In an interview to CNBC-TV18, Jawahar Goel, MD of Dish TV says that the company's margins were impacted due to higher marketing costs and content costs.
Jawahar Goel, managing director of Dish TV believes that the company will manage to be debt free by the end of next year. He is confident of better margins for the company, going forward.
Increased content cost by 32 percent of the subscription revenue due to a deal with a broadcasters, and rising marketing costs of Rs 32 crore have led to fall in EBITDA levels, Goel told CNBC-TV18. Topline, free cash flows and average revenue per user (ARPU) have witnessed a health trajectory in this quarter. Going forward, this health cash flow will help in paring down the debt of Rs 750 crore during the year, he says. The costs will be tapered down in the coming quarters, which will reflect on the margins, he adds.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Your EBITDA seem to have disappointed the street where the margins have come in at 20.7 percent this quarter. Can you just take us through what sort of cost pressures actually face the company this time around and what is your guidance on the margins going forward?
A: There are three factors. One, is foreign exchange. Two, is the content cost because this is the first quarter we had negotiated the deal with one of the broadcaster. That is why our content cost has gone up by 32 percent of our subscription revenue. Third, there is higher marketing cost. We spent around Rs 32 crore in this quarter on marketing, brand building exercise so, these are impacting.
Otherwise our top-line, average revenue per user (ARPU) has been healthy. One of the parameter that I look which is a strong parameter for my company is free cash flow (FCF).
For the last whole financial year, our FCF was Rs 64 crore; this quarter is Rs 48 crore. We are planning to retire our loan by Rs 750 crore this financial year and the FCF will help us to pay up the loan and reduce the interest cost.
Q: Could you tell us whether these increased programming cost and the content cost will continue to remain elevated in the next couple of quarters; thereby causing your margins to remain in this 20-22 percent mark?
A: The contract was expired, which was signed 2-3 years back. So, we had signed on upside. In the future quarter’s our revenues will grow, content cost will be flat. So our margin will improve over the quarters.
It has always been the scene when we sign the contract, our content costs get high and then it tapers down. That is the way we do business. The margins will improve in coming quarters because the content cost will remain flat.
Q: The heartening part this time around is that your finance cost have fallen on a year on year basis. Can you just talk about your debt reduction plans? We have been told that you would like to pare off Rs 150 crore of debt. What is it currently standing at? What are the measures you would use to pare it down?
A: We have cash as well as from internal accrual, FCF is positive. This financial year we will retire around Rs 750 crore and next year we will make the company debt free.
Q: What about the subscription revenues? This quarter you have seen about 16 percent growth. But some analysts believe that in FY14, the subscription revenues across the DTH sector may slip by about 20-25 percent due to demand weakness. What could be a sustainable run rate in terms of subscription revenues for you?
A: Our revenues and ARPUs have increased; our high definition (HD) offering are the highest in the industry. It is how we are ramping up the HD subscriber. The consumer spent on high definition package is more than Rs 500.
When we pay up the taxes and the licence fees, it comes down. There is about 30 percent element of taxes and fees. So, net in our hand comes around Rs 150-180 less.
Q: When do you think that you could formidably break-even on the bottom-line or result in profitability for the company on the bottom-line, since you have been speaking on paring your debt, going forward? Do you think that it could even be sustainable?
A: We have a high component of depreciation unlike the other players in the same category. They impair the box in 7-8 years of time. This company does it in five years.
On top of this, when the subscriber churns out, we impair the box in the same quarter. That is how our depreciation cost for another one year will be very high and then the asset will also be depreciated.
I am not giving any guidance. But that should be much good enough to say that from internal accrual we are paying off the debts. I am not worried about higher depreciation.
EBITDA margins have improved. At one point of time, we had 31percent EBITDA. Now, it is 21 percent. We know why we had come to this level due to various reasons. It will come back on these levels.
Q: What about the ARPU? This time, you have done about Rs 165 because of the price hikes. Are there any price hikes that the management plans to take? What could a sustainable rate be on the ARPUs itself?
A: There are three major elements. One; is entertainment tax which the cost to the company is around 6 percent. Maharashtra is charging Rs 45 per subscriber. Uttar Pradesh (UP) is charging us 20 percent of our subscription on gross value. The cable industry is also doing initiative with the state government.
We are also with them. The compliance on the cable side, on taxation compliance on cable side goes high; the cable will also come along with us. We will try to impress upon to the respective state and central governments to look at this category.
It is almost more than 30 percent on our top-line goes by way of tax and levies. This is one factor which is reducing our ARPU levels. We are also doing to have some more category of that. At this moment, we are totally prepaid model.
Now we are trying to do regular pay master. We want to convert them on post-paid basis so that the loss of revenue which in our category in prepaid mode is roughly around 16-18 percent; we want to reduce that. These factors; when we take our ARPU will go up.
On price increase side, we have done the price increase just 2-3 months back, we will wait for the time and will see the right time to pass on the taxes to the consumer.