Buy Den Networks: Ventura

Ventura is bullish on Den Networks and has recommended buy rating on the stock in its January 17, 2013 research report.
 
“Although the valuation of Den Networks seems expensive at 35.8 & 29.4x for FY13/14, we maintain a BUY. Given the fact that subscriber additions remain strong and the benefits of digitization would start accruing to the top line from Q1FY14. Further with not much significant costs being associated with the incremental revenues, the profitability should be positively affected. We have not yet modeled this incremental revenue, as we would like to see proof of the pudding before revising our forecast. The Ministry of information & broadcasting (MIB) has demonstrated the seriousness of DAS implementation in phase 2 cities. This can be reiterated from the various key initiatives (such as increasing intervals of review meetings and conducting workshops) taken by MIB to achieve the superior results. Given that MSO’s are expected to be the biggest beneficiaries of digitisation, we believe Den Networks Ltd is well placed to reap the benefit on the back of its strong subscriber revenue base of ~11 mn and aggressive management team.”
 
“According to the management, various steps are being initiated by the Ministry of Information & Broadcasting (MIB) to lay emphasis on the seriousness of digitisation in phase 2 cities. Some of the initiatives include increasing the intervals of review meetings (from every 10 days to 3 days), one day workshop with all the nodal officers and IAS officials (of 38 phase 2 cities) to discuss various issues (queries related to customers, stakeholders, technologies, etc). Further, state level meetings are also likely to be held with participants being LCOs, MSOs and nodal officers. Den Networks reported strong set sets of numbers during the quarter with 13.3% QoQ top-line growth in its cable business led largely by consolidation of acquired JVs and successful completion of Phase I. Consolidated revenues were at Rs 241.8 crore during the current quarter. It is to be noted that consolidated top-line is not comparable with corresponding period of previous year due to the change in accounting policy at Media Pro which has started reporting revenues on a net basis (Gross revenues – Cost of Distribution rights).”
 
“During the quarter, company added over ~9,00,000 more set top boxes taking its total universe to ~2.4 mn (~1.8 mn in Phase 1 cities; ~0.6 mn in Phase 2 cities). Moreover, the company expects to seed another 0.2 mn set top boxes in Kolkata in Q4FY13. We remain upbeat on the company as it has analog network of over 3.75 mn subscribers in Phase 2 cities (presence in 60% of all Phase 2 cities) and is likely to convert a significant portion. The company has a strong analog presence in Phase II cities across Uttar Pradesh (7 cities), Maharashtra (5 cities), Gujarat (3 cities), Karnataka (2 cities), Rajasthan (2 cities) and Haryana (1 city). Den Networks Ltd has allocated ESOPs to employees in March, 2011 and as a result would amortis the ESOP premium over the next three years. The company has amortised Rs 0.81 crore during the quarter,” says Ventura research report.

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