Initiating Coverage

February 5, 2010
Rating Matrix
Rating : Strong Buy
Dish TV (DISHTV)
Target : Rs 50
Rs 40
Target Period : 12 months
Potential Upside : 25% Bracing for next leg of growth…
Dish TV is the first and largest DTH operator in India with a market
YoY Growth (%) share of over 35%. Riding on increasing penetration of cable, plugging
FY09 FY10E FY11E FY12E of revenue leakages by increasing digitisation and stabilising ARPU, the
Net Sales 79.0 45.6 29.4 26.7 topline is expected to grow at a CAGR of 33.6% over FY09-12E. The
EBITDA - - 194.6 66.7 company has got the funding in place to fuel the next phase of growth.
Net Profit - - - - The improving operational performance may lead to a potential re-
EPS (Rs) - - - - rating of the stock. We expect EPS to improve from Rs -7.0 in FY09 to Rs
-0.8 in FY12E and initiate coverage on DISH TV with STRONG BUY rating.
Stock Metrics
Bloomberg/Reuters Code DITV IN/DSTV.NS
Fast growing television industry – to aid DTH
Sensex 16163 The television industry has grown by leaps and bounds, recording 12.6%
Average volumes 758,241 CAGR from Rs 163 billion in 2005 to Rs 263 billion in 2009. It is expected
Market Cap (Rs crore) 4,254 to grow at 15.8% CAGR to Rs 473 billion by 2013E. Subscription revenue,
52 week H/L 60 / 20 that forms ~66.5% of total TV revenue, is expected to grow to Rs 317
Equity Capital (Rs crore) 106.3 billion by 2013 at a CAGR of 16.1%. Share of subscription revenue from
Promoter's Stake (%) 64.8 digital platforms would be higher at 64% on account of higher ARPUs due
FII Holding (%) 4.4 to zero underreporting. Implementation of digital platforms has been
DII Holding (%) 6.6 given the necessary thrust with Trai’s recommendation of 100%
mandatory cable digitisation within five years.
Price movement (Stock vs. Nifty) Dish TV – the first mover advantage
60 6,000 Dish TV introduced DTH in early 2005 and had a head start of ~1 million
50 5,000 subscribers from the second operator. Dish TV’s subscriber base is
expected to grow at 29.1% CAGR (FY09-12E) to 10.9 million, though the
40 4,000
market share is expected to fall from 38% to 29%. The company was able
30 3,000 to capture ~26% share to total industry additions in Q3FY09, despite the
20 2,000 entry of Rcom and Airtel and aggressive price promotion by Sun. We
10 1,000
expect Dish TV to retain its leadership and maintain share in net adds at
~25%, backed by the company’s strong distribution network.
0 0
Feb-09 May-09 Aug-09 Nov-09 Feb-10 Valuations
Nifty (R.H.S) Price (L.H.S) The operational performance of the company has improved significantly
in the recent past. With subscriber base increasing at a handsome pace
and increasing proportion of old subscribers, the company is expected
Target Multiple to achieve PAT breakeven by FY2014E. Assuming revenue CAGR of
FY09 FY10E FY11E FY12E 16.9% over FY10E-20E and terminal growth of 4% thereon we have
Target PE - - - - arrived at a target price of Rs 50/share. The stock is currently trading at
EV/EBITDA -36.5 70.2 21.9 13.1 Rs 40. Our target price implies an upside potential of 25.0%. We are
EV/Subscriber 8,882 7,403 5,305 4,414
initiating coverage on Dish TV with a STRONG BUY rating.
Price/BV 9.9 3.5 2.7 2.7 Exhibit 1: Valuation matrix
(Year-end March) FY08 FY09 FY10E FY11E FY12E
Net Sales 412.2 738.1 1,074.6 1,390.0 1,761.5
Analyst’s name EBITDA (209.2) (123.3) 75.0 221.0 368.5
Karan Mittal Net Profit (Rs crore) (414.1) (480.7) (266.9) (200.1) (89.0)
karan.mittal@icicisecurities.com EPS (Rs) (9.7) (7.0) (2.5) (1.9) (0.8)
P/E (x) - - - - -
Naval Seth
Price / Book (x) 40.0 7.9 2.8 2.2 2.2
naval.seth@icicisecurities.com
EV/EBITDA (x) (10.6) (31.0) 56.0 17.1 10.2
EV/Subscriber (x) 7,330 7,527 5,908 4,138 3,440
RoE (%) (967.1) (138.1) (17.5) (10.3) (4.6)
RoCE (%) (62.3) (23.5) (8.2) (4.5) (1.3)
Source: Company, ICICIdirect.com Research

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 Dish TV (DISHTV)

Promoter and institutional holding trend (%) Company Background

Dish TV India Ltd is an Essel Group venture. Essel Group has a vast range
100%
80% of national and global business interests that include media
80% 73% 73% programming, broadcasting & distribution, speciality packaging and
65%
entertainment. The company was incorporated during August 1988 as
60%
Navpad Texturisers Pvt Ltd. The businesses have close synergies in the
40% areas of content, distribution and infrastructure. During December 1995,
20% 11% 11% 11% the company had changed its name to ASC Enterprises Ltd. In April 2006,
9%
the company's Hollywood blockbusters launched the Movie on Demand.
0% During June 2006, News Active was launched and the One Alliance
Q3FY10 Q2FY10 Q1FY10 Q4FY09 bouquet had joined in. In July, the gaming channel Playjam commenced
operations. At the end of 2006, Dish Care Centres set-up Dish TV has 93
Promoter Holding Institutional Holding DCC/service franchisees across 51 cities. In 2007, the name was changed
Source: Company, ICICIdirect.com Research
to Dish TV India Ltd.
During 2006-07, the company had launched a host of new age features
like Near Video on Demand (nVOD), Sports Active, Mosaic for all genres
and games for children. During April 2007, Dish TV crossed the 2 million
subscribers mark. In the same period, the service infrastructure expanded
to 950 customer service executives at nine different locations. Dish TV
was recognised as one of the top 25 start-up brands in the country, by
Planman Media in May 2007.
Dish TV is India's first direct to home entertainment service that has
digitised Indian entertainment to bring home the best in television
viewing through the latest in digital technology. Dish TV takes television
viewing to the next level as it supports various futuristic features like
electronic programme guide, parental lock, capacity up to 400 channels,
games, Interactive TV, movie on demand, etc. It also brings exclusive
national and international channels for the first time in India.
The company has a strong distribution network, which includes 800
distributors and 4800 dealers across 6600 towns with eight zonal and 19
regional offices as of December 2009. The company also has 350
customer care centres and service franchisees providing installation and
after sale-service as of March 2009.

