The Economic Times daily newspaper is available online now.

    Stock pick of the week: Why analysts are bullish on Dish TV

    Synopsis

    Improving prospects on account of merger-induced efficiencies, lowering of costs, short-term stability due to its buyback offer has made it a top pick.

    stock-thinkstock
    Dish TV has been under performing the BSE Sensex for several quarters due to the uncertainties created by its merger with Videocon d2h. After a year of slow progress, the merger of Dish TV and Videocon d2h is complete now. Delisting of Videocon d2h’s American Depository Shares (ADS) from Nasdaq and the listing of the combined entity through the Global Depository Receipt (GDR) in London Stock Exchange has also concluded now.

    Since all merger issues are behind the company, analysts are now concentrating on the likely future gains of the combined entity. With a combined market share of around 45% in the DTH (direct-tohome) market and 16% in the total television distribution market, the new entity can use its increased distribution range to bargain better with all its partners.

    For instance, the procurement of set top boxes at lower cost should help the new entity save around Rs 100 crore in 2018-19. Similarly, the combined entity is expected to save close to Rs 40 crore because of its better bargaining power with back office operators. There will also be savings on administration expenses.

    Dish TV’s content cost is now placed at around 30%, while that of Videocon d2h is around 35%. Analysts expect that cost will go below 30% for the combined entity. Due to its lower rating, Videocon d2h was paying higher interest on its loans and due to the better rating of the combined entity, interest costs are expected to come down by around 300 basis points—cost is expected to fall by Rs 75 crore in 2018-19. Cost reductions due to the synergies brought about by the merger are expected to continue beyond 2018-19 as well.

    While the high combined market share is a positive due to reduced costs, it may also limit the combined entity’s growth potential. Also, though there are no restriction as of now, there might be regulatory restrictions on new customer additions, if the entity’s market share exceeds 50%. Promoter companies are also offering to buy back 26% of the outstanding shares at Rs 74 per share, involving a total outlay of Rs 3,701 crore. This open offer will start on 5 June and will end on 15 June. Since the offer price is close to Dish TV’s current market price, it should offer short-term stability to the counter.

    Analysts’ views
    Buy: 24
    Hold: 2
    Sell: 1

    Dish-Tv

    Selection Methodology:
    We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.


    (Your legal guide on estate planning, inheritance, will and more.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    ...more

    (Your legal guide on estate planning, inheritance, will and more.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    ...more
    The Economic Times

    Stories you might be interested in