13

Feb-

14

May

-14

Aug

-14

Nov

-14

Den NetworksSensex - Rebased


Den Networks CMP: INR150 TP: INR165 Neutral

Den Networks

November 2014 28

Healthy carriage and placement yield, driven by HSM presence: DEN has a healthy carriage and placement (C&P) yield per universe subscriber at ~INR32/month as compared to ~INR43 for HATH and ~INR19 for SCNL. While DEN’s presence across contiguous HSM markets drives C&P income, we note that the HSM presence advantage would be relatively less critical in the digitized scenario as compared to the analog regime.

Net content cost per subscriber to increase on higher proportion of digital subscribers: FY14 content cost was ~INR26/subscriber/month as compared to C&P revenue of ~INR32, implying negative net content cost of ~INR6/month for DEN on its universe base of 13m. With increase in the proportion of digital subscribers, we expect net content cost per sub to increase to ~INR33 by FY18.

Ready for broadband launch starting from Delhi: DEN plans to undertake significant investments in the broadband business and has already incurred an EBITDA loss of INR186m in this business during 1HFY15. It has hired a top strategy consultant for overall project direction/management and has tied up with key technology vendors – Cisco for network equipment, Wipro for OSS/BSS, and Tata Communications for fiber, backbone, CDN, etc. Delhi is the first city of launch, followed by UP. We model a broadband subscriber base of 0.2m and broadband revenue of INR1.2b for DEN by FY18. Indian Super League team ownership aimed at creating better brand visibility: DEN has been awarded rights for a football club for Delhi city (named ‘Delhi Dynamos’) in the Indian Super League (ISL) founded by IMG Reliance and Star India. The company expects to create enhanced brand visibility through this initiative. Given the pure opex nature of the business model, first-year loss from the ISL team is expected to be ~INR150m.

Likely cumulative capex requirement of ~INR18b over FY14-18: We estimate cumulative capex requirement of ~INR18b over FY14-18 towards achieving 11m cumulative gross digital cable subscriber additions, ~0.2m broadband subscriber additions, and capex on head-ends and other network infrastructure. Capex is expected to peak in FY16, led by investments towards digitization, thereafter settling down at maintenance level of INR2.2b-2.4b from FY18. Equity infusion of INR9.6b post March 2013; net cash balance sheet a significant advantage: DEN raised ~INR9.6b post March 2013 at ~INR218/sh through preferential allotment and QIP. Post the capital raising, DEN became the only national MSO with a net cash (~INR2.4b) balance sheet in FY14, positioning it well to undertake investments towards future growth opportunities in digitization, cable universe expansion, and broadband. DCF-based target price INR165 implies 10% upside; Neutral: We initiate coverage on DEN with a Neutral rating. Our DCF-based one-year forward target price is INR165, which implies an exit EV/recurring EBITDA multiple of 7x (FY18E). We expect 22% EBITDA CAGR over FY14-20, primarily driven by 32% CAGR in net ARPU. We have used a WACC of 13.3% and 5% terminal FCF growth.

Den Networks

November 2014 29

Den Networks: Geographical Footprint

Exhibit 54: Den Networks: Phase wise presence

Phase Nos of cities

Details

I 3 Delhi, Mumbai, Kolkata

II 24

Banglore, Pune, Surat, Jaipur, Lucknow, Kanpur, Thane, Vadodara, Pimpri Chinchwad, Gaziabad, Nashik, Kalyan Dombivli, Rajkot, Faridabad, Patna, Navi Mumbai, Agra, Howrah, Mysore, Meerut, Ranchi, Varanasi, Jodhpur, Allahabad

III & IV 173 -

Exhibit 55: Subscriber packages (Delhi) Monthly Package Price

Basic Service Tier 100

Intro 180

Family 225

Platinum 270


Haryana Delhi

Uttar Pradesh

West Bengal Jharkhand

Goa

Maharashtra

Madhya Pradesh

Rajasthan

Gujarat

Karnataka

Uttaranchal

Bihar

Kerela

Den Networks

November 2014 30

Exhibit 56: Subscriber base (m)

2.0 2.1 2.1 2.2 2.33.0 3.1 3.2 3.4 3.51.0 1.8

7.09.2 9.6

6.0 7.0

12.414.8 15.413.0 12.5

14.4 15.0 15.4

FY14 FY15E FY16E FY17E FY18E

Phase I Phase II Phase III/IV Total Universe


Exhibit 57: Gross and Net ARPU (INR/month)

24 31 4268

113

142 137 135121

94

166 167 176 189 207


Net ARPU LCO and distributor share Gross ARPU


Exhibit 58: Net content cost (INR/sub/month)

-6 -1 318

3332 30 29

27

2626 29 32

45

59


Net content cost/sub/monthC& P revenue/sub/monthContent cost/subscriber/month


Exhibit 59: EBITDA (ex-activation) per subscriber (INR/month)

10 12 14 163720 20 25

34

42

-6 -1

3

18

33

24 3142

68

113


EBITDA Other cost Net content cost Net ARPU


Den Networks

November 2014 31

Exhibit 60: FY14 revenue break-up

Susbcription36%

Activation14%

Carriage42%

Others8%



Susbcription83%

Activation3%

Carriage10%

Others3%


Exhibit 62: Net subscription revenue (INR b)

3.54.7

6.7

12.0

20.6



Exhibit 63: EBITDA ex-activation/one-offs (INR b)

1.5 1.21.6

3.1

7.2



Exhibit 64: Capex and Capex/sales (INR b, %)

4.7 2.5 8.6 4.8 2.3

42

20

38

14

5

0

10

20

30

40

50

0.0

2.0

4.0

6.0

8.0

10.0


Capex Capex/Sales (%)


Exhibit 65: FCFF (INR b)

-1.6-2.4

-1.2

4.1 4.34.9

FY15E FY16E FY17E FY18E FY19E FY20E


Den Networks

November 2014 32

Exhibit 66: DEN: Key operating metrics


Phase wise subscriber base (m)

Phase I 2.0 2.1 2.1 2.2 2.3

Phase II 3.0 3.1 3.2 3.4 3.5

Phase III/IV 1.0 1.8 7.0 9.2 9.6

Digital 6.0 7.0 12.4 14.8 15.4

Analog 7.0 5.5 2.0 0.2 0.0

Total Universe 13.0 12.5 14.4 15.0 15.4

Phase wise gross ARPU (INR)

Phase I 205 205 226 248 273

Phase II 165 165 182 200 220

Phase III/IV 155 155 155 171 188

Analog 150 161 172 184 197

Total Universe 166 167 176 189 207

YoY (%) 1 5 7 9

Phase wise net ARPU (INR)

Phase I 64 78 93 114 147

Phase II 41 54 69 92 121

Phase III/IV 16 16 26 55 103

Analog 8 8 8 8 8

Total Universe 24 31 42 68 113

YoY (%) 29 34 64 66

Per subscriber carriage and content cost (INR)

Content cost/subscriber/month 26 29 32 45 59

C& P revenue/sub/month 32 30 29 27 26

Net content cost/sub/month -6 -1 3 18 33

Net content cost/net ARPU -27 -4 7 26 30

Per subscriber monthly metrics

Gross revenue 166 167 176 189 207

LCO share 142 137 135 121 94

Net revenue 24 31 42 68 113

Net content cost -6 -1 3 18 33

Other cost 20 20 25 34 42

Total operating cost 14 19 28 52 76

EBITDA 10 12 14 16 37


Den Networks

November 2014 33

Exhibit 67: DEN: Key financial metrics

Key Financials (INR b) FY14 FY15E FY16E FY17E FY18E

Revenue 11.2 12.7 22.8 33.5 44.6

YoY (%) 22 13 80 47 33

EBITDA 3.0 2.0 5.9 5.5 8.3

YoY (%) 39 -33 191 -6 50

EBITDA margin (%) 27.1 15.9 25.7 16.5 18.6

EBITDA ex activation/one-offs 1.5 1.2 1.6 3.1 7.2

YoY (%) -17 33 87 134

EBITDA margin ex activation (%) 13.3 9.8 7.2 9.2 16.1

Capex analysis (INR b)

Capex 4.7 2.5 8.6 4.8 2.3

Capex/Sales (%) 42 20 38 14 5

Gross STB adds (m) 2.9 1.2 5.8 2.9 1.2

Net STB adds (m) 2.9 1.0 5.4 2.4 0.6

STB Capex/gross add (INR) 1,411 1,411 1,341 1,341 1,341

Revenue break-up (INR b)

