VDTH - Videocon

[kab60]

Results are out: http://ir.videocond2h.com/file/Index?KeyFile=34472565

[rkluwer]

From the first look of it.

 

- Record intake of gross subscribers 800.000, that would give +3 mio on years basis, if the keep it. Higher then any year.

- Keept ebitda growth on a quarter to quarter basis and ended the Q4 with 28,4% ebitda margin, compared to 28,1% for the year.

- Churn came in at 0.59% Q4, well below 0.73% for the year.

- ARPU keeps increasing from and avg of 207 in the year to ARPU 214 for Q4. Still a long growth upside here.

 

it seems video con are on the right track to become profitable within the next year or so. Still big capex due to all the set-top-box'ed the are deploying, as the are building customer base. This will keep on. There content cost on a % of rev fell from 38,5 to 37,5% which also helps on margins and this should continue, as the customer base increases.

 

Downside - the Phase III for the shut down of the analog signal, have gotten some court issues, as the have been prospered to shut it down. But this is under way and will happened during the year. Last i heard (from Q3 conf call), the are gathering all the issue in delhi high court, so that the government can dress them all at the same time. Should be the only thing disrupting the further growth, thats already happening and sending a lot of new customers in the hands of the DTH providers.

 

all in all, very postive. Lets see how the guide for 2017. Dish tv got som bad headwinds due to 2017 call for no ch in margins. Lets hope this won't be the case for videocon.

[misterkrusty]

I think the reason Dish TV India doesn't expect to see margins improve next year is simply that their content deals are up for renewal.  there is always pressure on margins when content deals renew, followed by margin growth as revenue growth creates operating leverage (content deals typically have a combination of fixed costs and per-subscriber costs).  VDTH experienced the same thing around 3Q15 (december 2014 quarter) when content deals renewed.

[rkluwer]

I think the reason Dish TV India doesn't expect to see margins improve next year is simply that their content deals are up for renewal.  there is always pressure on margins when content deals renew, followed by margin growth as revenue growth creates operating leverage (content deals typically have a combination of fixed costs and per-subscriber costs).  VDTH experienced the same thing around 3Q15 (december 2014 quarter) when content deals renewed.

 

Cool. how do u see the Q4 ?

[misterkrusty]

Q4 was pretty much as I expected, which is to say it was good.  lower churn than I expected.  so far, it seems to have been a really good quarter for the whole Indian pay-TV industry in terms of adding subscribers.  It's interesting that sub additions were higher than 3Q even though 3Q was the phase 3 deadline, and also there have been many areas where digitalization has been halted due to court orders.

 

I have to admit that I have a really difficult time in understanding what they are saying on the conference calls.  so I'll probably need to see the transcript before I can really judge the quarter.  for example, I couldn't understand what they said for % of subs that took HD in 4Q

 

importantly, we saw some good leverage on content costs ... 37.5% of subscription revenue, vs 42.8% in 3Q.  i'll be disappointed if they don't get that number down to the mid 30s in the next couple years

 

 

[SlowAppreciation]

Strange reasoning.

 

Manangement from what i see and hear, are very positive in describing the future and opportunities thats infront of videocon. if u call that to promotional - hmmm... ill rather have that, then a manangement board that gives no color and direction for the future. I think manangement have done a lot for the IR side and the biz and seeing good growths as forecast. regarding ARPU, i think the piracy claim on prices is also addressed in the Q3 transcript, where it is said, that a big part of the indian entertainment world is doing this, but that this should decrease with the new content and offerings going fwd. I think we saw the same thing here in the western world, where we were heavy users of piracy content, but from where i sit, i can see that this has died completely, and i think the same will happen over time. Not tom, but over time. So the thesis is just starting to play out, so funny views to make them bail ship. but might explain some of the strange pressure we have seen on the stock.

