PINC Research is bullish on Den Network and has recommended buy rating on the stock with a target price of Rs 114 in its February 14, 2012 research report.
“Den Network’s revenue was above our expectations registering a growth of 5.2%YoY to Rs2.78bn (PINCe Rs2.66bn). Cable business witnessed growth of 20.7%YoY (3.4%QoQ) to Rs1.69bn. Distribution JV revenue posted 14.7% growth QoQ to Rs1.09bn. EBITDA declined 13%YoY to Rs235mn due to Rs34mn of ESOP expenditure, resulting EBITDA margin to contract to 8.4% from 10.2% in Q3FY11. PAT declined 51.4% to Rs35mn mainly on account of higher depreciation and interest cost.”
“Cable business revenue grew 20.7%YoY and 3.4% sequentially to Rs1.69bn. Cable EBITDA increased 18.4%YoY to Rs310mn posting an EBITDA margin of 17% (30bps higher YoY). Cable PAT declined 46%YoY to Rs31mn. The Distribution JV revenue (25% of Media Pro) surged 14.7% QoQ to Rs1.09bn contributing 40% (37% in Q2FY12) to the overall revenue. Den Network’s overall revenue grew 5.2%YoY (8.4%QoQ) with increase in digital subscriber base to 0.8mn. EBITDA declined 13%YoY (4% decline QoQ) to Rs235mn resulting in OPM to contract by 177bps YoY(110bps QoQ) to 8.4% in Q3FY12 mainly due to ESOPs of Rs34mn reported in the quarter. Excluding ESOPs, EBITDA margin stands at 9.7%. Pay channel cost as percentage of revenue declined to 82.8% from 83.8% in Q2FY12. Interest cost was higher 44.2%YoY at Rs68mn and depreciation costs increased 19.2%YoY to Rs140mn, resulting in PAT to decline 51.5%YoY to Rs35mn.”
“Den’s strong execution capabilities with aggressive subscriber acquisition strategy and profitable business model, comfort us on its ability to emerge as a formidable player post digitisation. As per the road map, digitisation is expected to be achieved by December ’14 and hence we believe valuing the company’s earning on FY15E will be appropriate. In order to reflect this, we have discounted FY15E financials to FY13E. At CMP, the stock is trading at 10.5xEV/EBIDTA FY13E and 6.7FY14E. We maintain our ‘BUY’ recommendation on the stock with a revised target price of Rs 114. We have valued the stock on average of DCF, EV/Subscribers and EV/EBITDA (taking Comcast and Time Warner as peers),” says PINC Research report.
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