Gross subscription revenue (incl LCO share) 23.9 25.6 28.4 33.2 37.6

Net subscription revenue (excl LCO share) 3.5 4.7 6.7 12.0 20.6

Reported subscription revenue (post gross billing) 4.1 6.9 13.2 25.1 37.4

Activation revenue 1.5 0.8 4.2 2.4 1.1

Carriage and placement revenue 4.7 4.6 4.6 4.8 4.7

Other revenue (incl broadband) 0.9 0.4 0.7 1.1 1.5

Total revenue 11.2 12.7 22.8 33.5 44.6


Den Networks

November 2014 34

Exhibit 68: DEN - Key subsidiary financials (FY14) Shareholding Revenue PBT PAT

Den Entertainment Network Pvt. Ltd. 100% 11 9 6

Den Digital Entertainment Gujarat Pvt. Ltd. 100% 17 0 0

Aster Entertainment Pvt. Ltd. 100% 13 0 -1

Shine Cable Network Pvt. Ltd. 100% 20 -1 -1

DEN Krishna Cable TV Network Pvt. Ltd. 74% 72 12 8

Den Mahendra Satellite Pvt. Ltd. 60% 4 1 0

DEN Pawan Cable Network Pvt. Ltd. 63% 47 8 6

DEN Harsh Mann Cable Network Pvt. Ltd. 51% 4 1 1

Den Classic Cable TV Services Pvt. Ltd. 51% 6 0 0

Den Montooshah Network Pvt. Ltd. 100% 4 -1 -1

Den Bindra Network Pvt. Ltd. 51% 4 0 0

Den Ashu Cable Pvt. Ltd. 51% 41 8 6

Den Nanak Communication Pvt. Ltd. 51% 0 0 0

Den Futuristic Cable Networks Pvt. Ltd. 100% 0 -17 -17

Den Digital Cable Network Pvt. Ltd. 51% 105 -1 -1

Den Saya Channel Network Pvt. Ltd. 51% 80 9 6

Den Faction Communication System Pvt.Ltd. 51% 16 -6 -3

Radiant Satellite (India) Pvt. Ltd. 51% 78 11 8

Den Mewar Rajdev Cable Network Pvt. Ltd. 95% 41 -14 -10

Den Radiant Satelite Cable Network Pvt. Ltd. 65% 5 1 1

Den RIS Cable Network Pvt. Ltd. 100% 0 0 0

Den Sky Media Network Pvt. Ltd. 99% 48 -6 11

Meerut Cable Network Pvt. Ltd. 51% 18 2 2

DEN Crystal Vision Network Pvt. Ltd. 51% 2 -1 -1

Den Mod Max Cable Network Pvt. Ltd. 51% 7 1 1

DEN BCN Suncity Network Pvt. Ltd. 51% 8 3 2

Den Pradeep Cable Network Pvt. Ltd. 51% 12 -1 -1

Den Prince Network Pvt. Ltd. 51% 7 -2 -2

Den Jai Ambey Vision Cable Pvt. Ltd. 51% 11 0 0

DEN Varun Cable Network Pvt. Ltd. 51% 34 0 0

DEN Aman Entertainment Pvt. Ltd. 51% 15 3 2

Den Satellite Cable TV Network Pvt. Ltd. 51% 21 1 0

Den FK Cable Tv Network Pvt. Ltd. 51% 52 24 16

Den Budaun Cable Network Pvt. Ltd. 51% 10 -1 0

DEN Ambey Cable Networks Pvt. Ltd. 51% 546 204 139

Den Ambey Citi Cable Network Pvt. Ltd. 26% 7 0 0

Den Ambey Jhansi Cable Network Pvt. Ltd. 51% 32 -1 -1

Den Ambey Farukabad Cable Network Pvt. Ltd. 51% 31 3 2

Den Kashi Cable Network Pvt. Ltd. 51% 21 -10 -8

Den Enjoy Cable Networks Pvt. Ltd. 51% 485 229 152

DEN Prayag Cable Networks Pvt. Ltd. 38% 58 8 5

Den Deva Cable Network Pvt. Ltd. 26% 4 1 0

Den Maa Sharda Vision Cable Networks Pvt.Ltd. 51% 39 2 2

Den Fateh Mareketing Pvt. Ltd. 51% 89 -2 -2

Den Enjoy Navaratan Network Pvt. Ltd. 26% 59 5 4

Den Networks

November 2014 35

Shareholding Revenue PBT PAT

Den Shiva Cable Network Pvt. Ltd. 87% 4 -1 -1

Den Narmada Network Pvt. Ltd. 97% 6 1 1

Dewshree Network Pvt. Ltd. 51% 0 0 0

Shree Siddhivinayak Cable Network Pvt. Ltd. 51% 11 -7 -5

Mahadev Den Network Pvt. Ltd. 95% 10 0 0

Den Patel Entertainment Network Pvt. Ltd. 51% 12 -3 -2

Mahadev Den Cable Network Pvt. Ltd. 51% 1 0 0

Den MCN Cable Network Pvt. Ltd. 51% 2 -2 -1

Drashti Cable Network Pvt. Ltd. 51% 2 -6 -4

Den-Manoranjan Satellite Pvt. Ltd. 51% 253 53 36

Den Nashik City Cable Network Pvt. Ltd. 51% 35 0 0

Den Supreme Satellite Vision Pvt. Ltd. 51% 26 -4 1

Den Bellary City Cable Pvt. Ltd. 51% 46 -1 -1

Den Malayalam Telenet Pvt. Ltd. 51% 33 1 0

Den Malabar Cable Vision Pvt. Ltd. 51% 8 -5 -5

Den Elgee Cable Vision Pvt. Ltd. 51% 16 1 0

Den Rajkot City Communication Pvt. Ltd. 51% 152 33 24

Den Infoking Channel Entertainers Pvt. Ltd. 97% 19 2 2

Den Ucn Network India Pvt. Ltd. 51% 42 -1 0

Fortune (Baroda)Network Pvt. Ltd. 51% 24 0 0

Galaxy Den Media & Entertainment Pvt. Ltd. 51% 22 -11 -10

Bali Den Cable Network Pvt. Ltd. 51% 12 0 0

Mahavir Den Entertainment Pvt. Ltd. 51% 112 21 14

Den Citi Channel Pvt. Ltd. 51% 18 0 0

Amogh BroadBand Services Pvt. Ltd. 100% 239 -22 -18

Star Channel Den Network Pvt. Ltd. 26% 6 0 0

Kishna DEN CableNetwork Pvt. Ltd. 26% 6 -1 -1

Fab Den Network Pvt. Ltd. 51% 38 0 0

Den Satellite Network Pvt. Ltd. 50% 865 210 144

United Cable Network (Digital) Pvt. Ltd. 51% 2 -1 -1

Shree Ram Den Network Pvt. Ltd. 51% 0 0 0

Den Krishna Vision Pvt. Ltd. 51% 3 0 0

Cab-i-Net Communications Pvt. Ltd. 51% 41 -1 -2

Divya Drishti Den Network Pvt. Ltd. 26% 4 0 0

Den Sahyog Cable Network Pvt. Ltd. 51% 14 0 0

Den Sariga Communications Pvt. Ltd. 51% 4 -1 -1

DEN New Broad Communication Pvt. Ltd. 26% 171 6 3

IME Networks Pvt. Ltd. 100% 0 0 0

Astron Media Networks Pvt. Ltd. 100% 1 0 0

Den Kattakada Telecasting and Cable Services Pvt. Ltd. 51% 30 -3 -3

Kerala Entertainment Pvt. Ltd. 100% 16 -1 -1

Den A.F. Communication Pvt. Ltd. 51% 7 0 0

Big Den Entertainment Pvt. Ltd. 51% 20 2 2

Sree Gokulam Starnet Communication Pvt. Ltd. 51% 9 -3 -3

Rajasthan Entertainment Pvt. Ltd. 100% 3 0 0

Fun Cable Network Pvt. Ltd. 51% 12 -3 -3

Den Networks

November 2014 36


Uttar Pradesh Digital Cable Network Pvt. Ltd. 100% 1 0 0

Den Steel City Cable Network Pvt. Ltd. 51% 15 -2 -2

Sanmati DEN Cable TV Network Pvt. Ltd. 51% 12 0 0

Crystal Vision Media Pvt. Ltd. 51% 79 9 0

Multi Channel Cable Network Pvt. Ltd. 51% 16 -2 -2

Victor Cable Tv Network Pvt. Ltd. 51% 19 0 0

Gemini Cable Network Pvt. Ltd. 51% 59 -14 -14

Matrix Cable Network Pvt. Ltd. 100% 29 6 5

DEN Enjoy SBNM Cable Network Pvt. Ltd. 26% 9 1 1

Ambika DEN Cable Network Pvt. Ltd. 51% 6 0 0

Saturn Digital Cable Pvt. Ltd. 26% 7 1 0

Multi Star Cable Network Pvt. Ltd. 51% 2 0 0

VM Magic Entertainment Pvt. Ltd. 51% 0 -2 -2

Antique Communications Pvt. Ltd. 51% 5 0 0

DEN Bhadohi Cable Network Pvt. Ltd. 26% 4 1 1

Sanmati Entertainment Pvt. Ltd. 51% 7 1 1

Capital Entertainment Pvt. Ltd. 100% 0 0 0

Disk Cable Network Pvt. Ltd. 51% 0 0 0

Shaakumbari Den Media Pvt. Ltd. 51% 13 0 0

Silverline Television Network Pvt. Ltd. 51% 28 15 10

Eminent Cable Network Pvt. Ltd. 51% 243 68 48

Trident Entertainment Pvt. Ltd. 51% 15 -4 -3

Rose Entertainment Pvt. Ltd. 51% 12 4 3

Blossom Entertainment Pvt. Ltd. 51% 4 -1 -1

Ekta Entertainment Network Pvt. Ltd. 51% 58 7 5

DEN ADN NetworkPvt. Ltd. 51% 244 36 24

CCN DEN Network Pvt. Ltd. 51% 272 34 23

Devine Cable Network Pvt. Ltd. 51% 2 0 0

Nectar Entertainment Pvt. Ltd. 51% 5 -1 0

DEN STN Television Network Pvt. Ltd. 26% 20 1 0

Multitrack Cable Network Pvt. Ltd. 51% 13 1 1

Glimpse Communications Pvt. Ltd. 51% 9 0 0

Indradhanush Cable Network Pvt. Ltd. 51% 13 -1 -1

Adhunik Cable Network Pvt. Ltd. 51% 4 -1 0

Pee Cee Cable Network Pvt. Ltd. 51% 5 0 0

Libra Cable Network Pvt. Ltd. 51% 88 13 9

Platinum Cable TV Network Pvt. Ltd. 51% 80 12 8

Maitri Cable Network Pvt. Ltd. 100% 0 0 0

Melody Cable Network Pvt. Ltd. 31% 1 -1 0

Mountain Cable Network Pvt. Ltd. 26% 1 -1 -1

Portrait Cable Network Pvt. Ltd. 26% 2 -1 -1

Mansion Cable Network Private Ltd. 51% 378 138 92

Skynet Cable Network Private Limited 100% 14 0 0

DEN Discovery Digital Networks Private Limited 51% 215 30 20

Jhankaar Cable Network Private Limited 51% 8 -2 -2

Konark IP Dossiers Private Limited 26% 75 -11 -10

Den Networks

November 2014 37


Den ABC Cable Networks Ambarnath Private Limited 26% 37 4 4

Den Premium Multilink Cable Network Private Limited 51% 61 20 16

Angel Cable Network Private Limited 26% 5 1 1

Scorpio Cable Network Private Limited 51% 2 0 0

Desire Cable Network Private Limited 51% 0 0 0

Marble Cable Network Private Limited 51% 1 0 0

Augment Cable Network Private Limited 51% 1 0 0

ABC Cable Network Private Limited 26% 2 0 0

Den MTN Star Vision Cable Private Limited 26% 1 0 0

Star Den Media Services Private Limited 50% 595 98 -10

Aggregate 7,338 1,192 719

Source: Company

Exhibit 69: DEN: Attributable revenue calculation (INR m)

FY14 Consolidated Revenue 11,167

Of which Minority share 3,462

Minority share of revenue 31

Proportionate Den share of revenue 69

Source: Company, MOSL Exhibit 70: DEN: Attributable PAT calculation (INR m)

FY14 Consolidated PAT 751

Of which Minority share 364

Minority share of PAT 48

Proportionate Den share of PAT 52


Den Networks

November 2014 38

Exhibit 71: Den Networks: DCF valuation

INR b FY14 FY15E FY16E FY17E FY18E FY19E FY20E FY14-20

CAGR

Subscriber universe (m) 13.0 12.5 14.4 15.0 15.4 15.8 16.3 4%

YoY (%) -4 15 4 3 3 3

Net ARPU (INR/month) 24 31 42 68 113 119 125 32%

YoY (%) 29 34 64 66 6 5

Revenue 11.2 12.7 22.8 33.5 44.6 48.1 51.9 29%

Revenue growth (%) 13 80 47 33 8 8

EBITDA 3.0 2.0 5.9 5.5 8.3 8.7 9.8 22%

EBITDA margin (%) 27 16 26 16 19 18 19

EBITDA growth (%) -33 191 -6 50 5 12

EBITDA per cable subscriber (INR/month) 10 12 14 16 37 38 41 26%

Capex 4.7 2.5 8.6 4.8 2.3 2.2 2.4

Capex/Sales (%) 42 20 38 14 5 5 5

Change in working capital 4.1 1.1 -1.4 1.2 0.3 0.5 0.5

Tax outflow 0.1 1.1 0.7 1.5 1.7 2.1

Tax rate (%) 34 34 34 34 34 34

FCF -5.8 -1.6 -2.4 -1.2 4.1 4.3 4.9

FCF growth (%) -71 47 -51 -443 5 14

Terminal value 62

Mar' 15E

PV of FCF -2.1 -0.9 2.8 2.6 2.6

Net Debt (Mar-15E) 1

PV-Explicit Period 5

PV-Terminal Value 33

Equity Value 38

Implied FY16 EV/EBITDA ex activation 24.0x

Implied FY16 EV/Sub (INR) 2,748 Equity value for shareholders (~70% economic interest) 26

Mar 15 Equity value per share (INR) 148

Dec 15 Equity value per share (INR) 165

Terminal value assumptions

EBITDA margin 19%

Capex/Sales 5%

Cash tax rate 34%

FCF margin 9% WACC Calculations

FCF growth 5.0% Wt (%) Cost Risk Free ERP Beta

FCF multiple 12.1x Equity 0.60 17.0% 8.5 6.5 1.3

EBITDA multiple 6.0x Debt 0.40 7.8%

WACC 13.3% WACC 13.3%


Den Networks

November 2014 39

Exhibit 72: DEN: EV/EBITDA based valuation (INR b)

FY18 EBITDA (ex-activation) 7.2

EV/EBITDA 7.0

Target EV 50

FY18 Net Debt -1

Target market value 51

Less minority share (~30%) 15

March 2017 target valuation 36

December 2015 target valuation (17% discounting factor) 29

One-year fwd target value per share 165


Den Networks

November 2014 40

Leadership team Mr Sameer Manchanda, Chairman & Managing Director Mr Manchanda founded DEN in 2007 with a vision to bring about a paradigm shift in India's cable TV distribution industry through consolidation and digitization. He was also instrumental in the formation of Star DEN, a 50-50 JV between DEN and the Star TV group. He was a co-founder of the erstwhile IBN18, home of CNN IBN and IBN7, and was its Joint Managing Director from 2005 to 2010. He was also a founding member of the News Broadcasters Association and served as its President in 2009 and 2010. Prior to IBN18, he served as a Director on the board of NDTV. Mr Manchanda is a Chartered Accountant with over two decades' experience in the Indian Media & Television industry. He has been associated with the Indian Television industry since 1984. He is currently a member of the CII National Committee on Media & Entertainment and the FICCI Broadcast Forum. Mr Mohammad Ghulam Azhar, COO Mr Azhar is one of the founding members of DEN has played an active part in devising and executing strategies for JVs, mergers, and acquisitions for the overall growth of the company. He has also played a key role in several fund raising efforts including the DEN IPO, the first IPO in the Indian Cable TV industry. He has over 18 years of experience in Strategic and Financial Planning, Fund Raising, Capital Structuring, and Mergers & Acquisitions. He holds a Masters degree in Finance and Control. Mr Rajesh Kaushall, CFO Mr Kaushall has previously worked with Price Waterhouse Coopers (PwC) and has held senior management positions at Lucent Technologies Hindustan Limited (a subsidiary of Lucent Technologies, a NYSE listed corporation). Prior to joining DEN in September 2007, he was Financial Controller at Tekelec Systems’ India Office. He is a Chartered Accountant and a Costs and Works Accountant. He has over 17 years of experience in best international practices and domain expertise in Financial Systems and Processes, Project Controllership, Treasury, and Tax Compliance.

