Hold Den Networks; target of Rs 111: Edelweiss
Edelweiss recommended hold rating on Den Networks with a target price of Rs 111 in its research report dated May 22, 2018.
May 30, 2018 / 05:10 PM IST
Edelweiss' research report on Den Networks
DEN Networks (DEN) reported below estimates Q4FY18 revenue and EBITDA, which were largely flat YoY. Key positives: i) 11.5% YoY spurt in cable subscription revenue; and ii) 27.9% YoY decline in employee expenses and 11.7% YoY drop in SGA costs due to cost rationalisation efforts. Key negatives: i) 27.3% YoY fall in broadband subscription revenue due to lower ARPU (fell 22.9% YoY); and ii) EBITDA margin fell to 18% (down 600bps QoQ) impacted by higher content and SGA costs. We expect digitisation of phase III & IV markets to hold DEN in good stead. However, on-the-ground execution, adequate infrastructure to implement the TV tariff order and getting fair share from LCOs will be key monitorables. Maintain ‘HOLD’.
We cut our numbers due to heightened competition in broadband from Rjio, however we remain positive on DEN over long term. Monetisation of Phase III and IV markets (~50% of DEN’s existing subscribers are in these markets), successful implementation of HD boxes, fixed line broadband opportunity and slowdown in broadband are key monitorables. We maintain ’HOLD/SP’. We assign target multiple of 6x FY20E EV/EBITDA to arrive at target price of INR111. At CMP, the stock trades at 5.1x FY20E EV/EBITDA.
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