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Dish TV (DISHTV)

Investment Rationale

Fast growing television industry

The television industry has grown by leaps and bounds in the recent past.
It has recorded a CAGR of 12.6% growing from Rs 163 billion in 2005 to
Rs 263 billion in 2009. The industry is expected to grow at a CAGR of
15.8% to Rs 473 billion by 2013E.
Exhibit 2: Indian media and entertainment industry growth (Rs billion)
2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E CAGR% (09-13)
Television 163 183 211 241 263 296 342 399 473 15.8
Print 117 139 160 173 184 198 216 239 266 9.7
It has recorded a CAGR of 12.6% growing from Rs Film 67 82 96 109 109 118 131 151 169 11.5
163 billion in 2005 to Rs 263 billion in 2009. The Radio 5 6 7 8 9 10 12 14 16 15.4
industry is expected to grow at a CAGR of 15.8% to Music 8 8 7 7 8 8 9 10 11 9.3
Rs 473 billion by 2013E Animation 10 12 15 17 20 23 28 33 39 18.5
Gaming 2 3 4 7 9 13 18 23 27 30.7
Internet 2 2 4 6 8 11 14 17 21 26.3
Outdoor 10 12 14 16 18 20 22 26 29 13.4
Total 385 445 520 584 628 697 791 911 1052 13.8
Source: FICCI report 2009, ICICIdirect.com Research

The television industry dominates the largest share of the Indian media
and entertainment industry. The industry dynamics have changed
drastically in the last decade and a half. Before this television was a
monopoly of a few public sector broadcasters.
Exhibit 3: Indian media and entertainment industry break-up (Rs 628 billion for 2009P)

Others
Music 9%
Radio 1%
1%
The television industry dominates the largest share
Film Television
of the Indian media and entertainment industry
17% 43%
forming about 43%

Print
29%
Source: FICCI report 2009, ICICIdirect.com Research

Unlike the print industry, subscription revenue is higher than the

advertisement revenue in the television industry. Out of the total
television industry revenue of Rs 262.7 billion in 2009, subscription
revenue is expected to have contributed Rs 174.5 billion.
Although subscription revenue forms about 66.5% of the total television
revenue, broadcasters’ share of pay revenue amounts to only around
17% or Rs 29.6 billion due to revenue leakages and large skew in the ‘last
mile’.
Nevertheless, aided by increasing digitisation and plugging of revenue
leakages, subscription revenue is expected to grow to Rs 317 billion by
2013 at a CAGR of 16.1%. On the other hand, advertisement revenues
would grow to Rs 156 billion at a CAGR of 15.2% over the same period.

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Dish TV (DISHTV)

Exhibit 4: Break-up between subscription and advertisement revenue

500 473
399
400 342 156
Unlike the print industry, subscription revenue is 296 132
higher than the advertisement revenue in the 300 263

Rs billion
241 113
television industry. Out of the total television 211 97
163 183 88
industry revenue of 262.7 billion in 2009, 200 83
71 317
52 61 267
subscription revenue is expected to have 229
100 175 199
contributed Rs 174.5 billion 122 140 158
111
0
2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E

Subscription Revenue Ad Revenue

Source: FICCI report 2009, ICICIdirect.com Research

Exhibit 5: Increasing TV penetration in India

250 70%
88
No. of household in million

91 89 65%
200 96 94
103 100
104 63% 64% 60%
106 105 60% 62%
150 59% 55%
53% 56%
Total 59% of India’s total population has access to 51% 54%
49%
TV while cable television reaches over 45% of the 50%
100 142 148 152 156
population. Currently, about 110 million households 122 129 136
103 110 116 45%
have access to cable television up from just 61
million in 2005 50 40%
2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E

TV HH Non-TV HH TV as % of total HH

Source: Company, ICICIdirect.com Research

Cable television reaches over 455 million of India’s population. Currently,

about 110 million households have access to cable television, up from
just 61 million in 2005. Though cable TV penetration continues to grow at
a rapid pace, the untapped potential is still very high. Over the next few
years, cable and satellite, along with new delivery platforms like DTH and
IPTV are expected to aid the penetration further.
Exhibit 6: Industry snapshot
CY08 CY09E CY10E CY11E CY12E CY13E
No. of HHs in India (Mn) 229 232 236 239 241 244
Growth Rate % 1% 2% 1% 1% 1%
No. of TV HHs (Mn) 129 136 142 148 152 156
Growth Rate % 5% 4% 4% 3% 3%
Total number of digital Pay TV households (including TV penetration in India 56% 59% 60% 62% 63% 64%
digital cable, DTH and IPTV) in India is projected to No. of C&S HHs (Mn) 94 105 115 124 131 137
grow at a CAGR of 24.6% over 2009E-13E to 56 Growth Rate % 12% 10% 8% 6% 5%
million or about 40% of the total cable and satellite No. of Analogue Cable TV Sets (Mn) 81 82 83 83 83 82
households in India Growth Rate % 1% 1% 0% 0% -1%
No. of DTH TV Sets (Mn) 11 19 27 35 40 44
Growth Rate % 78% 41% 28% 14% 9%
No. of Other Digital TV Sets (Mn) 2 4 5 6 9 12
Growth Rate % 63% 35% 22% 40% 39%
Source: FICCI Report 2009, Company, ICICIdirect.com Research

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Dish TV (DISHTV)