Den Networks

November 2014 41

Financials and valuations (Consolidated) Income Statement

(INR Million)

Y/E March 2013 2014 2015E 2016E 2017E 2018E Revenues 9,141 11,167 12,657 22,775 33,454 44,629 Change (%) -19.9 22.2 13.3 79.9 46.9 33.4 Total Expenses 6,960 8,145 10,639 16,912 27,947 36,350 EBITDA 2,181 3,022 2,018 5,864 5,506 8,280 % of Revenue 23.9 27.1 15.9 25.7 16.5 18.6 Change (%) 131.0 38.5 -33.2 190.6 -6.1 50.4 Depn. & Amortization 811 1,474 1,720 2,337 3,086 3,483 EBIT 1,370 1,548 298 3,527 2,420 4,796 Net finance cost 471 890 1,036 1,019 943 859 Other Income 206 582 889 704 544 584 Exceptional items 31 110 0 0 0 0 PBT 1,074 1,130 151 3,211 2,020 4,521 Tax 294 379 51 1,077 677 1,516 Rate (%) 27.4 33.5 33.5 33.5 33.5 33.5 Reported PAT 780 751 101 2,135 1,343 3,005 Minority interest 156 367 28 598 376 841 Reported Net profit 623 384 72 1,537 967 2,164 Adjusted Net profit 655 494 72 1,537 967 2,164 Change (%) NA NA NA NA -37.1 123.8

Balance Sheet

(INR Million) Y/E March 2013 2014 2015E 2016E 2017E 2018E Share Capital 1,328 1,776 1,776 1,776 1,776 1,776 Add. Paid up Capital 6,151 15,317 15,317 15,317 15,317 15,317 Reserves 1,274 1,462 1,534 3,071 4,038 6,202 Net Worth 8,752 18,555 18,627 20,164 21,131 23,295 Minority Interest 992 1,365 1,393 1,991 2,367 3,208 Loans 7,475 10,020 10,347 9,686 8,861 8,033 Other Liabilities 92 87 119 168 301 516 Deferred Tax Liability 48 51 51 51 51 51 Capital Employed 17,359 30,078 30,537 32,060 32,711 35,103 Gross Block 12,664 17,231 19,731 28,352 33,201 35,537 Less : Depreciation 2,205 3,679 5,398 7,735 10,822 14,305 CWIP 662 940 2,100 700 280 280 Fixed Assets 11,122 14,492 16,432 21,316 22,660 21,512 Investments 1,314 3,795 3,795 3,795 3,795 3,795 Curr. Assets 10,374 17,331 15,049 15,084 14,509 19,709 Debtors 3,256 3,919 3,893 5,337 6,119 7,621 Cash & Bank Balance 3,364 8,630 6,000 4,000 2,000 5,000 Other Current Assets 3,754 4,782 5,157 5,747 6,389 7,088 Curr. Liab. & Prov. 5,452 5,540 4,739 8,135 8,252 9,913 Creditors 3,493 3,115 2,661 4,571 4,626 5,545 Other Current Liabilities 1,959 2,425 2,078 3,564 3,626 4,368 Net Curr. Assets 4,922 11,791 10,310 6,949 6,257 9,796 Appl. of Funds 17,359 30,078 30,537 32,060 32,711 35,103 E: MOSL Estimates

Den Networks

November 2014 42

Financials and valuations (Consolidated) Ratios

Y/E March 2013 2014 2015E 2016E 2017E 2018E Basic (INR) EPS 5.0 3.2 0.4 8.7 5.4 12.2 Cash EPS 11.1 12.7 10.1 21.8 22.8 31.8 Book Value 74.0 128.4 112.7 124.8 132.3 149.3 DPS 0.0 0.0 0.0 0.0 0.0 0.0 Payout %(Incl.Div.Taxes) 0.0 0.0 0.0 0.0 0.0 0.0

Valuation (x)

P/E 47.1 367.9 17.3 27.5 12.3 Cash P/E 11.8 14.9 6.9 6.6 4.7 EV/EBITDA* 11.8 19.1 6.8 7.5 4.5 EV/EBITDA ex-activation * 24.1 31.2 24.3 13.4 5.2 EV/Sales* 3.2 3.1 1.8 1.2 0.8 EV/sales ex-activation* 3.7 3.3 2.2 1.3 0.9 Price/Book Value 1.2 1.3 1.2 1.1 1.0 EV/Sub (INR)* 2,742 3,093 2,780 2,748 2,429

Profitability Ratios (%)

RoE 7.1 3.3 0.4 7.3 4.2 8.7 RoCE 8.8 6.9 2.8 9.3 6.2 10.9

Turnover Ratios

Debtors (Days) 130 128 112 86 67 62 Asset Turnover (x) 0.93 0.77 0.69 1.06 1.38 1.79

Leverage Ratio

Net Debt/Equity (x) 0.4 0.1 0.2 0.3 0.3 0.1

Cash Flow Statement

(INR Million)

Y/E March 2013 2014 2015E 2016E 2017E 2018E Op.Profit/(Loss) bef Tax 2,181 3,022 2,018 5,864 5,506 8,280 OI/exceptional items 175 472 889 704 544 584 Interest Paid -471 -890 -1,036 -1,019 -943 -859 Direct Taxes Paid -352 -520 -141 -1,185 -807 -1,672 (Inc)/Dec in Wkg. Cap. 165 -1,464 -1,026 1,519 -1,045 -169

CF from Op.Activity 1,698 621 703 5,882 3,255 6,164

(inc)/Dec in FA + CWIP -5,414 -4,844 -3,660 -7,221 -4,430 -2,336 (Pur)/Sale of Investments -1,091 -2,480 0 0 0 0 Other investing activity/adj 40 -195 0 0 0 0 CF from Inv.Activity -6,464 -7,519 -3,660 -7,221 -4,430 -2,336 Issue of Shares 68 9,614 0 0 0 0 Inc/(Dec) in Debt 4,893 2,545 327 -661 -825 -828 Others 163 5 0 0 0 0 CF from Fin.Activity 5,124 12,165 327 -661 -825 -828 Inc/(Dec) in Cash 358 5,266 -2,630 -2,000 -2,000 3,000 Add: Opening Balance 3,006 3,364 8,630 6,000 4,000 2,000 Closing Balance 3,364 8,630 6,000 4,000 2,000 5,000

Hathway Cable & Datacom

November 2014 43

Strong execution drives digital and broadband leadership Well placed to monetize investments; ~90% underlying EBITDA CAGR

With a cable universe of 11.7m (8.4m digital) and 0.42m broadband subscribers, HATH is the largest Indian cable MSO, based on digital subscribers (second largest overall), with leadership in phase I/II and broadband.

We expect its digital subscriber base to increase from 8m in FY14 to 15m in FY18, driving 32% CAGR in net ARPU from INR40 to INR121 and 110% CAGR in recurring EBITDA/subscriber from INR3 to INR55.

HATH has a 15-year+ track record in the Cable business, with a strong promoter group having diversified business interests.

We initiate coverage with Buy. Our price target of INR430 implies 22% upside.

~90% recurring EBITDA CAGR: Increase in net subscription income in the post-digitization scenario should drive ~88% recurring EBITDA CAGR for Hathway Cable and Datacom (HATH). EBITDA (ex-activation and one-offs) is likely to increase from INR0.9b in FY14 to INR11.7b in FY18. Growth would be primarily driven by 32% CAGR in net subscription ARPU (from ~INR40 in FY14 to ~INR121 in FY18) and operating leverage. Implied EBITDA per cable subscriber (ex-activation) is likely to improve from ~INR3 in FY14 to ~INR55 in FY18.

Track record of over 15 years in cable business: HATH has a 15+ year track record in the cable business and manages B2C subscriber base of 0.6m, the largest base of primary point subscribers among leading national MSOs. HATH is promoted by the Rajan Raheja group, which has diversified business interests spanning Batteries, Building Materials, Software, Publishing, Retail, etc. The promoter group also owns Asianet Cable, which is the market leader in Kerala.

Significant investments in phase I/II already in place: HATH’s current digital subscriber base stands at ~8.4m out of ~11.7m universe consisting of ~2.5m phase I, ~4.3m phase II and ~1.6m phase III/IV digital subscribers (balance ~3.3m are still in the analog mode). With 6.8m out of its 11.7m subscriber universe coming from phase I/II, HATH has already made significant investments towards the digitization opportunity. HATH has the most diversified presence, with operations in 160 cities across 20 states. The company has 30-85% market share across 15 leading phase I/II cities. We expect HATH to add ~7m net digital subscribers over FY14-18, driving a digital subscriber CAGR of ~17% as compared to the expected universe subscriber CAGR of ~7%.

Net ARPU to increase by ~2x by FY18: Current net ARPU in phase I stands at ~INR90/month while phase II monetization is INR50-60, with some challenges in specific markets like Hyderabad and Central India. With increase in digital subscriber contribution, net subscription ARPU is expected to jump from ~INR40 in FY14 to ~INR121 in FY18 (32% CAGR), led by reduction in LCO/distributor share (assuming modest underlying gross universe ARPU CAGR of 7%).


Hathway Cable & Datacom CMP: INR350 TP: INR430 Buy

BSE Sensex S&P CNX

28,163 8,426

Stock Info

Bloomberg HATH IN



1, 6, 12 Rel. Per (%) 19/11/32

M.Cap. (INR b) 57.1

M.Cap. (USD b) 1.0


Y/E Mar 2015E 2016E 2017E

Net Sales 17.9 23.8 28.6

EBITDA 2.6 5.7 7.7

EBITDA # 1.5 2.5 6.0

Adj. NP -1.6 0.4 1.6

Adj. EPS (INR) -10.1 2.5 9.9

Adj. EPS Gr. (%) NA NA 293

BV/Sh (INR) 90.2 89.5 101.8

RoE (%) -12.3 2.9 10.3

RoCE (%) -4.4 5.6 11.0

Valuations

P/E (x) -35.0 141.1 35.9

EV/EBITDA * 34.2 16.2 11.6

EV/EBITDA (x)*# 60.7 37.2 14.9

EV/Sub (INR)* 7,396 6,564 6,108 * Based on attributable EBITDA and subs post minority stake, ## (ex-activation)

Shareholding pattern (%)

Sep-14 Jun-14 Mar-13

Promoter 47.5 47.5 47.5

DII 8.0 14.5 10.0

FII 40.0 33.1 38.7

Others 4.4 4.9 3.8



200280360440520

Nov

-13

Feb-

14

May

-14

Aug-

14

Nov

-14

Hathway CableSensex - Rebased


November 2014 44

High presence in phase I/II and HSM drives best carriage and placement yield: HATH has the highest carriage and placement (C&P) yield per universe subscriber at ~NR43/month as compared to ~INR32 for DEN and ~INR19 for SCNL. Higher C&P is led by diversified presence in Hindi speaking markets (HSM) and dominant market share across several high profile metros, including phase I cities of Delhi, Mumbai and Kolkata. High dependence on C&P can potentially be a negative for HATH in the digitized scenario. However, we note that HATH was able to grow its C&P revenue strongly by 23% in FY14 by expanding its universe and further consolidating its presence in the HSM markets. Net content cost per subscriber to increase on higher proportion of digital subscribers: FY14 content cost stood at ~INR50/subscriber/month as compared to C&P revenue of ~INR43, implying net content cost of ~INR7/month for HATH on its universe base of 11.5m. With increase in the proportion of digitized subscribers, we expect net content cost to increase from ~INR7 in FY14 to ~INR36 by FY18. Consolidating broadband leadership through Docsis 3 launch: With ~2m homes passed and 0.4m+ broadband subscribers, HATH has a leadership position, with ~40% share of cable broadband and ~2% of wire line internet connections in India. HATH has already upgraded ~20% of its subscriber base to high speed Docsis 3 technology, which would drive better subscriber retention and lift ARPU. We expect broadband revenue to increase from INR1.7b in FY14 to INR5.6b in FY18, implying 30% CAGR with equal contributions from subscriber growth and ARPU increase. Likely cumulative capex requirement of ~INR17b over FY14-18: We estimate cumulative capex requirement of ~INR17b over FY14-18 towards achieving 9m cumulative gross digital cable subscriber additions, 0.4m broadband subscriber additions, and capex on head-ends and other network infrastructure. Capex is expected to peak in FY16, led by investments towards digitization, thereafter settling down at the maintenance level of ~INR2.5b from FY18. Equity infusion of INR7b post March 2013; leverage under control: HATH raised INR7b cumulatively post March 2013 including ~INR2.5b through preferential allotment to promoters and investors in August 2013 (at INR284/share) and ~INR4.5b through preferential allotment to investors in August/September 2014 (at INR320/sh). While leverage levels were slightly extended in FY14 (net debt of ~INR14.7b) with net debt/equity of 1.2x and net debt/EBITDA of 4.8x, they seem under control post the recent capital raising. DCF-based target price of INR430 implies 22% upside; Buy: We initiate coverage on HATH with a Buy rating. Our DCF-based one-year forward target price is INR430, which implies an exit EV/recurring EBITDA multiple of 10x (FY18E). We expect 34% EBITDA CAGR over FY14-20, primarily driven by 22% CAGR in net ARPU. We use a WACC of 12.5% and terminal FCF growth of 5%.


