Hold DEN Networks; target of Rs 93: Edelweiss

DEN Networks’ (DEN) Q2FY17 revenue and EBITDA came below our estimates. Key positives were: (i) subscription revenue jumped 18.9% QoQ due the 7% QoQ increase in net realisation (excluding taxes); ii) 0.27mn STBs were added in Q2FY17 resulting in total digital subscriber base of 10.1mn ; iii) Phase III net realisation increased to Rs 43 (up 34.4% QoQ) and iv) EBITDA margin (ex-activation) improved to 8.88%. Key negative was the 5.1% QoQ increase in content cost. Dismissal of the stay order on Phase III digitisation and draft TV tariff order recommendations are positives. The company has also lowered its stake in its soccer foray (non-core business) to 20%. However, effects of demonetisation and getting fair share from LCOs will be key monitorables. Maintain ‘HOLD’.

With Mr. S N Sharma rejoining DEN, we expect further improvement in cable business. We remain positive on DEN over longer term, though monetisation is a concern. We maintain ‘HOLD/Sector Performer’ with TP of INR93 (7x FY18E EBITDA). At CMP, the stock is trading at 7.4x FY17E and 5.9x FY18E EV/EBITDA.