Total number of digital Pay TV households (including digital cable, DTH

and IPTV) in India is projected to grow at a CAGR of 24.6% over 2009E-
13E to 55 million or about 40% of the total cable and satellite households
in India. Share of subscription revenue coming from digital platforms is
also likely to be higher at about 64% on account of higher ARPU in digital
space due to zero underreporting.
Exhibit 7: Pay TV market on a growth trajectory

210 86% 88% 100%

81% 84%
73% 77%

No. of Hosehold in Million

160 67% 131 137 80%
Digital penetration shot up in 2008, especially due to 62% 115 124
59% 105
increased competition in the Pay DTH space with 55%
110 94 60%
the entry of Rcom and Bharti Airtel. Even Trai has 82
65 72
recommended 100% mandatory cable digitisation 57
60 40%
within the next five years
10 20%

2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E
-40 0%

Cable TV DTH Digital + IPTV Pay TV as % of TV HH

Source: Company, ICICIdirect.com Research

Policy framework to speed up digitisation

Recent M&A activity in the cable TV space also
suggests a renewed focus towards digitisation and
consolidation to effectively compete with DTH
companies
Recent M&A activity in the cable TV space also suggests a renewed focus
towards digitisation and consolidation to effectively compete with DTH
companies. MSOs are going into a digitisation drive to upgrade their
networks to the digital format. Recently, Hathway acquired a controlling
stake in two midsized cable TV companies as a strategy to expand its foot
print and limit the challenge of new MSO entrants. Another MSO,
Digicable Network acquired a 51% stake in Kolkata-based CableComm as
a part of its strategy to expand in the eastern region of India.
Digital penetration shot up in 2008, especially due to increased
competition in the pay DTH space with the entry of Rcom and Bharti
Airtel. Even Trai has recommended 100% mandatory cable digitisation
within the next five years.
Leakages in ‘last mile’ to facilitate digitisation…

Exhibit 8: Pay TV ARPU - India vs. rest of the world

70
58
60
47
50
40
In USD

ARPU in India is among the lowest in the world, 25 28

30 22
presenting ample opportunity for growth 19
20 13
10 3 4
0
Philippines

Zealand
Singapore
India

Indonesia

Malaysia

Australia
Thailand
China

New

Source: FICCI report 2009, ICICIdirect.com Research

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Dish TV (DISHTV)

The combination of low ARPU and chronic under-
declaration of subscriber base by LCOs has
significantly constrained the growth of subscription
revenue for broadcasters. At the same time, it is an
excellent opportunity for digital delivery platforms to
capitalise on this problem and address the issue of
under-reporting, thereby increasing transparency in
the distribution system
In addition to one of the lowest ARPUs in the world, one of the major
problems faced by the broadcasters is the revenue leakages in the last
mile or under reporting of the subscriber base by cable distributors. This
has resulted in grossly inequitable distribution of subscription revenue in
favour of Local Cable operators (LCO).
According to KPMG-FICCI report, it is estimated that the LCO keeps 79%
of the total subscription revenues of the industry and leaves just about
17% for the broadcasters. The residual 4% is retained by the Multi
System Operator (MSO).
This combination of low ARPU and chronic under-declaration of
subscriber base by LCOs has significantly constrained the growth of
subscription revenue for broadcasters. At the same time, it is an excellent
opportunity for digital delivery platforms to capitalise on this problem and
address the issue of under-reporting, thereby increasing transparency in
the distribution system.
Exhibit 9: Simulated revenue flow for a large LCO (per month)
Current Scenario Optimized Scenario Increase/month
Number of subscribers 1,500 1,500
Declared 375 25% 1,500 100%
Undeclared 1,125 75% 0 0%

Subscription fee (Rs) 150 190 40 27%

Split (for declared subscribers)
Broadcasters 75 50% 35 18%
MSO 22 15% 10 5%
With a moderate increase in subscription fees, 100% LCO 53 35% 145 76%
declaration can be achieved. This would increase
inflows and would be a win-win situation for all What the subscribers pay in Rs 225,000 285,000 27%
stakeholders. Also, the government would benefit (LCO's gross revenues)
from all the undeclared subscribers now coming Split (for total revenues)
under the tax net Broadcaster revenues 28,125 13% 52,500 18% 24,375 87%
MSO revenues 8,250 4% 15,000 5% 6,750 82%
LCO revenues 188,625 84% 217,500 76% 28,875 15%
Estimated tax loss 45,000 0 45,000
Source: FICCI and KPMG report, ICICIdirect.com Research

It is clear from the above illustration that with a moderate increase in

subscription fees, 100% declaration can be achieved. This would increase
inflows and would be a win-win situation for all stakeholders. Also, the
government would benefit from all the undeclared subscribers now
coming under the tax net.

DTH – the favourable digital delivery platform

The Indian TV distribution space has evolved very fast in a short span of
three to four years. We have seen conditional access system (CAS) being
introduced and the advent of five DTH players, which together have
garnered about 19 million subscribers by the end of December 2009 apart
from the commercial launch of IPTV.
Even though the government had made CAS mandatory in specific
regions of Delhi, Mumbai and Kolkata in 2007, it has met with limited
success. The adoption rate in CAS mandated areas was as low as 38%.
However, the entry of DTH players has given a strong push towards
digitisation. One of the major reasons for higher penetration of DTH is
high adoption in rural areas, since viewing cable through own Dish has a
high prestige value attached to it in these areas. Digital penetration further
shot up in 2008 due to entry of new players and further intensifying

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Dish TV (DISHTV)

competition wherein players have started to highly subsidise the set top
boxes.
Exhibit 10: DTH gaining foothold in TV households

70% 61% 64% 63%

Entry of DTH players has given a strong push 59% 60% 58%
60% 55% 56% 54%
towards digitisation. One of the major reasons for 52%
higher penetration of DTH is high adoption in rural 50%
areas, since viewing cable through own Dish has a
40%
high prestige value attached to it in these areas. 28%
30% 26%
Digital penetration further shot up in 2008 due to 24%
19%
entry of new players and further intensifying 20% 14%
competition wherein players have started to highly 8%
10% 1% 3%
subsidise the set top boxes 0% 0%
0%
2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E

