Buy SITI Cable Network; target of Rs 52: SPA Securities

SPA Securities’ research report on Siti Cable NetworkSCNL reported lower than expected revenue of INR 2.34bn primarily due to lower activation revenue and temporary switching off of ~60,000 subscribers. ARPU in phase 1 & 2 cities has remained stagnant at ~INR 100 and INR 75 respectively. EBIDTA margin declined by 52bps YoY to 18.29% due to higher employee cost as the company is aggressively rolling out its broadband service. While SCNL has seeded only ~0.53mn boxes in 1HFY16, going by the past experience of digitization, we are confident that SCNL will be able to seed ~2.5mn STBs in 2HFY16E. We maintain our BUY recommendation with target price of INR52, based on DCF (FCFE) methodology.Outlook & ValuationWhile seeding of STBs in phase 3 & 4 has been slow in 1HFY16, we expect it to gain momentum in 2HFY16. Past digitization experience shows that 40% of digitization happens a month before the sunset date and rest in the following month. SCNL has decided to offer digital cable in phase 3 & 4 cities on pre-paid model. In this model, LCO will pay in advance for the number of active subscribers. This should allay apprehensions regarding receivables management in these areas. Since most of the MSOs have agreed to the same model, we do not expect any subscriber loss due to poaching from other MSOs. However, we will have to wait till Q4FY16 to know how this model has been accepted by the LCOs. Going forward, steady growth in pay-TV & Broadband subscriber base coupled with improvement in subscription revenue will instill investor confidence in the stock. We maintain our BUY recommendation with target price of INR52, based on DCF (FCFE) methodology. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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