November 2014 45

Hathway Cable: Geographical Footprint

Exhibit 73: Hathway Cable - Phase wise presence

Phase Nos of cities

Details


II 26

Banglore, Ahmadabad, Hyderabad, Pune, Surat, Jaipur, Nagpur, Lucknow, Thane, Vadodara, Indore, Pimpri Chinchwad, Ludhiana, Bhopal, Nashik, Kalyan Dombivli, Rajkot, Faridabad, Navi Mumbai, Agra, Howrah, Mysore, Chandigarh, Aurangabad, Jabalpur, Allahabad

III & IV ~131 -

Exhibit 74: Subscriber packages (Delhi)

Monthly Package No of Channels Price

Basic Service Tier 157 100

Digital Starter Pack 214 180

Digital Popular Pack 270 225

Digital Premium Pack 300 270


Himachal Pradesh

Haryana

Delhi

Uttar Pradesh

West Bengal

Chattisgarh

Orissa

Andhra Pradesh

Goa

Maharashtra

Madhya Pradesh

Rajasthan

Technology partners

Gujarat

Karnataka


November 2014 46


2.5 2.6 2.7 2.7 2.8

4.3 4.5 4.7 4.8 5.01.2

2.25.7 6.9

7.28.0 9.2

13.0 14.5

15.0

11.512.2

14.0 14.7





40 49 59 82121

136 126 127120

100

176 175 186202 222





7 11 18 2436

43 4139

37

3550 53 57 62

72


Net content cost/sub/month C& P revenue/sub/month

Content cost/subscriber/month



3 5 926

5530 32 32

31

30

7 11 18

24

36

4049

59

82

121


EBITDA Other cost Net content cost Net ARPU



November 2014 47


Susbcrip-tion5.6

36%

Activation1.6

10%

Carriage5.7

36%

Others2.8

18%



Susbcrip-tion22.963%

Activation1.13%

Carriage6.3

17%

Others6.7

18%



5.37.0

9.3

14.0

21.6




0.9 1.52.5

6.0

11.7




6.8 3.2 7.0 3.92.6

43

18

29

14

7





-0.4-1.5

3.3

9.3 8.710.0




November 2014 48

Exhibit 85: HATH - Key operating metrics



Phase I 2.5 2.6 2.7 2.7 2.8

Phase II 4.3 4.5 4.7 4.8 5.0

Phase III/IV 1.2 2.2 5.7 6.9 7.2

Digital 8.0 9.2 13.0 14.5 15.0

Analog 3.5 3.0 1.0 0.2 0.0

Total Universe 11.5 12.2 14.0 14.7 15.0


Phase I 205 205 226 248 273

Phase II 175 175 193 212 233

Phase III/IV 160 160 160 176 194

Analog 150 161 172 184 197

Total Universe 176 175 186 202 222

YoY (%)

0 6 8 10


Phase I 78 90 106 129 150

Phase II 51 67 83 102 128

Phase III/IV 13 13 24 53 106

Analog 12 12 12 12 12


YoY (%)

23 20 38 49




Net content cost/sub/month 7 11 18 24 36

Net content cost/net ARPU 18 23 30 30 30


Gross revenue 176 175 186 202 222

LCO share 136 126 127 120 100

Net revenue 40 49 59 82 121

Net content cost 7 11 18 24 36

Other cost 30 32 32 31 30


EBITDA 3 5 9 26 55



November 2014 49

Exhibit 86: HATH - Key financial metrics

Key Financials (INR b) FY14 FY15E FY16E FY17E FY18E

Revenue 15.8 17.9 23.8 28.6 37.0

YoY (%) 40 13 33 20 29

EBITDA 3.1 2.6 5.7 7.7 12.9

YoY (%) 12 -14 114 36 66

EBITDA margin (%) 19.5 14.8 23.9 27.1 34.8


YoY (%) 17 58 66 143 95



Capex 6.8 3.2 7.0 3.9 2.6

Capex/Sales (%) 43 18 29 14 7

Gross STB adds (m) 2.9 1.6 4.2 2.0 1.2

Net STB adds (m) 2.9 1.2 3.8 1.5 0.6









Total revenue 15.8 17.9 23.8 28.6 37.0


Exhibit 87: HATH - Attributable revenue calculation (INR m)




Proportionate Hathway share of revenue 75

Exhibit 88: HATH - Attributable PAT calculation (INR m)

FY14 Consolidated PAT -1,428

Of which Minority share -123

Minority share of PAT 9

Proportionate Hathway share of PAT 91



November 2014 50

Exhibit 89: HATH - Key subsidiary financials (FY14)

Proportionate

Shareholding Revenue PBT PAT Revenue PAT

Channels India Network 96% 0 0 0 0 0

Vision India Network 100% 0 0 0 0 0

Liberty Media Vision 100% 1 0 0 1 0

Idea Cables 100% 0 -1 -1 0 -1

Hathway Channel 5 51% 0 -18 -8 0 -4

Bee Network and Comm 100% 0 0 0 0 0

Elite Cable Network 80% 0 0 0 0 0

Binary Technology Transfers 100% 0 0 0 0 0

Hathway Media Vision 100% 80 -1 -1 80 -1

UTN Cable Communication 94% 50 -23 -23 47 -22

ITV Interactive Media 100% 0 0 0 0 0

Chennai Cable Vision 76% 0 0 0 0 0

Hathway Universal 100% 0 0 0 0 0

Win Cable 100% 0 0 0 0 0

Hathway Space Vision 100% 0 0 0 0 0

Hathway Software Developers 72% 44 -19 -19 32 -14

Hathway Nashik Cable Network 90% 0 0 0 0 0

Hathway Cnet 100% 0 0 0 0 0

Hathway United Cables 100% 0 0 0 0 0

Hathway Internet Satellite 100% 0 0 0 0 0

Hathway Krishna cable 97% 84 -18 -17 82 -17

Hathway Mysore Cable 76% 43 -12 -12 32 -9

Hathway Prime Cable 51% 1 0 0 1 0

Hathway Gwalior Cable 100% 0 0 0 0 0

Hathway Digital Saharanpur Cable 51% 19 -8 -8 10 -4

Hathway Enjoy Cable 100% 0 0 0 0 0

Hathway JMD Farukhabad Cable 100% 0 0 0 0 0

Hathway Latur MCN Cable 51% 20 -3 -3 10 -1

Hathway MCN 51% 175 -26 -21 89 -11

Hathway Sonali OM Crystal Cable 51% 332 12 4 169 2

Hathway ICE Television 51% 0 -7 -7 0 -3

Hathway Datacom Central 100% 494 -94 -94

Hathway Rajesh Multichannel 51% 135 -27 -25 69 -13

Net9 Online Hathway 50% 40 2 1 20 1

GTPL Hathway 50% 3359 303 163 1679 81

Hathway New Concept Cable 51% 61 -21 -21 31 -11

Hathway Sai Star Cable 51% 125 -42 -29 63 -15

Hathway Cable MCN Nanded 51% 18 -5 -4 9 -2

Hathway Palampur Cable 51% 12 1 0 6 0

Hathway Mantra Cable 100% 118 -14 -14 118 -14

Hathway Dattatray Cable 51% 37 -8 -6 19 -3

Hathway Bhaskar CBN Multinet 51% 60 10 7 31 4

Hathway Bhaskar CCN Multinet 51% 63 3 2 32 1

Hathway Bhaskar CCN Entertainment 51% 37 5 3 19 2

Hathway Bhaskar CCN Multi Entertainment 70% 14 -1 -1 9 -1

Hathway Bhawani 51% 155 -37 -37 79 -19

Hathway Bhawani NDS Network 51% 10 -4 -4 5 -2

Hathway Bhawani Sai Network 51% 0 0 0 0 0

Hathway Kokan Crystal Network 90% 28 0 0 25 0

Hathway SS Cable & Datacom LLP 51% 7 -14 -13 3 -7

GTPL Anjali Cable Network 26% 16 -2 -3 4 -1


November 2014 51

GTPL Solanki Cable Network 26% 17 -1 -1 4 0

GTPM Zigma Vision 35% 7 -2 -2 2 -1

GTPL SK Network 26% 19 0 -1 5 0

GTPL Video Badshah 26% 18 4 3 5 1

GTPL Kutch Network 49% 15 -1 -1 7 0

GTPL City Channel 26% 0 0 0 0 0

GTPL SMC Network 26% 6 0 0 2 0

GTPL Surat Telelink 26% 37 -4 -4 9 -1

GTPL Vidarbha Telelink 26% 32 5 4 8 1

GTPL Space City 25.50% 4 1 1 1 0

GTPL Vision Services 31.75% 106 2 -2 34 -1

GTPL Jay Mataji Network 25.00% 15 -4 -4 4 -1

GTPL Narmada Cyberzone 30.00% 32 -1 0 10 0

GTPL Shiv Shakti Network 25.50% 0 0 0 0 0

GTPL Link Network 25.50% 20 -2 -2 5 0

GTPL VVC Network 25.50% 11 -2 -2 3 -1

GTPL Blue Bell Network 46.00% 9 -4 -4 4 -2

GTPL Parshwa Cable Network 28.66% 12 -3 -2 3 -1

GTPL Insight Channel Network 37.23% 8 1 1 3 0

GTPL Kolkata Cable 25.50% 738 8 -9 188 -2

GTPL Dahod Television Network 25.50% 10 1 0 3 0

GTPL Jay Shantoshi ma Network 25.50% 12 1 0 3 0

GTPL Sorath Telelink 25.50% 11 3 2 3 0

Gujarat Telelink East Africa 25.50% 0 0 0 0 0

GTPL Shiv Network 25.50% 2 0 0 1 0

GTPL Sharda Cable Network 25.50% 1 -1 -1 0 0

GTPL Ahmedabad Cable Network 25.50% 12 -1 -1 3 0

DL GTPL Cabnet 13.00% 219 22 13 29 2

GTPL V & S Cable 25.50% 41 -13 -13 10 -3

GTPL Video Vision 25.50% 20 -3 -2 5 -1

Aggregate 7,070 -62 -215 3,129 -92



November 2014 52

Exhibit 90: HATH - DCF valuation


CAGR Subscriber universe (m) 11.5 12.2 14.0 14.7 15.0 15.5 16.0 6% YoY (%) 6 14 5 3 3 3 Net ARPU (INR/month) 40 49 59 82 121 128 134 22% YoY (%) 23 20 38 49 6 5 Revenue 15.8 17.9 23.8 28.6 37.0 40.3 43.8 19% Revenue growth (%) 13 33 20 29 9 9 EBITDA 3.1 2.6 5.7 7.7 12.9 15.1 17.5 34% EBITDA margin (%) 19 15 24 27 35 37 40 EBITDA growth (%) -14 114 36 66 17 16 EBITDA per cable subscriber (INR/month) 3 5 9 26 55 63 71 73% Capex 6.8 3.2 7.0 3.9 2.6 2.4 2.4 Capex/Sales (%) 43 18 29 14 7 6 6 Change in working capital 2.0 -0.2 0.1 0.5 0.9 0.4 0.4 Tax outflow 3.6 4.7 Tax rate (%) 34 34 FCF -5.7 -0.4 -1.5 3.3 9.3 8.7 10.0 FCF growth (%) -92 227 -327 181 -7 15 Terminal value 140 Mar' 15E PV of FCF -1.3 2.6 6.6 5.4 5.6 Net Debt (Mar-15E) 12 PV-Explicit Period 19 PV-Terminal Value 78 Equity Value for consolidated 84 Implied FY16 EV/EBITDA ex activation 39.6x Implied FY16 EV/Sub (INR) 6,997 Equity value for shareholders (~75% economic interest) 63 Mar 15 Equity value per share (INR) 381 Dec 15 Equity value per share (INR) 430 Terminal value assumptions EBITDA margin 40% Capex/Sales 6% Cash tax rate 34% FCF margin 23% WACC Calculations