% Analog Cable HH to TV HH % DTH HH to TV HH

Source: FICCI Report 2009, Company, ICICIdirect.com Research

Exhibit 11: Share in incremental pay TV household added

2%
100% 1% 4% 7%
9% 12% 13% 13% 12%
35% 56%
80% 27%

We expect the share of analogue cable in the net 60% 60%

adds to decline, going forward, while that of DTH 99% 96% 89% 77% 80% 85%
40%
and IPTV is expected to grow at a rapid pace 67% 70% 61%
20%
28%
10% 7% 3%
0%
-5% -17%
-20%
2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E

Cable Additional DTH Additional IPTV additional

Source: Company, ICICIdirect.com Research

Exhibit 12: Fast growing DTH Industry

50
45 CAGR 22.5% (CY09-13E) 44
40
40
35
Subscriber in Million

The overall DTH subscriber base is expected to grow 35

at a CAGR of 22.5% from 19 million in 2009 to 44 30 27
million by 2013 25
20 19
15 11
10
4
5 0 0 1
0
2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E

Source: FICCI Report 2009, Company, ICICIdirect.com Research

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Dish TV (DISHTV)

Dish TV – the first mover advantage

Dish TV introduced DTH to the Indian consumer in early 2005 and was the
sole player in the industry till mid 2006. By the time the second player
could launch its services, Dish TV already had a subscriber base of over a
million. It has maintained its leadership position since then, even though
the industry now has five strong players.
Exhibit 13: Key milestones in Indian DTH Industry

12 DTH subscribers Launch by Sun Direct Launch by Airtel

Launch of DTH breach 2M mark
10 Launch by RCOM
services by dish
The subscriber base of the company has grown at a CAS made mandatory in Voluntary digitization
8 TV
CAGR (FY07-FY09) of 66.5% from ~1 million in FY07 select part of metros of private cable
to 5.1 million subscribers at the end of FY09. 6
Launch by
However, the market share of Dish TV has fallen 4 Tatasky
from 56% in FY08 to 42% in FY09 2
subscriber base ~10 mn
0
Apr-05

Apr-06

Apr-07

Apr-08
Aug-05

Dec-05

Aug-06

Dec-06

Aug-07

Dec-07

Aug-08

Dec-08
Dish TV Industry

Source: Company, ICICIdirect.com Research

The subscriber base of the company has grown at a CAGR (FY07-FY09) of

66.5% from ~1 million in FY07 to 5.1 million subscribers at the end of
FY09. However, the market share of Dish TV has fallen from 56% in FY08
to 42% in FY09, primarily due to the entry of new players. The share in
net adds is bound to fall, going forward, as other players gain more
acceptance.
Dish TV, being a market leader, would be a key beneficiary of the robust
industry growth. The company was able to capture ~26% share to total
industry additions in Q3FY09, despite the entry of Rcom and Airtel and
aggressive price promotion by Sun. We expect the company to add 2.0
million and 1.8 million subscribers in FY11E and FY12E, respectively. The
share in net adds is expected to stabilise at ~25%, going forward.
Exhibit 14: DTH subscriber base

40 70%
35 59% 60%
30 50%
Dish TV, being a market leader, would be a key 25
In Million

42% 32.3% 40%

beneficiary of the robust industry growth. We 20 30.4% 29.3%
37 30%
expect the company to add 2.0 million and 1.8 15 30
million subscribers in FY11E and FY12E, 10 22 20%
respectively. The share in net adds is expected to 3.0 2.1 13 2.0 2.0 9.1 1.8 10.9 10%
5 1.0 5 5.1 7.1
stabilise at ~25%, going forward 0 0%
FY08 FY09 FY10E FY11E FY12E

Dish TV Subscriber Addition Dish TV Subscriber base

Total Industry Subscribers Dish TV market share

Source: Company, ICICIdirect.com Research

We expect Dish TV to retain its leadership and to record strong subscriber

addition of about 3.8 million in the next two years, backed by the
company’s strong distribution network, which includes 800 distributors

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Dish TV (DISHTV)

and 4800 dealers across 6600 towns as of June 2009. The company also
has 350 customer care centres and service franchisees providing
installation and after sale-services as of March 2009.
Exhibit 15: DTH industry - Competitive landscape
Subs (Mn)* Channel Services Content Strategy Schemes
Dish TV 6.46 250 40 All major entertainment & Titanium - Rs 312
niche regional channels to Gold - Rs 210
provide unparalleled content. Silver - Rs 125
Give the subscriber maximum South gold - Rs 210
entertainment at the best value
tailor made add-on packages to
enhance ARPU
Tata Sky 3.8 173+ 19 All major entertainment Annual Mega pack -
channels + value added Rs 5500
services eg. VAS (showcase), South Jumbo pack -
DVR, la-carte Top up Rs 3410
Kid special pack - Rs
2475
Super saver pack -
Rs 2000
Sun Direct 5.6 170+ 29 Provide basic & regional Jumbo Pack - Rs 300
channels at a low price to Shine pack - Rs 525
capture the low end customer. for 4 months
English & other channels for Metro pack - Rs 1490
evolved customer are very for 6 months
expensive
Big TV 1.1 150+ 54 Offers more content at Platinum - Rs 5390
acquisition & has different Diamond Rs - 4590
reduced packs on renewal Diamond Rs - 3090
Focusing on VAS Gold - Rs 1890
Digital TV 1.8 172+ 15 Carries world space satellite Ultra Pack- Rs 4350
Radio Mega Pack - Rs 3850
Variety of Active services Economy pack- Rs
3450

* Subscribers at end of Q3FY10

Source: Company, ICICIdirect.com Research

ARPU to stabilise, going ahead

Exhibit 16: Dish TV ARPU

170
160
164
150 158 142 139
With intense competition setting in, all DTH players 140 150 137
have flooded the market with various offers. 142 135
130 132
In Rs

