Dish-Videocon D2H merger to create Rs 350cr synergy: PhillipCap

A synergy of around Rs 350 crore at the EBITDA level will be created in two years by  Dish TV's acquisition of Videocon D2H, says Manoj Behera, Assistant Vice President - Research-Media & Telecom, PhillipCapital. This synergy will arise from the increase in Dish TV's subscriber base due to the merger. With the combined subscriber base of around 27 million, Dish TV's bargaining power with respect to content cost negotiation with the broadcaster increases as it can avail volume based discounts, he said. Carriage revenues from the broadcaster may rise due to the increase in subscriber base, says Behera. Also, administration and overhead expenses may also reduce because of the deal.Thus this deal is going to be beneficial for Dish TV, he feels.Below is the verbatim transcript of Manoj Behera’s interview to Prashant Nair & Reema Tendulkar on CNBC-TV18. Prashant: You track Dish TV I understand? A: Yes, we have a buy rating on Dish TV. Prashant: How do you look at this potential acquisition Dish acquiring Videocon D2H and the numbers that essentially are floating around? A: Putting aside the valuation the numbers which you are talking about, just I am ignoring the numbers at this point of time. However, if I look at what is going in the industry, so consolidation happening is anyways beneficial for the incumbent and so the current D2H space Dish TV is a market leader with 26 percent market share. So, if Dish TV were to acquire Videocon then it is beneficial for the entire industry and more importantly beneficial for Dish TV also. Reema: What according to you would be an appropriate premium that Dish TV should pay for Videocon D2H to acquire it? Currently when we calculated we are getting an enterprise value (EV) of nearly Rs 8,000 crore for Videocon D2H so how much can Dish TV pay without it raising concerns and does it make sense to pay that much because it will cause a lot of near-term dilution and hit? A: As you said the current enterprise value of Videocon is somewhere close to Rs 8,000 crore and based on that number Videocon is trading at close to 9 times FY17 EV/EBITDA and closed to 7.5 times FY18 EV/EBITDA. So, the deal were to happen at current value then it is going to be accretive to the minority shareholders of Dish TV. Let us assume the deal is happening at 10-15 percent premium compared to the current EV than that would be slightly negative to the DISH TV shareholders. Prashant: How would the transaction itself be structured? I mean this is listed as an American depository receipts (ADR). How would Dish TV shareholders be compensated? A: As far as I understand it would be a share swap deal, so Videocon shareholders would be given Dish TV shares and after that Dish TV shares would be listed in NASDAQ. So, as far as I understand it would be a share swap deal so that is my limited understanding at this point of time.