FCF growth 5.0% Wt (%) Cost Risk Free ERP Beta FCF multiple 13.3x Equity 0.60 15.7% 8.5 6.5 1.1 EBITDA multiple 7.6x Debt 0.40 7.8% WACC 12.5% WACC 12.5%


Exhibit 91: HATH - EV/EBITDA based valuation (INR b) FY18 EBITDA (ex-activation) 12

EV/EBITDA 10.0

Target EV 117

FY18 Net Debt 3


Less minority share (25%) 29



One-year fwd target value per share 430



November 2014 53

HATH: Board of Directors and Management team Mr Brahmal Vasudevan, Chairman Mr Vasudevan is the Founder and CEO of Creador Capital. He previously spent 11 years with Chrys Cap as General Partner and Managing Director. Prior to Chrys Cap, he was with Astro, a pay-TV operator in South East Asia. Mr Jagdish Kumar, MD & CEO Mr Jagdish Kumar has over 25 years of experience across companies such as Reliance Industries, Star TV and ITC. He has worked on several aspects of the Broadcast business, including Content, Distribution, Marketing, Broadcast Infrastructure, Digital Platforms, Business Development, and Finance. Mr G Subramaniam, CFO Mr Subramaniam has over 30 years of experience as a senior finance professional in the Telecom, Media, and Infrastructure sectors. He has worked with L&T, the RPG Group, BPL Mobile Communications, Star TV, and the Times Group. Mr Milind Karnik, President – Operations Mr Karnik joined Hathway in 1998. He has previously worked with Hoechst India, Citigroup, Birla Marlin Securities, Caspian Broking, RSM & Company, and AF Ferguson. He is a Chartered Accountant, Company Secretary, and Cost Accountant, and holds a Bachelors degree in General Law.


November 2014 54

Financials and valuations (Consolidated) Income Statement

(INR Million)

Y/E March 2013 2014 2015E 2016E 2017E 2018E Revenues 11,325 15,811 17,920 23,775 28,590 37,004 Change (%) 11.9 39.6 13.3 32.7 20.3 29.4 Total Expenses 8,587 12,735 15,274 18,101 20,849 24,144 EBITDA 2,738 3,077 2,646 5,674 7,740 12,860 % of Revenue 24.2 19.5 14.8 23.9 27.1 34.8 Change (%) 63.3 12.4 -14.0 114.4 36.4 66.1 Depn. & Amortization 1,661 2,993 3,073 3,624 4,211 4,557 EBIT 1,078 84 -428 2,050 3,530 8,303 Net finance cost 602 1,345 1,518 1,454 1,400 812 Other Income 157 21 104 104 104 104 Exceptional items 78 26 0 0 0 0 PBT 555 -1,266 -1,841 700 2,234 7,596 Tax 179 162 170 179 188 197 Rate (%) 32.3 -12.8 -9.3 25.6 8.4 2.6 Reported PAT 376 -1,428 -2,012 521 2,046 7,398 Minority interest 219 -296 -402 104 409 1,480 Reported Net profit 157 -1,132 -1,609 417 1,637 5,919 Adjusted Net profit 235 -1,107 -1,609 417 1,637 5,919 Change (%) NA NA NA NA 292.9 261.6

Balance Sheet

(INR Million) Y/E March 2013 2014 2015E 2016E 2017E 2018E Share Capital 1,432 1,520 1,661 1,661 1,661 1,661 Add. Paid up Capital 12,049 14,459 18,830 18,830 18,830 18,830 Reserves -5,256 -6,386 -7,995 -7,579 -5,942 -23 Net Worth 8,224 9,593 12,495 12,912 14,549 20,468 Minority Interest 2,112 2,251 1,848 1,953 2,362 3,841 Loans 9,463 15,130 12,623 13,960 11,632 3,205 Other Liabilities 113 211 239 317 381 493 Deferred Tax Liability 207 229 260 345 415 537 Capital Employed 20,120 27,413 27,465 29,486 29,338 28,544 Gross Block 23,704 30,541 33,788 40,780 44,684 47,305 Less : Depreciation 7,274 9,175 12,249 15,873 20,084 24,641 CWIP 2,132 2,500 2,475 825 330 330 Fixed Assets 18,562 23,865 24,015 25,732 24,931 22,995 Investments 84 87 87 87 87 87 Curr. Assets 7,609 10,227 11,033 13,842 16,556 21,299 Debtors 3,702 5,469 5,699 6,909 8,309 10,754 Cash & Bank Balance 545 440 440 440 440 440 Other Current Assets 3,362 4,317 4,893 6,492 7,807 10,104 Curr. Liab. & Prov. 6,135 6,767 7,669 10,175 12,235 15,836 Creditors 1,849 2,483 2,814 3,734 4,490 5,811 Other Current Liabilities 4,286 4,284 4,855 6,441 7,746 10,025 Net Curr. Assets 1,474 3,460 3,363 3,667 4,320 5,462 Appl. of Funds 20,120 27,413 27,465 29,486 29,338 28,544 E: MOSL Estimates


November 2014 55

Financials and valuations (Consolidated) Ratios

Y/E March 2013 2014 2015E 2016E 2017E 2018E Basic (INR) EPS 1.6 -7.5 -10.1 2.5 9.9 35.6 Cash EPS 13.3 12.8 9.2 24.3 35.2 63.1 Book Value 72.3 80.2 90.2 89.5 101.8 146.4 DPS 0.0 0.0 0.0 0.0 0.0 0.0 Payout %(Incl.Div.Taxes) 0.0 0.0 0.0 0.0 0.0 0.0 Valuation (x)

P/E -47.2 -35.0 141.1 35.9 9.9 Cash P/E 27.7 38.5 14.6 10.1 5.6 EV/EBITDA* 30.3 34.2 16.2 11.6 6.3 EV/EBITDA ex-activation * 98.3 60.7 37.2 14.9 6.9 EV/Sales* 5.9 5.1 3.9 3.1 2.2 EV/sales ex-activation* 6.6 5.4 4.5 3.3 2.3 Price/Book Value 4.4 3.9 4.0 3.5 2.4 EV/Sub (INR)* 8,095 7,396 6,564 6,108 5,394 Profitability Ratios (%)

RoE 2.3 -10.0 -12.3 2.9 10.3 28.7 RoCE 5.0 -2.9 -4.4 5.6 11.0 30.1 Turnover Ratios

Debtors (Days) 119 126 116 106 106 106 Asset Turnover (x) 0.72 0.70 0.69 0.89 1.04 1.39 Leverage Ratio

Net Debt/Equity (x) 0.9 1.2 0.8 0.9 0.7 0.1

Cash Flow Statement

(INR Million)

Y/E March 2013 2014 2015E 2016E 2017E 2018E Op.Profit/(Loss) bef Tax 2,738 3,077 2,646 5,674 7,740 12,860 Other Income/except. items 79 -5 104 104 104 104 Interest Paid -602 -1,345 -1,518 -1,454 -1,400 -812 Direct Taxes Paid -115 -157 -147 -115 -135 -106 (Inc)/Dec in Wkg. Cap. -193 -1,977 133 -205 -572 -1,000

CF from Op.Activity 1,907 -407 1,217 4,004 5,737 11,048

(inc)/Dec in FA + CWIP -8,057 -8,297 -3,223 -5,342 -3,409 -2,621 (Pur)/Sale of Investments 73 -3 0 0 0 0 Other investing activity/adj -12 3 0 0 0 0 CF from Inv.Activity -7,996 -8,297 -3,223 -5,342 -3,409 -2,621 Issue of Shares 52 2,498 4,512 0 0 0 Inc/(Dec) in Debt 5,523 5,666 -2,507 1,338 -2,328 -8,426 Dividends Paid Others 91 435 0 0 0 0 CF from Fin.Activity 5,665 8,600 2,005 1,338 -2,328 -8,426 Inc/(Dec) in Cash -423 -105 0 0 0 0 Add: Opening Balance 968 545 440 440 440 440 Closing Balance 546 441 440 440 440 440

SITI Cable Network

November 2014 56

Highest digital subscriber growth opportunity Pioneer group status in media sector; 100%+ underlying EBITDA CAGR

With a subscriber universe of 10m and digital base of 4.6m, SCNL is the third-largest Indian MSO, well placed to benefit from phase III digitization.

We expect the digital subscriber base to increase from 4m in FY14 to 11m in FY18, driving 47% CAGR in net ARPU from INR23 to INR108 and 106% CAGR in recurring EBITDA/subscriber from INR2 to INR41.

SCNL has an established track record, with group presence across the value chain. We initiate coverage with a Buy rating. Our price target of INR40 implies 39%

upside.

100%+ recurring EBITDA CAGR: Increase in net subscription income in the post-digitization scenario should drive ~106% recurring EBITDA CAGR for SITI Cable Network (SCNL), with EBITDA (ex-activation) expected to improve from ~INR0.3b in FY14 to ~INR5.8b in FY18. Growth would be primarily driven by 47% CAGR in net subscription ARPU (from ~INR23 in FY14 to ~INR108 in FY18) and accompanying operating leverage. Implied EBITDA per cable subscriber (ex-activation) is likely to improve from ~INR2 in FY14 to ~INR41 in FY18.

Pioneer group status in media sector: SCNL is the MSO arm of the Essel group, which has a pioneer status in the Media sector, with interests in Broadcasting (Zee Entertainment and Zee Media Corp) and the DTH space (Dish TV). We expect SCNL to benefit from the increased group focus on the MSO business (led by mandatory digitization) and understanding of the media value chain. Key SCNL markets are West Bengal, Andhra Pradesh, Punjab, and Haryana.

High leverage to phase III/IV digitization: SCNL’s current digital subscriber base stands at 4.6m out of ~10m universe consisting of ~2.2m phase I, ~1.5m phase II and ~0.9m phase III/IV digital subscribers (balance ~5.4m are still in the analog mode). With 6.3m out of its 10m subscriber universe coming from upcoming phase III/IV, SCNL has significant digital subscriber growth opportunity within its existing universe. SCNL is also likely to expand its current footprint of ~80 cities (including three phase I and 17 phase II cities), which is smaller than the 160/200 city presence of other national MSOs like HATH/DEN, through organic/inorganic initiatives. We expect SCNL to add ~7m net digital subscribers over FY14-18, driving a digital subscriber CAGR of ~29% versus universe subscriber CAGR of ~3%.

Net ARPU to increase by ~3.5x by FY18: Current net ARPU in phase I stands at ~INR100/month while phase II monetization is INR55-60. The management expects improvement in net ARPU from phase I/II, led by implementation of package-based billing and price hikes. With increase in digital subscriber contribution, net subscription ARPU is expected to jump from ~INR23 in FY14 to ~INR108 in FY18 (47% CAGR), led by reduction in LCO/distributor share (assuming modest underlying gross universe ARPU CAGR of 7%).


SITI Cable Network CMP: INR28 TP: INR40 Buy

BSE Sensex S&P CNX

28,163 8,426

Stock Info

Bloomberg SCNL IN



1, 6, 12 Rel. Per (%) 14/23/3

M.Cap. (INR b) 17.5

M.Cap. (USD b) 0.3


Y/E Mar 2015E 2016E 2017E Net Sales 15.9 24.6 30.6 EBITDA 4.3 4.8 6.6 EBITDA (ex-

1.5 3.2 5.8

Adj. Net Profit 0.9 0.9 2.3 Adj. EPS (INR) 1.5 1.5 3.7 Adj. EPS Gr.