Consequently, the ARPU in the industry has been on

120
a continuous downtrend. ARPU for Dish TV fell to Rs ARPU decline attributed
135 in Q3FY10 from Rs 164 in Q1FY09 110 to cheaper schemes
100 offered during festive
90 season
80
Q3FY08 Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10

Source: Company, ICICIdirect.com Research

With intense competition setting in, all DTH players have flooded the
market with various offers. Consequently, the ARPU in the industry has
been on a continuous downtrend. ARPU for Dish TV fell to Rs 135 in

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Dish TV (DISHTV)

Q3FY10 from Rs 164 in Q1FY09. At the same time, attractive offers have
also given a push to the demand and the industry has been adding over 8
million subscribers per annum. On the back of attractive schemes, the
company successfully added ~0.4 million and 0.6 million subscribers
during Q2FY10 and Q3FY10, respectively.
Exhibit 17: ARPU assumptions
FY09 FY10E FY11E FY12E
Old Subscriber (Mn) 3.0 5.1 7.1 9.1
New Subscriber (mn) 2.1 2.0 2.0 1.8
We do not expect the ARPU to fall steeply. ARPU for
FY11E is expected to be marginally lower than that Old Subscriber ARPU (Rs) 203 194 174 170
in FY10. We expect the ARPU to stabilise at current Revenue from Old Subs (Rs Crore) 606.3 939.3 1,270.2 1,652.3
levels in the near term. However, in the medium to
long term we think it is likely that ARPUs may pick New Subscriber ARPU (Rs) 83 42 42 40
up Revenue from New Subscriber (Rs Crore) 153.9 101.8 101.8 91.2

Total Revenue (Rs Crore) 714.8 1,056.0 1,372.0 1,743.5

Blended ARPU (Rs) 157 141 141 145
Source: Company, ICICIdirect.com Research

However, going forward, we do not expect ARPUs to fall steeply. ARPU

for FY11E is expected to be marginally lower than that in FY10. We expect
the ARPU to stabilise at current levels in the near term. However, in the
medium to long term, we think it is likely that ARPUs may pick up, largely
on the back of the following:
• New subscriber addition on high ARPU subscription packages
• Increase in demand for VAS services
• Rising proportion of old subsidised resulting in higher blended ARPU
• Churn to remain at current levels

Funding in place for next phase of growth

Dish TV has raised sufficient funds in the last fiscal to take care of future
expansion needs. The company announced a Rs 1140-crore rights issue
in October last year. The money was to be called in three tranches: first
tranche (27.2%) in the first three months of the issue, the second (36.4%)
after three months but before nine months and the final tranche in nine
months after but before 18 months. Two tranches have already been
called in while the third tranche is expected to be called in FY11.
Furthermore, the company diluted 11% equity to US-based Apollo
management in the form of GDRs for Rs 475 crore. It has issued 117,035
GDRs (each GDR representing 1,000 equity shares of Re 1 each).
Altogether, the company has raised ~ Rs 1615 crore in the past year. We
expect the company to require ~Rs 1000 crore to support its subscriber
growth of ~4 million (about Rs 2300 per subscriber) in the next two years.
We believe capital funding is in place for fuelling further growth and
would not be an impediment while competing with larger counterparts.
Exhibit 18: Recent fund raising activity
Particulars Amount (Rs crore)
Rights Issue
1st Tranche (Rs 6/share was raised immediately 311
2nd Tranche expected in Q4FY10E ( Rs 8/share) 415
3rd Tranche expected during FY11E ( Rs 8/share) 415
GDR issue (diluted 11% stake at ~Rs 39/share) 475
Total funds available 1,615
Source: Company, ICICIdirect.com Research

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Dish TV (DISHTV)

Exhibit 19: Funding requirement for FY11E and FY12E

(Rs crore, unless mentioned otherwise) FY11E FY12E Total
Subscriber addition (Mn) 2.0 1.8 3.8
Subscriber acquisition cost per subscriber (Rs) 2,324.6 2,300.2 2,313.0
Capex required for subscriber acquisition 464.9 414.0 879.0
Altogether, the company has raised ~ Rs 1615
crore in the past one year. We expect the company Working Capital requirement 20.3 337.6 357.9
to require ~Rs 1,000 crore to support its subscriber Interest outgo 81.0 65.0 146.0
growth of ~4 million (about Rs 2300 per subscriber) Total Fund requirement 566.2 816.6 1,382.8
in the next two years. We believe capital funding is
place for fuelling further growth and would not be an Internal accruals 461.5
impediment while competing with larger Rights issue inflow (2nd tranche) 414.5
counterparts Rights issue inflow (3rd tranche) 414.5
GDR issue (diluted 11% stake at ~Rs 39/share) 475.0
Total Funds available 1,765.6

Surplus/(Deficit) 382.8
Source: Company, ICICIdirect.com Research

Improving operational performance may lead to re-rating

The company turned EBITDA positive in Q4FY09, ahead of its guidance. It
has taken several measures to rationalise operating cost. One of the key
elements in Dish TV’s operations is the content cost. It has entered into
fixed price contracts with broadcasters, which have brought the
programming cost down from 56.5% of revenue in Q2FY09 to 43.2% in
Q3FY10.
The company’s EBITDA is set to increase multifold by FY12E (Rs 368.5
crore) from the levels in FY10E (Rs 75.0 crore). Fast growing EBITDA on
the back of lower content cost and other expenditure coupled with lower
interest cost, going ahead, would lead to early PAT break-even for the
company. With rapidly improving operational performance coupled with
funding in place for fuelling the next phase of growth, the dynamics and
operating environment have changed significantly. We expect the stock to
get re-rated in the near future, which could give handsome upside from
current levels.
Exhibit 20: Programming cost as a percent of revenue

140 60%
120 56.5% 55.5% 43.8% 50%
43.3% 43.2%
100 39.8%
40%
Rs crore

One of the key elements in Dish TV’s operations is 80

30%
the content cost. It has entered into fixed price 60 119.7
106.9 106.8 112.8
contracts with broadcasters, which have brought 98.0 20%
40 82.4
down the programming cost from 56.5% of revenue
20 10%
in Q2FY09 to 43.2% in Q3FY10.
0 0%
Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10

