Expect delay in digitization; Sun TV top pick: ICICI Sec

The June 30 deadline for complete digitization of the cable services in four metros is just 20-22 days away. The digitization meet with I&B Minister Ambika Soni is scheduled today afternoon at 3 p.m. While broadcasters are pushing for operators to meet the June 30 deadline, MSOs are trying to convince the government to delay.

Given the fact that multi-system operators (MSOs) and local cable operators (LSOs) are not ready to seed in the required set-top- boxes till now Vikash Mantri, media analyst at ICICI Securities expects a delay in digitization. "Our channel check suggests that boxes seeding are close to 20% only till now and with just some days left it will be difficult to go through with it," he added. Who gains who loses: Delay is digitization would be marginal negative for broadcasters who are waiting to make gains from this process. It will be difficult for players like Hathway are already well positioned for digitization. But, it would be positive for DTH players because they are in a good stand to carry on the process. Also, their subscriptions have started picking up as digitization is nearing, he explains. Meanwhile, Sun TV is his top pick in the broadcasting space. The target price is Rs 375. "On a fundamental basis, Sun TV continues to be strong. The valuations have significantly traded off recently and that makes it as a very well poised," he explained. He expects Dish TV to see better subscriber addition with digitization. "The key trigger for Dish TV will be the sustained average revenue per user (ARPU) rise that we can expect to see in the next two year time frame," he added. Below is the edited transcript of Mantri’s interview with CNBC-TV18. Also watch the accompanying video. Q: What do you expect to hear from the meet and if there is a postponement which is what one party is pushing for what kind of impact could it have on the stocks related to it? A: We are expecting a delay in announcement because the industry participants, especially multi-system operators (MSOs) and local cable operators (LSOs) are not ready to seed in the boxes. Our channel check suggests that boxes seeding are close to 20% only till now and with just around 23-24 days left it will be difficult to go through with it. So a delay announcement is very likely given the MSOs and LCOs have been pushing for it in some cases. However, we expect the government to stick to its guns because any delay now announced will ensure that there is another possibility for further delay and that could derail the entire process of digitization. So, the government needs to maintain a stance and say that there will be no digitization. DTH players are ready to seed in the boxes and MSOs are not able to there should be opportunity for DTH to make good because subscriber has enough choice as of now. If we see that the announcement of delay comes through on digitization, it will be a marginal negative for broadcasters who are waiting to make gains from this digitization process. At the same time it will be difficult for the players who are already well positioned for digitization like Hathway because they are doing a good job in terms of seeding in boxes. It is positive for DTH because it is in a good stand to carry on the digitization process and their subscriber addition have started to ramp up as digitization is nearing. Q: How would you approach something like a Dish TV then? A: Dish TV will see better subscriber addition because of the digitization process and so will other DTH players. The key trigger for Dish TV stock will be the sustained average revenue per user (ARPU) rise that we can expect to see in the next two year time frame. DTH was competing with cable which was not paying enough of taxes in terms of service tax and entertainment tax. Given that these players will also have to pay for this, the ARPU table will get substantially higher and that will be the entire value driver for the entire DTH pack. We see no reason why ARPUs should not go up 25-30% also in the next two-two and half years post digitization. Because it is unfair to have around 300-400 good channels at Rs 150 odd, so that trajectory might be achieved in the next few years. Q: Sun TV has suddenly come back in interest with a bang, any call that you have on that stock in terms of a target price as well? A: Sun TV is our top pick in the broadcasting space; we have a target price of around Rs 375 for Sun TV. The issues around Sun TV have been over hyped. On a fundamental basis, Sun TV continues to be strong. The valuations have significantly traded off recently and that makes it as a very well poised. The issues regarding decrease in TRPs in the Tamil Nadu and Telugu market are temporary in nature largely because of huge power issues in Tamil Nadu and Andhra Pradesh, where there are power cuts as high as 3-5 hours in many of the regions. This decreases the amount for TV viewing. We have already seen news clipping of how this power situation will improve in each of these markets. That should improve things majorly for Sun TV. In case, we are to see some resolution of the Arasu deal with Sun TV that would put in further fillip for Sun TV. We continue to remain positive on Sun TV and it is our top pick in the broadcasting space.