NA -3 154

BV/Sh (INR) 2.4 4.1 8.4 RoE (%) 95.9 44.5 59.4 RoCE (%) 15.0 12.9 20.4 Valuations

P/E (x) 18.8 19.5 7.6 EV/EBITDA (x)* 7.7 7.0 4.8 EV/rec. EBITDA 21.8 10.7 5.4 EV/Sub (INR)* 3,123 3,119 2,841 *Based on attributable EBITDA and subs post minority stake


Sep-14 Jun-13 2Apr-14

Promoter 72.8 72.8 72.8

DII 2.3 1.9 2.2

FII 7.9 5.4 3.3

Others 17.0 19.9 21.6



12

18

24

30

Nov

-13

Feb-

14

May

-14

Aug-

14

Nov

-14

Siti CableSensex - Rebased

SITI Cable Network

November 2014 57

Lower carriage and placement yield on account of geographical footprint: SCNL has the lowest carriage and placement (C&P) yield per universe subscriber at ~INR19/month as compared to ~INR32 for DEN and ~INR43 for HATH. Lower C&P could be a function of relatively moderate presence in the highly competitive Hindi speaking markets (HSM), which drive C&P spends from broadcasters. Lower dependence on C&P implies that SCNL is at a relatively lower risk with respect to potential decline in C&P, as digitization gains ground. Net content cost per subscriber to increase on higher proportion of digital subscribers: FY14 content cost stood at ~INR20/subscriber/month versus C&P revenue of ~INR19, implying net content cost of ~INR1/month for SCNL on its universe base of 10m. With increase in the proportion of digitized subscriber base, we expect net content cost to increase from ~INR1 in FY14 to ~INR43 by FY18. Increased focus on broadband opportunity: SCNL has increased focus on the broadband opportunity and is implementing DOCSIS 3 technology. While the broadband business is currently nascent, with ~40,000 subscribers, we model a ramp-up to 0.22m subscribers by FY18, which would help it reach a broadband revenue base of ~INR1.25b by FY18. SCNL’s long-term target is much more aggressive at ~10% of cable universe of ~10m, implying significant upside to our estimates. Likely cumulative capex requirement of ~INR12b over FY14-18: We estimate cumulative capex requirement of ~INR12b over FY14-18 towards achieving 8.3m cumulative gross digital cable subscriber additions, ~0.2m broadband subscriber additions, and capex on head-ends and other network infrastructure. Capex is expected to peak in FY16, led by investments towards digitization, thereafter settling down at maintenance level of INR1.6b-1.7b from FY18. Equity funding of INR3.24b from promoters post March 2013; further equity fund raising can be a catalyst given high leverage: SCNL raised INR3.24b from promoters post March 2013 at ~INR20/share to invest in the digitization opportunity. However, leverage levels remain relatively high, with FY14 net debt of ~INR9b, implying FY14 net debt/equity of 6.6x and net debt/EBITDA of 8.1x. The board has recently approved fund raising of up to USD100m through equity or other convertible instruments. While our estimates do not assume any equity dilution, we believe that potential equity fund raising would position SCNL more comfortably to tap the expansion opportunity going forward. DCF-based target price of INR40 implies 39% upside; Buy: We initiate coverage on SCNL with a Buy rating. Our DCF-based one-year forward target price is INR40, which implies an exit EV/recurring EBITDA multiple of 8x (FY18E). We expect 38% EBITDA CAGR over FY14-20, primarily driven by 31% CAGR in net ARPU. We use a WACC of 13.3% and terminal FCF growth of 5%.

SITI Cable Network

November 2014 58

SITI Cable Network: Geographical footprint

Exhibit 92: SITI Cable - Phase wise presence

Phase Nos of cities Details


II 17

Banglore, Ahmadabad, Hyderabad, Pune, Surat, Jaipur, Visakhapatnam, Nagpur, Lucknow, Kanpur, Thane, Vadodara, Indore, Pimpri Chinchwad, Ludhiana, Bhopal, Gaziabad, Nashik, Kalyan Dombivli, Coimbatore, Rajkot, Faridabad, Patna, Navi Mumbai, Amritsar, Agra, Howrah, Mysore, Chandigarh, Meerut, Aurangabad, Jabalpur, Ranchi, Srinagar, Varanasi, Jodhpur, Allahabad, Sholapur

III & IV ~60 -


Exhibit 93: Subscriber packages (Delhi)

Monthly Package No of Channels Price

Janta (basic service tier) 123 100

Popular 199 180

Grand 253 222

Premium 266 267


Punjab

Haryana Delhi

Uttar Pradesh

West Bengal

Bihar

Jharkhand Chattisgarh

Orissa

Andhra Pradesh

Karnataka

Kerala

Maharashtra

Madhya Pradesh

Rajasthan

Assam

Technology partners

SITI Cable Network

November 2014 59


2.2 2.3 2.4 2.4 2.5

1.5 1.6 1.6 1.7 1.80.31.5

5.06.5 6.8

4.05.4

9.010.6 11.0

10.0 10.2 10.5 10.8





23 36 4775

108

142 136 134121

108

165 171 182197 216





19 16

3143

1918

17

16

15

2027

33

4758


Net content cost/sub/month C& P revenue/sub/month

Content cost/subscriber/month



2 8 10 2241

20 19 2123

24

19

16

31

43

2336

47

75

108


EBITDA Other cost Net content cost ARPU


SITI Cable Network

November 2014 60


Susbcription49%

Activation12%

Carriage32%

Others7%



Susbcription85%

Activation2%

Carriage7%

Others6%



2.84.3

5.9

9.6

14.1




0.31.0

1.5

3.2

5.8




2.3 2.2 5.2 3.0 1.6

33

21

33

12

5





-0.6-1.3

0.1

3.9 4.1 4.4



SITI Cable Network

November 2014 61

Exhibit 104: SCNL - Key operating metrics



Phase I 2.2 2.3 2.4 2.4 2.5 Phase II 1.5 1.6 1.6 1.7 1.8 Phase III/IV 0.3 1.5 5.0 6.5 6.8 Digital 4.0 5.4 9.0 10.6 11.0 Analog 6.0 4.8 1.5 0.2 0.0 Total Universe 10.0 10.2 10.5 10.8 11.0


Phase I 193 199 218 240 264

Phase II 175 175 193 212 233

Phase III/IV 160 160 160 176 194

Analog 150 161 172 184 197

Total Universe 165 171 182 197 216

YoY (%) 4 6 8 10


Phase I 63 94 109 130 145

Phase II 40 61 77 97 116

Phase III/IV 16 16 27 56 93

Analog 8 8 8 8 8


YoY (%) 53 33 59 43




Net content cost/sub/month 1 9 16 31 43

Net content cost/net ARPU 3 24 33 41 40


Gross revenue 165 171 182 197 216

LCO share 142 136 134 121 108

Net revenue 23 36 47 75 108

Net content cost 1 9 16 31 43

Other cost 20 19 21 23 24


EBITDA 2 8 10 22 41


SITI Cable Network

November 2014 62

Exhibit 105: SCNL - Key financial metrics


Key Financials (INR b)

Revenue 7.0 10.8 15.9 24.6 30.6

YoY (%) 48 56 47 55 25

EBITDA 1.1 2.0 4.3 4.8 6.6

YoY (%) 56 75 116 12 37

EBITDA margin (%) 16.2 18.2 26.8 19.5 21.4


YoY (%) NA 226 44 111 83



Capex 2.3 2.2 5.2 3.0 1.6

Capex/Sales (%) 33 21 33 12 5

Gross STB adds (m) 1.6 1.5 3.9 2.0 0.9

Net STB adds (m) 1.6 1.4 3.6 1.6 0.4









Total revenue 7.0 10.8 15.9 24.6 30.6


SITI Cable Network

November 2014 63

Exhibit 106: SCNL - Subsidiary financials (FY14)

Proportionate

Shareholding

(%) Revenue PBT PAT Revenue PAT

Indian Cable Net Company 68 1,937 185 153 1317 104

Central Bombay Cable Network 100 2 -24 -24 2 -24

Siticable Broadband South 100 0 0 0 0 0

Wire and Wireless Tisai Satellite 51 0 -2 -2 0 -1

Master Channel Community Network 66 130 29 20 86 13

Siti Vision Digital Media 51 351 83 74 179 38

Siti Jind Digital Media Communications 51 37 2 2 19 1

Siti Jai Maa Durgee Communications 51 29 10 10 15 5

Siti Bhatia Network Entertainment 51 32 1 1 16 1

Siti Jony Digital Cable Network 51 5 -1 -1 2 -1

Siti Krishna Digital Media 51 27 1 1 14 0

Siti Guntur Digital Network 74 97 7 5 72 4

Siti Faction Digital 51 56 -6 -9 28 -4

Siti Maurya Cable Net 50 191 27 18 96 9


Exhibit 107: SCNL - Attributable revenue calculation (INR m)




Proportionate Siticable share of revenue 85


Exhibit 108: SCNL - Attributable PAT calculation (INR m)

FY14 Consolidated PAT -941

Of which Minority share 104

Minority share of PAT -11

Proportionate Siticable share of PAT 111


SITI Cable Network

November 2014 64

Exhibit 109: SCNL - DCF valuation


CAGR Subscriber universe (m) 10.0 10.2 10.5 10.8 11.0 11.4 11.7 3% YoY (%) 2 3 3 2 3 3 Net ARPU (INR/month) 23 36 47 75 108 114 120 31% YoY (%) 53 33 59 43 6 5 Revenue 7.0 10.8 15.9 24.6 30.6 33.3 36.1 32% Revenue growth (%) 56 47 55 25 9 8 EBITDA 1.1 2.0 4.3 4.8 6.6 7.1 7.6 38% EBITDA margin (%) 16 18 27 19 21 21 21 EBITDA growth (%) 75 116 12 37 8 8 EBITDA per cable subscriber (INR/month) 2 8 10 22 41 43 44 64% Capex 2.3 2.2 5.2 3.0 1.6 1.6 1.7 Capex/Sales (%) 33 21 33 12 5 5 5 Change in working capital -0.9 0.4 0.3 1.7 1.0 0.2 0.2 Tax outflow 1.1 1.4 Tax rate (%) 34 34 FCF -0.3 -0.6 -1.3 0.1 3.9 4.1 4.4 FCF growth (%) NA NA NA NA 5 6 Terminal value 55 Mar' 15E PV of FCF -1.2 0.1 2.7 2.5 2.3 Net Debt (Mar-15E) 12 PV-Explicit Period 6 PV-Terminal Value 30 Equity Value 24 Implied FY16 EV/EBITDA ex activation 24.8x Implied FY16 EV/Sub (INR) 3,555 Equity value for shareholders (~90% economic interest)

22

Mar 15 Equity value per share (INR) 35 Dec 15 Equity value per share (INR) 40 Terminal value assumptions EBITDA margin 21% Capex/Sales 5% Cash tax rate 34% FCF margin 11% WACC Calculations

FCF growth 5.0%

Wt (%) Cost

Risk Free

ERP Beta

FCF multiple 12.1x Equity 0.60 17.0% 8.5 6.5 1.3 EBITDA multiple 6.2x Debt 0.40 7.8% WACC 13.3% WACC 13.3%

Source: Company, MOSL Exhibit 110: SCNL - EV/EBITDA based valuation (INR b)

FY18 EBITDA (ex-activation) 5.8

EV/EBITDA 8.0

Target EV 46

FY18 Net Debt 12


Less minority share (10%) 3



One-year forward target value per share 40


SITI Cable Network

November 2014 65

Leadership team Mr Subhash Chandra, Chairman Mr Chandra has been the recipient of numerous honorary degrees, industry awards, and civic honors. The Confederation of Indian Industry (CII) chose him as the Chairman of the CII Media Committee for two successive years. Mr Chandra has also made his mark as an influential philanthropist in India. He set up TALEEM (Transnational Alternate Learning for Emancipation and Empowerment through Multimedia) Research Foundation in the year 1995. Awards and honors: Global Indian Entertainment Personality of the Year by FICCI in 2004, Business Standard’s Businessman of the Year in 1999, Entrepreneur of the Year by Ernst & Young in 1999, Enterprise CEO of the Year by International Brand Summit, Chairman’s Vision for the Essel Group to continually pursue strategic growth opportunities both domestically and in the international markets. Mr VD Wadhwa, Executive Director and CEO Prior to joining SITI Cable, Mr Wadhwa was with Timex Group India Limited, where he was Managing Director & CEO for Business Operations in India and SAARC Countries. He has 28 years of General Management experience in Consumer Lifestyle and Retail. Mr Wadhwa is an Alumnus of Harvard Business School and a Fellow Member of the Institute of Company Secretaries of India. He has served on various committees of FICCI and Assocham, besides serving as President of the Horological Federation of India. Mr Sanjay Goyal, CFO Mr Sanjay Goyal has 16 years of work experience in the areas of Corporate Finance, Business Planning and Development, and Corporate Planning. Mr Goyal was Head of Finance and Accounts with a large retailer, House of India, and holds memberships with ICAI, ICSI, ICWAI, and a law degree from MDS University, Ajmer. Mr Anil Malhotra, COO Mr Anil Malhotra has 26 years of experience in Distribution, Technology, and Operations. Mr Malhotra was Executive VP at Broadband Pacenet Private Limited (North India) and President at Indusind Media and Communications Limited (North India). He holds a Post Graduate degree in Solid State Physics from University of Garhwal.