Programming costs (LHS) % of Net Revenue (RHS)

Source: Company, ICICIdirect.com Research

Subscriber acquisition cost to decline only marginally

In the DTH industry, operators generally subsidise subscribers on the set
top box to the extent of approximately Rs 1700–1800. The other elements
of subscriber acquisition cost (SAC) include distributor commission on

ICICIdirect.com | Equity Research

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Dish TV (DISHTV)

customer acquisition and advertisement expense (the company allocates

80% of the total spend on brand awareness to SAC).
The SAC is expected to decline from Rs 2603 in FY09 to Rs 2377 in FY10E
on account of lower marketing and advertisement spend. However, going
forward, we expect only a marginal decline in SAC as the share of
advertisement expense allocated to SAC decreases.
SAC is expected to decline from Rs 2603 in FY09 to Exhibit 21: Subscriber acquisition cost per subscriber
Rs 2377 in FY10E on account of lower marketing (Rs per subscriber) FY09 FY10E FY11E FY12E
and advertisement spend. However, going forward, Set top box 1,700 1,700 1,700 1,700
we expect only a marginal decline in SAC as the Marketing cost 357 302 275 250
share of advertisement expense allocated to SAC Commission to dealers 546 375 350 350
decreases Subscriber acquisition cost 2,603 2,377 2,325 2,300
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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Dish TV (DISHTV)

Risks and Concerns

Intense competition to remain cause for concern

The DTH industry has a huge growth opportunity in under penetrated
markets like India. It has witnessed the entry of three new well funded
players in the last one year. With this, the industry has also expanded,
from hardly a few thousand subscriber additions per quarter to more than
two million per quarter. However, we believe intense competition and the
entry of new players, which has resulted in declining ARPUs, is a major
cause for concern for Dish TV. In the heat of the hard hitting competitive
scenario, Dish TV has to maintain its market share and share in net adds
to retain its leadership position in the industry.

Breach in fixed content fee contract

As discussed earlier, the company has entered into a fixed content fee
scheme with all major broadcasters. Breach in contract by any of the
broadcasters, would further increase the cost of operation and would
dent the EBITDA margin and further delay the PAT breakeven for the
company.

Consolidation of small operators

DTH is expected to grow manifold in the next few years due to better
technology to cover the whole country along with their fully funded
balance sheets, strong distribution network and effective after sale
service.
Success of the DTH business, however, depends on the churn from
LCOs/MSOs. Small and fragmented LCOs have generally refrained from
digitising due to under reporting of subscribers. Consolidation among
them would pose a threat to the growth prospects of DTH.

ICICIdirect.com | Equity Research

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Dish TV (DISHTV)

Financials
Robust revenue growth
The company reported a topline of Rs 412.2 crore and Rs 738.1 crore in
FY08 and FY09, respectively. The topline has grown at a CAGR (FY07-
FY09) of 96.3%, primarily on the back of a growing subscriber base,
which would have grown from 1.8 million subscribers in FY07 to
approximately 7.1 million in FY10E (6.5 million by the end of Q3FY10) at a
CAGR of 57.2%. We expect the topline to grow at a robust pace of 45.6%
and 29.4% in FY10E and FY11E, respectively. This implies healthy
revenue CAGR (FY09-FY12E) of 33.6% to Rs 1761.5 crore, backed by
strong subscriber addition of about 3.8 million in the next two years.
Exhibit 22: Revenue growth
FY09- FY12E CAGR of
2000 33.6% 1761.5 140

115.1 120
1500 1390.0
100
We expect the topline to grow at a healthy CAGR 79.0 1074.6
Rs crore

(FY09-FY12E) of 33.6% to Rs 1761.5 crore, backed 80

1000

%
by strong subscriber addition of about 3.8 million in 738.1 45.6 60
the next two years 412.2 29.4 26.7
500 40
191.6
20
0 0
FY07 FY08 FY09 FY10E FY11E FY12E

Revenue (LHS) Growth % (RHS)

Source: Company, ICICIdirect.com Research

Healthy EBITDA margin, going forward

Dish TV reported an EBITDA loss of Rs 123 crore in the last fiscal year,
down from Rs 209 crore in FY08. The company achieved a break-even at
the EBITDA level in Q4FY09 and reported EBITDA of Rs 4.1 crore.
Exhibit 23: Improving EBITDA margin

500 40.0
369
15.9
20.0
300 7.0
221 20.9
0.0
-16.7 75
Various cost rationalisation measures are expected 100 -20.0
Rs crore

to drive the EBITDA margin from -16.7% in FY09 to

-100 -171 -209 -40.0
20.9% in FY12E -123
-50.7
-60.0
-300 FY07 FY08 FY09 FY10E FY11E FY12E -80.0
-500 -89.0 -100.0

EBITDA EBITDA margin

Source: Company, ICICIdirect.com Research

Declining programming and other cost and selling and distribution cost
are the primary factors for improving EBITDA margin. The company has
renegotiated with all major broadcasters for a fixed content fee as
opposed to subscriber linked fees. The content cost was as high as 88.0%
of revenue in FY07, which has come down to 52.8% in FY09. With the

ICICIdirect.com | Equity Research

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Dish TV (DISHTV)

new policy coming into operation, we expect the content cost to further
come down to 45.0% in FY10E and ~40.5% in FY12E. Similarly, the
selling and distribution expense has come down from 46.9% of revenue
in FY07 to 29.3% in FY09. We expect this to come down to 12.0% by
FY12E.
These coupled with various other cost rationalisation measures are
expected to drive the EBITDA margin from -16.7% in FY09 to 20.9% in
FY12E.
Exhibit 24: Contributors to expanding EBITDA margin

800 713 100

700 584
With the fixed content cost policy coming into 77.0 80
600 484
operation, we expect the content cost to further 500 52.8
Rs crore 45.0 60
come down to 45.0% in FY10E and ~40.5% in 400 44.1 377 42.0 40.5

%
FY12E. Similarly, the selling and distribution expense 300 29.3 40
253 202 212
has come down from 46.9% of revenue in FY07 to 200 182 18.9
216 20
29.3% in FY09. We expect this to come down to 100 203 12.0
14.5
12.0% by FY12E 0 0
FY08 FY09 FY10E FY11E FY12E

Programming costs (LHS) SG&A expenses (LHS)

% of Subscription revenue (RHS) % of Subscription revenue (RHS)

Source: Company, ICICIdirect.com Research

Positive PAT – some more time to go...