SITI Cable Network

November 2014 66

Financials and valuations - Consolidated Income Statement

(INR Million)

Y/E March 2013 2014 2015E 2016E 2017E 2018E Revenues 4,696 6,972 10,845 15,897 24,587 30,633 Change (%) 37.0 48.5 55.5 46.6 54.7 24.6 Total Expenses 3,973 5,844 8,874 11,630 19,794 24,073 EBITDA 724 1,128 1,971 4,267 4,793 6,560 % of Revenue 15.4 16.2 18.2 26.8 19.5 21.4 Change (%) -375.6 55.8 74.7 116.5 12.3 36.9 Depn. & Amortization 563 838 1,306 1,704 2,144 2,387 EBIT 161 290 665 2,562 2,649 4,172 Net finance cost 864 1,191 1,414 1,505 1,623 1,548 Other Income 140 131 182 81 81 81 PBT -563 -770 -567 1,138 1,106 2,705 Tax 46 64 67 71 74 78 Rate (%) -8.2 -8.3 -11.9 6.2 6.7 2.9 Reported PAT -609 -834 -634 1,068 1,032 2,627 Minority interest 32 107 -82 139 134 341 Reported Net profit -641 -941 -552 929 898 2,285 Adjusted Net profit -641 -941 -552 929 898 2,285 Change (%) NA NA NA NA -3.3 154.5

Balance Sheet

(INR Million) Y/E March 2013 2014 2015E 2016E 2017E 2018E Share Capital 453 521 615 615 615 615 Add. Paid up Capital 4,200 5,502 7,278 7,278 7,278 7,278 Reserves -5,313 -4,900 -7,637 -6,708 -5,810 -3,524 Net Worth -660 1,123 256 1,185 2,083 4,368 Minority Interest 132 271 178 317 451 793 Loans 9,094 12,673 13,172 14,328 15,329 12,968 Other Liabilities 861 405 623 848 1,394 2,044 Deferred Tax Liability 29 23 23 23 23 23 Capital Employed 9,456 14,495 14,253 16,701 19,281 20,197 Gross Block 7,253 12,059 14,306 19,537 22,534 24,181 Less : Depreciation 2,741 4,380 5,686 7,390 9,535 11,922 CWIP 691 1,702 2,475 825 330 330 Fixed Assets 5,204 9,381 11,095 12,972 13,329 12,589 Investments 16 16 16 16 16 16 Curr. Assets 6,737 8,832 7,567 9,544 12,287 14,965 Debtors 968 1,954 2,335 3,232 4,062 5,163 Cash & Bank Balance 1,294 3,529 1,000 1,000 1,000 1,000 Other Current Assets 4,475 3,350 4,232 5,312 7,225 8,802 Curr. Liab. & Prov. 2,500 3,735 4,425 5,831 6,351 7,374 Creditors 1,984 2,449 2,921 4,080 4,270 4,910 Other Current Liabilities 516 1,286 1,504 1,751 2,081 2,463 Net Curr. Assets 4,236 5,098 3,142 3,713 5,936 7,592 Appl. of Funds 9,456 14,495 14,253 16,701 19,281 20,197 E: MOSL Estimates

SITI Cable Network

November 2014 67

Financials and valuations - Consolidated Ratios

Y/E March 2013 2014 2015E 2016E 2017E 2018E Basic (INR) EPS -1.4 -1.8 -0.9 1.5 1.5 3.7 Cash EPS -0.2 -0.2 1.2 4.3 5.0 7.6 Book Value -1.2 2.7 0.7 2.4 4.1 8.4 DPS 0.0 0.0 0.0 0.0 0.0 0.0 Payout %(Incl.Div.Taxes) 0.0 0.0 0.0 0.0 0.0 0.0

Valuation (x)

P/E -15.7 -31.7 18.8 19.5 7.6 Cash P/E

23.2 6.6 5.7 3.7

EV/EBITDA* 25.3 16.0 7.7 7.0 4.8 EV/EBITDA ex-activation * 89.8 30.4 21.8 10.7 5.4 EV/Sales* 4.1 2.9 2.1 1.4 1.0 EV/sales ex-activation* 4.6 3.2 2.5 1.5 1.1 Price/Book Value 10.6 40.2 11.6 6.9 3.4 EV/Sub (INR)* 2,855 3,111 3,123 3,119 2,841


RoE -60.4 95.9 44.5 59.4 RoCE -1.1 -0.7 2.2 15.0 12.9 20.4

Turnover Ratios

Debtors (Days) 75 102 79 74 60 62 Asset Turnover (x) 1.08 0.83 0.99 1.24 1.69 2.01

Leverage Ratio

Net Debt/Equity (x) -14.8 6.6 28.0 8.9 5.7 2.3

Cash Flow Statement

(INR Million) Y/E March 2013 2014 2015E 2016E 2017E 2018E Op.Profit/(Loss) bef Tax 724 1,128 1,971 4,267 4,793 6,560 Other Inc/excep. items 140 131 182 81 81 81 Interest Paid -864 -1,191 -1,414 -1,505 -1,623 -1,548 Direct Taxes Paid -20 -70 -67 -71 -74 -78 (Inc)/Dec in Wkg. Cap. -1,793 918 -354 -347 -1,677 -1,006

CF from Op.Activity -1,812 916 317 2,425 1,500 4,008

(inc)/Dec in FA + CWIP -3,801 -5,016 -3,019 -3,581 -2,501 -1,647 (Pur)/Sale of Investments 2 0 0 0 0 0 Other investing activity/adj 0 -20 0 0 0 0 CF from Inv.Activity -3,799 -5,036 -3,019 -3,581 -2,501 -1,647

Issue of Shares 808 2,745 0 0 0 0 Inc/(Dec) in Debt 4,614 3,578 499 1,156 1,001 -2,361 Others 0 32 -325 0 0 0 CF from Fin.Activity 5,422 6,355 174 1,156 1,001 -2,361

Inc/(Dec) in Cash -189 2,236 -2,529 0 0 0 Add: Opening Balance 1,483 1,294 3,529 1,000 1,000 1,000 Closing Balance 1,294 3,529 1,000 1,000 1,000 1,000

November 2014 68

18 November 2014

Update | Sector: Media

Dish TV India CMP: INR63 TP: INR75 Buy

Market share recovery, price hike, content leverage to drive growth Phase III/IV digitization and GST key reform initiatives to watch for

Net subscriber adds to double in FY15; significant upside FY16 onwards. We expect net subscriber base to increase from 11.4m in FY14 to 16.6m in FY18

without assuming any benefit from phase III/IV digitization. The regulatory environment is favorable, given (1) potential benefit from GST

implementation, and (2) reduction in license fee. We expect 28% EBITDA CAGR over FY14-18, led by 10% subscriber CAGR, 6%

ARPU CAGR, and margin expansion, driven by content cost leverage and lower license fee percentage as per new recommendations made by TRAI.

We maintain Buy. Our DCF-based price target of INR75 implies 20% upside.

Net adds to more than double in FY15; significant upside from FY16: DITV’s subscriber addition during FY11-14 was impacted by decline in industry additions as well as market share. The company has regained incremental market share by taking several new initiatives like the launch of its regional low cost brand, Zing and making its entry packages more attractive by reducing entry prices or offering free content for the initial 2-3 months. With expected economic recovery and upside from phase III/IV digitization, we expect DITV’s net subscriber additions to recover from 0.7m in FY14 to 1.4m in FY15. We currently model 5.2m net subscriber additions for DITV over FY14-18 versus potential opportunity of ~10m, assuming 25% incremental subscriber share.

Recent price increases lend ARPU visibility: DTH operators including DITV have recently taken INR10-20 price increases across monthly packs, lending strong ARPU visibility. We see potential upsides to our 6% ARPU CAGR given that expected price increases to be undertaken by MSOs will increase headroom for DITV as well.

Content cost leverage to kick in: DITV completed negotiations with large networks like Star and Zee, thus providing good near-term visibility on content costs. We model ~10% CAGR in programming and content costs, implying significant operating leverage. Every 1% decline in programming and content costs increases FY15 EBITDA by 1.1%.

GST implementation could be a significant trigger: Implementation of the Goods and Services Tax (GST) is a key reform that we expect the new government to undertake. Entertainment tax (INR1.7b in FY15E) could be subsumed into GST. Currently, DTH companies are unable to effectively pass on the entertainment tax to subscribers, given varied rates/methodology across states. Entertainment tax varies from NIL in some states to INR45/subscriber/month (Maharashtra) / 30% of revenue (Tamil Nadu). If entertainment tax is subsumed into GST, there could be upside of ~INR1.5b at

BSE Sensex S&P CNX 28,163 8,426

Stock Info Bloomberg DITV IN

Equity Shares (m) 1,065.0


1, 6, 12 Rel. Per (%) 16/3/-50

M.Cap. (INR b) 66.7

M.Cap. (USD b) 1.1

Financial Snapshot (INR b) Y/E Mar 2015E 2016E 2017E

Net Sales 27.7 31.9 36.9

EBITDA 7.0 9.5 12.8

Adj. NP -0.1 2.2 5.6

Adj. EPS (INR) -0.1 2.1 5.2

Adj. EPS Gr.% NA NA NA

BV/Sh (INR) -3.0 -0.9 4.3

RoE (%) NA NA NA

RoCE (%) 7.9 25.5 49.1

Div. Payout% - - -

Valuations

P/E (x) NA 30.4 12.0

P/BV (x) NA NA NA

EV/EBITDA (x) 10.9 7.9 5.4

EV/Sub (INR) 5,913 5,236 4,485


As on Sep-14 Jun-14 Sep-13

Promoter 64.5 64.5 64.5

DII 3.1 2.3 5.5

FII 19.8 19.1 17.0

Others 12.6 14.1 13.0



40

55

70

85

100

Nov

-13

Feb-

14

May

-14

Aug

-14

Nov

-14

Dish TVSensex - Rebased

Dish TV India

November 2014 69

the EBITDA level (~20% of FY15E EBITDA), assuming that DITV is able to fully pass through the levied tax to subscribers. DTH license fee revised from 10% of GR to 8% of AGR: TRAI has recommended DTH license fee at 8% of adjusted gross revenue (AGR) for new/renewed DTH licenses as compared to 10% of gross revenue, earlier. AGR would be calculated by excluding service tax, entertainment tax, and other taxes. If accepted by the government, these recommendations would be applicable with effect from October 2013 for DITV, as its earlier license period ended in September 2013. There has been a dispute regarding methodology of license fee calculation and the matter is currently subjudice. As a result, DITV is currently making license fee provision at ~10% of gross revenue but making payment at ~6% of gross revenue, in line with the current legal understanding. New license fee regime EBITDA accretive, but cash flow negative: Currently, DITV’s license fee provision made in the P&L amounts to 10.4% of reported revenue (10% of gross revenue), while actual cash payment is estimated at 6.2% of reported revenue. Under the new regime, post deduction of entertainment tax (which constitutes ~6% of reported revenue), effective license fee would be ~7.5% of reported revenue. While license fee provision in the P&L would decline ~290bp, the actual cash outgo pertaining to license fee would increase by ~130bp. For example, as compared to FY15 license fee provision of INR2.8b and cash outgo of INR1.7b, the revised license fee would be INR2.05b. Retrospective license fee liability of INR8.4b remains subjudice: DITV has an accumulated retrospective license fee liability of INR8.4b due to lower cash payment than the government demand. While this liability pertains to earlier licensing regime and remains subjudice, there would be a significant decline in the liability if TRAI’s new license fee regime were to be applied retrospectively. We have not factored any cash outgo pertaining to the retrospective liability. EBITDA growth to rebound: We expect EBTDA growth to rebound from 5% decline in FY14 to 28% growth in FY15 and a CAGR of 28% over FY14-18, led by 10% net subscriber CAGR, 6% ARPU CAGR, and 13pp EBITDA margin expansion, led by operating leverage and lower license fee. Leverage comfortable; well placed to undertake growth capex: With Net Debt/EBITDA of 1.6x (FY14E) and ~1.4x (FY15E), DITV is well-placed to benefit from potential demand increase, led by phase III/IV digitization. We currently model capex of ~INR7.5b per year for DITV, based on our current gross subscriber addition estimate of 2.5m per year. Valuations attractive; Buy: DITV trades close to multi-year low valuations, with an EV of 7.9x FY16E EBITDA. Maintain Buy with DCF-based target price of INR75.