The company reported negative PAT of Rs 414.2 crore in FY08. This
increased to Rs 480.9 crore in FY09 on the back of losses on high
subscriber acquisition cost. However, with increasing share of high ARPU
old customers, the operational performance has improved. This started to
reflect in numbers from Q3FY09 onwards. For 9MFY10, the company
reported a loss of Rs 201.6 crore as against Rs 397.5 crore in 9MFY09.
Exhibit 25: Improving PAT and PAT margin

FY08 FY09 FY10E FY11E FY12E

0 0%
-5.1%
-100 -14.4% -20%
In addition to improving operational performance, -89.0
-24.8%
lower interest outgo would further aid the -200 -40%
-200.1
Rs crore

profitability. Nevertheless, the company is expected

-300 -266.9 -60%
to continue making losses at the PAT level till FY13 -65.1%
post which a sustainable operating performance will -400 -80%
lead it to PAT breakeven -414.2
-500 -480.9 -100%
-100.5%
-600 -120%

PAT PAT margin

Source: Company, ICICIdirect.com Research

In addition to an improving operational performance, lower interest outgo

would further aid the profitability. Nevertheless, the company is expected
to continue making losses at the PAT level till FY13, post which, a
sustainable operating performance will lead it to PAT breakeven.

ICICIdirect.com | Equity Research

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Dish TV (DISHTV)

Valuations
DCF-based target price of Rs 50/share
Assuming revenue CAGR of 16.9% over FY10E–FY20E and terminal
growth of 4% thereon, we have arrived at a target price of Rs 50/share.
Comparison to peers is not possible due to Dish’s loss making status,
highly subsidised subscriber acquisition model and long pay back period.

The stock is currently trading at Rs 40. Our target price implies an upside
potential of 25.0%. We are initiating coverage on Dish TV with a STRONG
BUY rating.

Comparison with Sun TV

In April 2007, Malaysia-based Astro All Asia Network Plc acquired a 20%
stake in Sun Direct TV Pvt Ltd for $166 million (nearly Rs 747 crore). This
valued the DTH operator at Rs 3735 crore even though it was yet to
commercially start its services. Even at the current subscriber base of Sun
Direct of 5.6 million the valuation comes at around Rs 6670 per
subscriber.

We believe this discount is unjustified given the higher subscriber base of

Dish TV and almost double ARPU at Rs 141 against Rs 75 for Sun Direct.
Our target price values Dish TV at Rs 7403 per subscriber for FY10.

Exhibit 26: WACC assumptions

Risk free return (Rf) 7.6%
Market premium (Rm) 6.5%
Assumed Beta 1.01
Cost of equity (Re) 14.1%
Equity % 70.0%
Cost of debt (Rd) 10.0%
Tax rate (t) 15.0%
After tax cost of debt (Rd[1-t]) 8.5%
Debt % 30.0%
WACC 12.4%
Source: ICICIdirect.com Research

Exhibit 27: DCF assumptions

Rs crore FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E
EBITDA 75 221 369 512 688 876 1,027 1,173 1,303 1,434 1,564
Depreciation 300 348 402 484 566 646 717 775 813 844 866
Tax (0) - - - - - - 131 162 195 230
NOPAT (225) (127) (34) 29 121 230 310 267 329 396 467
Capital Expenditure 345 385 371 406 426 426 400 348 269 171 106
Change in Working Capital 944 (132) (317) (82) (89) (93) (92) (85) (72) (70) (66)
Free Cash Flow (1,214) (32) 315 188 350 543 718 778 944 1,138 1,293

DCF Valuation Rs crore

PV of firm 6,447 Assumptions
Less: Current Debt 1,149 WACC 12.4%
Total present value of the Equity 5,298 Revenue CAGR (FY10E-20E) 16.9%
Number of Equity Shares outstanding (Cr) 106 Terminal Growth 4.0%
DCF - Target price (Rs) 50
Source: Company, ICICIdirect.com Research

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Dish TV (DISHTV)

Exhibit 28: DCF - WACC and terminal growth sensitivity

WACC %
11.45% 11.95% 12.45% 12.95% 13.45%
3.00% 55 50 45 40 36

Growth Rate %
3.50% 59 52 47 42 38

Terminal
4.00% 63 56 50 45 40
4.50% 67 59 53 47 42
5.00% 72 64 57 50 45
Source: ICICIdirect.com Research

ICICIdirect.com | Equity Research

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Dish TV (DISHTV)

Table and Ratios

Profit and loss statement
(Rs Crore)
(Year-end March) FY08 FY09 FY10E FY11E FY12E
Net Sales 412.2 738.1 1,074.6 1,390.0 1,761.5
% Growth 115.1 79.0 45.6 29.4 26.7

Operating Expenditure 353.6 544.0 705.5 864.1 1,060.0

% of Sales 85.8 73.7 65.7 62.2 60.2
Personal Cost 42.0 54.3 41.2 48.6 62.5
% of Sales 10.2 7.4 3.8 3.5 3.6
Selling and Distribution 181.9 216.2 202.7 202.0 212.0
% of Sales 44.1 29.3 18.9 14.5 12.0
Administration & other Expenses 43.9 46.9 50.1 54.2 58.5
% of Sales 10.6 6.4 4.7 3.9 3.3
Total Expenditure 621.4 861.4 999.5 1,168.9 1,393.0
% Growth 38.6 16.0 16.9 19.2

Operating Profit (209.2) (123.3) 75.0 221.0 368.5

% Growth (41.1) (160.9) 194.6 66.7
Other Income 3.9 1.3 8.0 8.0 10.0
Depreciation 157.0 228.9 299.6 348.2 402.5
EBIT (366.2) (352.1) (224.6) (127.1) (34.0)
% Growth - - - -

Interest 51.3 129.3 50.4 81.0 65.0

Profit before Tax (413.6) (480.1) (267.0) (200.1) (89.0)
% Growth 16.1 (44.4) (25.0) (55.5)
Taxation 0.6 0.7 (0.0) - -

Net Profit (414.2) (480.9) (266.9) (200.1) (89.0)

% Change YoY - - - -

ICICIdirect.com | Equity Research

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Dish TV (DISHTV)

Balance Sheet
(Rs Crore)
(Year-end March) FY08 FY09 FY10E FY11E FY12E
Liabilities
Equity Share Capital 42.8 68.7 106.3 106.3 106.3
Reserves & Surplus - 279.2 1,416.3 1,830.8 1,830.8
Secured Loans 68.4 269.7 950.0 750.0 550.0
Unsecured Loans 476.1 879.5 250.0 150.0 100.0
Current Liabilities & Provisions 1,170.6 1,639.1 1,764.3 2,126.8 2,329.5
Others 0.8 0.6 0.6 0.6 0.6
Total Liabilities 1,758.7 3,136.8 4,487.5 4,964.6 4,917.3

Assets
Gross Block 911.9 1,421.1 1,835.8 2,316.5 2,753.6
Less Accumulated Depreciation 231.4 460.0 709.0 1,043.5 1,432.3
Net Block 680.6 961.1 1,126.8 1,273.0 1,321.3
Capital WIP 279.3 373.4 223.4 123.4 53.4
Total Fixed Assets 959.9 1,334.5 1,350.2 1,396.4 1,374.7

Loans & Advances 187.6 670.6 537.3 625.5 704.6

Cash 51.1 80.5 1,251.0 1,382.6 1,150.1
Trade Receivables 40.3 52.6 82.8 92.4 129.6
Inventories 5.8 3.2 4.7 6.1 7.7
Total Current Assets 284.9 806.9 1,875.8 2,106.5 1,992.0

Profit and Loss A/C 513.9 995.4 1,261.5 1,461.6 1,550.6

Total Asset 1,758.7 3,136.8 4,487.5 4,964.6 4,917.3

Cash Flow statement

(Rs Crore)
(Year-end March) FY08 FY09 FY10E FY11E FY12E
Profit after Tax (414.1) (480.7) (266.9) (200.1) (89.0)
Depreciation 157.0 228.9 299.6 348.2 402.5
Deferred Tax Liability 0.1 (0.2) - - -
Cash Flow before WC Changes (257.0) (252.0) 32.7 148.0 313.5

Net Increase in Current Liabilities 267.5 468.5 125.1 362.6 202.7

Net Increase in Current Assets (35.2) (492.7) 101.6 (99.1) (118.0)
Cash Flow after WC Changes (24.7) (276.1) 259.4 411.5 398.2

Purchase of Fixed Assets (288.5) (603.4) (315.3) (394.4) (380.8)

Cash Flow from Investing Activities (288.5) (603.4) (315.3) (394.4) (380.8)

Increase / (Decrease) in Loan Funds 351.5 604.7 50.8 (300.0) (250.0)

Increase / (Decrease) in Equity Capital - 25.1 38.5 - -
Increase / (Decrease) in Share premium a - 279.2 1,137.1 414.5 -
Cash Flow from Financing Activities 351.5 909.0 1,226.3 114.5 (250.0)

Op bal Cash & Cash equivalents 12.8 51.1 80.5 1,251.0 1,382.6
Closing Cash/ Cash Equivalent 51.1 80.5 1,251.0 1,382.6 1,150.1

ICICIdirect.com | Equity Research

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Dish TV (DISHTV)

Ratios
(Year-end March) FY08 FY09 FY10E FY11E FY12E
Per Share Data (Rs)
EPS (9.7) (7.0) (2.5) (1.9) (0.8)
Cash EPS (6.0) (3.7) 0.3 1.4 2.9
Book Value 1.0 5.1 14.3 18.2 18.2
Operating Profit Per Share (4.9) (1.8) 0.7 2.1 3.5

Operating Ratios
Operating Margin (%) (50.7) (16.7) 7.0 15.9 20.9
Net Profit Margin (%) (100.5) (65.1) (24.8) (14.4) (5.1)

Return Ratios
RoE (%) (967.1) (138.1) (17.5) (10.3) (4.6)
RoCE (%) (62.3) (23.5) (8.2) (4.5) (1.3)

Valuation Ratios
EV/EBITDA - - 56.0 17.1 10.2
PE - - - - -
EV/Sales 5.4 5.2 3.9 2.7 2.1
Sales to Equity 9.6 10.7 10.1 13.1 16.6
Market Cap to sales 4.2 3.7 4.0 3.1 2.4
Price to Book Value 40.0 7.9 2.8 2.2 2.2
EV/Subscriber (x) 7,330 7,527 5,908 4,138 3,440

Turnover Ratios
Fixed Assets Turnover Ratio 2.3 1.8 1.3 1.0 0.8
Debtors Turnover Ratio 10.0 15.9 15.9 15.9 15.9
Creditors Turnover Ratio 1.0 1.2 1.6 2.1 2.4
Cash to Absolute Liabilities 0.0 0.0 0.7 0.7 0.5

Solvency Ratios
Debt/Equity 12.7 3.3 0.8 0.5 0.3
Current Ratio 0.6 1.0 3.5 2.6 3.0
Quick Ratio 0.5 0.9 1.2 0.9 1.3

ICICIdirect.com | Equity Research

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 Dish TV (DISHTV)

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs current market price and then categorises them
as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is 2 years unless specified and the
notional target price is defined as the analysts' valuation for a stock.
Strong Buy: 20% or more;
Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor , Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

ANALYST CERTIFICATION
We /I, Karan Mittal MBA; Naval Seth MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or
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