Dish TV India

November 2014 70

Exhibit 111: DITV- Net sub addition estimates have significant room for positive surprise-m

Source: TRAI, MOSL

Exhibit 112: DITV - Entry price offer for standard definition box (INR)

1,6401,840

1,9992,249

1,600

Before Feb 13 Feb 13 (first hike) Feb 13 (second hike) Jul 13 Current

Source: Company, MOSL Exhibit 113: DITV - We expect 6% ARPU CAGR over FY14-18E

145

140

140 153 157 165 175 184 196 204

11

-3

0

10

35

6 64 4

FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E

ARPU (INR) YoY (%)


Exhibit 114: DITV - Programming & content cost

3.8 4.6 5.2 6.1

6.5

7.8 8.0 9.2 10.4 11.5

49

2113

18 7

19

2

15 13 11

FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E FY18E

Programming and content costs (INR b) YoY (%)


Exhibit 115: DITV - Programming & content cost as % of revenue

63.9

54.8

43.336.6 33.9 35.5

31.2 30.6 29.6 29.3

FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E FY18E


1.8

1.4

2.8

1.1 1.1

0.7

1.51.4

1.2 1.1


Dish TV India

November 2014 71

Exhibit 116: State wise entertainment tax States levying on per subscriber basis (INR/month)

States levying on revenue share basis (%)

Assam 25 Karnataka 6%

Chhattisgarh 10 Kerala 2%

Chhattisgarh 20 Punjab 10%

Delhi 20 Uttar Pradesh 25%

Goa 30 Madhya Pradesh 20%

Gujarat 16.7 Orissa 5%

Maharahstra - Mumbai city/suburban 45 Bihar 15%

Maharashtra - others 15/30/45 Tamil Nadu 30%

Uttarakhand 25 Jharkhand 10%

Uttarakhand - commercial 50

West Bengal - Kolkata 10

West Bengal - Others 5

Nagaland 10

Source: TRAI, MOSL

Exhibit 117: DITV - Entertainment tax as % of revenue

0.6

1.82.4 2.4

3.6 3.5

4.9

FY07 FY08 FY09 FY10 FY11 FY12 FY13


Exhibit 118: DITV - 28% EBITDA CAGR over FY14-18E

-1.4

0.92.4

5.0 5.8 5.57.0

9.5

12.814.9


Dish TV India

November 2014 72

Exhibit 119: DITV - DCF valuation

INR b FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E FY19E FY20E FY14-20

CAGR Net subscribers (m) 4.3 5.7 8.5 9.6 10.7 11.4 12.9 14.3 15.5 16.6 17.7 18.6 8% YoY (%) 32 50 13 11 6 13 11 8 7 6 5 ARPU (INR/month) 145 140 140 153 157 165 175 184 196 204 213 222 5% YoY (%) -3 0 10 3 5 6 5 6 4 4 4 Revenue 7.4 10.8 14.4 19.6 21.7 24.3 27.7 31.9 36.9 41.5 46.2 50.9 13% Revenue growth (%) 47 32 36 11 12 14 15 16 12 11 10 EBITDA -1.4 0.9 2.4 5.0 5.8 5.5 7.0 9.5 12.8 14.9 16.9 18.7 23% EBITDA margin (%) -18 9 17 25 27 23 25 30 35 36 37 37 EBITDA growth (%) -170 152 109 16 -5 28 34 36 16 13 11 Capex 4.7 4.5 10.0 5.2 9.2 0.8 7.7 7.7 7.5 7.3 7.3 7.4 Capex/Sales (%) 63 42 70 27 42 3 28 24 20 18 16 15 Change in working capital 0.5 0.5 -4.6 1.4 -2.1 -0.4 -0.8 -0.8 -0.6 -0.6 -0.6 -0.6 Tax outflow 3 4 Tax rate (%) 33 33 FCF -6.5 -4.0 -3.0 -1.6 -1.3 5.1 0.1 2.6 5.9 8.2 6.9 8.0 FCF growth (%) -22 -509 -98 2120 131 38 -16 17 Terminal value 112 Mar' 15E PV of FCF 2 5 6 4 5 Net Debt (Mar-15E) 10.0 PV-Explicit Period 21 PV-Terminal Value 62 Equity Value 74 Equity Value per Share (Mar-15E) 69 Equity Value per Share (Sep-15E) 75 Implied FY16 EV/EBITDA 9.5x Implied FY16 EV/Sub (INR) 6,277 Terminal value assumptions EBITDA margin 37% Capex/Sales 15% Cash tax rate 33% FCF margin 15%

WACC Calculation

FCF growth 5.0% Wt (%) Cost Risk Free ERP Beta

FCF multiple 13.3x Equity 0.6 15.7% 8.5 6.5 1.1 EBITDA multiple 5.4x Debt 0.4 7.8% WACC 12.5% WACC 12.5%


Dish TV India

November 2014 73

Exhibit 120: DITV - Key Assumptions

Key Assumptions FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E Gross subscribers (m) 7 10 13 15 17 19 22 24 27 YoY (%) 36 51 24 18 9 16 14 12 11 Gross adds (m) 1.8 3.5 2.5 2.3 1.4 2.6 2.6 2.6 2.6 YoY (%) -12 93 -30 -6 -38 82 0 0 0 Net subscribers (m) 5.7 8.5 9.6 10.7 11.4 12.9 14.3 15.5 16.6 YoY (%) 32 50 13 11 6 13 11 8 7 Net adds (m) 1.4 2.8 1.1 1.1 0.7 1.5 1.4 1.2 1.1 YoY (%) -22 106 -60 -2 -40 129 -10 -11 -9 Monthly churn (%) 7.4 7.9 11.4 8.5 4.8 6.0 6.0 6.0 5.8 ARPU (INR) 140 140 153 157 165 175 184 196 204 YoY (%) -3 0 10 3 5 6 5 6 4 Prog & content costs (INR b) 4.6 5.2 6.1 6.5 7.8 8.0 9.2 10.4 11.5 % of revenue 42 36 31 30 32 29 29 28 28 EBITDA margin (%) 9 17 25 27 23 25 30 35 36 CPE capex/gross add (USD) 47 46 46 46 46 45 44 43 43 CPE capex/subscription revenue (%) 49 62 34 32 18 28 23 19 16 Revenue Mix

Revenue (INR b) 10.8 14.4 19.6 21.7 24.3 27.7 31.9 36.9 41.5 YoY % 47 32 36 11 12 14 15 16 12 Subscription revenue (%) 77 83 85 89 90 92 94 95 95 Lease rentals (%) 14 14 11 7 4 2 1 0 0 Others (%) 9 3 4 4 6 5 5 5 5


Dish TV India

November 2014 74

Financials and valuations Income Statement (INR Million) Y/E March 2012 2013 2014 2015E 2016E 2017E Net Sales 19,578 21,668 24,258 27,660 31,851 36,854 YoY (%) 36.3 10.7 12.0 14.0 15.2 15.7 Operating expenses 14,595 15,873 18,745 20,623 22,392 24,028 Cost of goods and services 9,905 11,010 13,098 13,950 14,944 15,734 Employee Cost 710 822 891 980 1,097 1,207 Selling & distribution exps 2,909 3,036 3,321 4,374 4,903 5,499 Administrative exps 1,071 1,005 1,436 1,319 1,447 1,588 EBITDA 4,984 5,795 5,513 7,038 9,459 12,826 EBITDA margin (%) 25.5 26.7 22.7 25.4 29.7 34.8 Depreciation 5,180 6,276 5,973 6,118 6,296 6,637 Interest 1,778 1,284 1,327 1,591 1,556 1,211 Other Income 386 512 660 582 582 582 PBT -1,589 -1,252 -1,127 -89 2,189 5,559 Adjusted PAT -1,589 -1,252 -1,127 -89 2,189 5,559 Change (%) -16.3 -21.2 -10.0 -92.1 -2,562.8 153.9 Exceptional items 0 594 -415 0 0 0 Reported PAT -1,589 -658 -1,542 -89 2,189 5,559

Balance Sheet (INR Million) Y/E March 2012 2013 2014 2015E 2016E 2017E Share Capital 1,064 1,065 1,065 1,065 1,065 1,065 Share Premium 15,336 15,378 15,378 15,378 15,378 15,378 Reserves -17,338 -17,996 -19,531 -19,620 -17,431 -11,872 Net Worth -938 -1,553 -3,089 -3,178 -989 4,571 Loans 14,003 16,330 14,460 15,353 13,759 8,469 Deffered Tax Liability 0 0 0 0 0 0 Capital Employed 13,065 14,777 11,371 12,175 12,770 13,039 Gross Fixed Assets 29,267 35,788 42,314 49,998 57,669 65,130 Less: Depreciation 15,063 21,449 27,422 33,540 39,837 46,473 Net Fixed Assets 14,204 14,339 14,891 16,458 17,832 18,656 Capital WIP 3,884 6,535 2,808 2,808 2,808 2,808 Investments 1,500 0 1,180 1,180 1,180 1,180 Curr. Assets 6,752 10,676 8,831 9,047 9,286 9,549 Inventory 69 86 75 85 98 114 Debtors 286 304 415 473 545 630 Cash & Bank Balance 3,851 6,403 5,399 5,399 5,399 5,399 Loans & Advances 2,546 3,883 2,943 3,090 3,244 3,406 Current Liab. & Prov. 13,275 16,773 16,339 17,317 18,336 19,154 Creditors 8,277 10,099 7,837 8,891 10,045 11,258 Provisions & other liab. 4,999 6,674 8,503 8,426 8,291 7,897 Net Current Assets -6,523 -6,097 -7,508 -8,270 -9,050 -9,605 Miscellanous exp 0 0 0 0 0 0 Application of Funds 13,065 14,777 11,371 12,175 12,770 13,039 E: MOSL Estimates

Dish TV India

November 2014 75

Financials and valuations Ratios Y/E March 2012 2013 2014 2015E 2016E 2017E Basic (INR)

Adjusted EPS -1.5 -1.2 -1.1 -0.1 2.1 5.2 Growth (%) -16.3 -21.3 -10.0 -92.1 -2,562.8 153.9 Cash EPS 3.4 4.7 4.6 5.7 8.0 11.5 Book Value -0.9 -1.5 -2.9 -3.0 -0.9 4.3

Valuation

P/E NA NM NM NM 30.4 12.0 Cash P/E 18.5 13.3 13.8 11.1 7.9 5.5 EV/EBITDA 15.1 13.2 13.7 10.9 7.9 5.4 EV/EBITDA (excl lease rentals) 27.1 18.2 16.5 12.0 8.1 5.4 EV/Sales 3.8 3.5 3.1 2.8 2.3 1.9 Price/Book Value NA NA NA NA NA NA EV/net subscriber (INR) 7,803 7,117 6,625 5,913 5,236 4,485 EV/net subscriber (USD) 126 115 107 96 85 73


RoE NA NA NA NA NA NA RoCE NA 1.2 -5.3 7.9 25.5 49.1

Turnover Ratios

Debtors (Days) 5 5 6 6 6 6 Inventory (Days) 1 1 1 1 1 1 Creditors. (Days) 207 232 153 157 164 171 Asset Turnover (x) 2.8 2.7 3.7 5.3 5.4 5.8

Leverage Ratio

Debt/Equity (x) NA NA NA NA NA NA

Cash Flow Statement (INR Million) Y/E March 2012 2013 2014 2015E 2016E 2017E Op.Profit/(Loss) bef Tax 4,984 6,390 5,098 7,038 9,459 12,826 Other Income 386 512 660 582 582 582 Interest Paid -1,778 -1,284 -1,327 -1,591 -1,556 -1,211 (Inc)/Dec in Wkg. Cap. -1,369 2,125 413 762 780 555 CF from Op.Activity 2,223 7,743 4,844 6,791 9,265 12,751 (inc)/Dec in FA + CWIP -5,210 -9,061 -2,799 -7,684 -7,671 -7,461 (Pur)/Sale of Investments 502 1,500 -1,180 0 0 0 CF from Inv.Activity -4,708 -7,562 -3,978 -7,684 -7,671 -7,461 Issue of Shares 23 43 0 0 0 0 Inc/(Dec) in Debt 3,240 2,327 -1,870 893 -1,594 -5,290 CF from Fin.Activity 3,263 2,370 -1,870 893 -1,594 -5,290 Inc/(Dec) in Cash 778 2,552 -1,004 0 0 0 Add: Opening Balance 3,074 3,851 6,403 5,399 5,399 5,399 Closing Balance 3,851 6,403 5,399 5,399 5,399 5,399

Thematic | E-commerce

September 2014 67

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