 

The keep on delivering on the numbers and Airtel's report shown great growth in Q4 and increasing EBIT and ebitda margin. i will expect the same for Videocon and think that Q4 will be the best quarter to date from them, regarding subs added, due to the T-20 cricket championship. And this might also be the first quarter the turn cash flow positive......

 

The let the thesis play out for 6 months, ill call that more a spec bet, then a long-term view on a growth company thats delivering..

 

Coho may not be telling the truth when they stated the reasons.

I emailed them in January when I found the discrepancy in the market share data and they never responded to me. Now they sold. Maybe they were unable to figure out the market share data discrepancy and became very concerned about possible frauds and sold.

 

I've emailed them a few times as well about other things and they were always really receptive. After I read their letter (Maybe Q3 of last year?) where they initiated the position, I reached out with a few questions about VDTH since I thought it was an interesting investment, but had a few concerns. Never heard back though.

[rkluwer]

Videocon very offensive in there marketing and in-film promotion. Well done with the most viewed movie 2016 in India, sofare "Sultan", where the star in the movie promotes Videocon.

 

As Anil, Ceo, says in the article, this should help them gain awarness in the upcoming DAS phase IV.

 

http://m.thehindubusinessline.com/companies/brands-riding-high-on-salmans-sultan/article8840322.ece

 

Videocon d2h has tied up to take the brand to the rural hinterland of India.

 

The in-film placement also acts as an extension to the brand’s latest campaign of Khushiyon ki Chatri.

 

Anil Khera, CEO Videocon d2h, said, “We are happy to have such a natural and seamless association with this film. This entire campaign is designed to create a positive connect with the consumers and create an impact for the upcoming DAS – IV digitisation towns as these areas are highly influenced by Hindi cinema”.

[SlowAppreciation]

What's the cause of the pop today? Acquisition rumors again?

[misterkrusty]

I see no news. 

good things happen to cheap stocks (?)

[SlowAppreciation]

I see no news. 

good things happen to cheap stocks (?)

 

Yeah it shot up like 9% about an hour ago so I thought some news must've broke, but it's given half that back since.

 

Oh well, still cheap!

[rkluwer]

Q1 is out. The har turned positive after tax and FCF. Nice to see the are doing as promised. The have also reduced term-loans, and it sounds from the Q1 statement like this is something the wanna tell the market, as the have been asked about leverage i the Q4-16 conference call.

 

All in all, great growth in Ebitda and Ebitda margins and now the are turning a profit, this should be the start to a great 2017.

 

http://ir.videocond2h.com/Cache/35204983.pdf

 

 

Key Highlights:

• Revenue from operations grew 23.5% year on year to INR 8.19 billion;

• Subscription and activation revenue grew 23.9% to INR 7.52 billion;

• Adjusted EBITDA grew 32.4% to INR 2.52 billion;

• Adjusted EBITDA margin increased by 210 basis points year on year to 30.8%;

• ARPU4 came in at INR 219;

• Gross subscribers5 and net subscribers increased by 0.60 million and 0.43 million subscribers, respectively, during the quarter;

• Net subscribers base at 12.29 million;

• Churn6 came in at 0.49% per month; and

• Free cash flow came in at INR 138 million

 

 

“In line with our focus on paying down term loans, the Company recently pre-paid further term loans, strengthening our balance sheet further. We have significantly de-levered our balance sheet and become a stronger company going from strength to strength, reducing term loans by around USD 200 million since our IPO, with over USD 55 million repaid in the current fiscal year.”

[kab60]

DishTV apparently close to acquiring Videocon D2H. Can't say I'm happy about this. It seems like a small premium (23%): http://www.moneycontrol.com/news/cnbc-tv18-comments/dish-tv-videocon-d2hfinal-stagesmerger-deal-sources_7290501.html

[SlowAppreciation]

• Revenue from operations came in at INR 7.76 billion. This is up 20.6% year on year if the Company was to compute its revenue from operations for Q2 FY17 under its former accounting treatment.
  
• Subscription and activation revenue came in at INR 7.11 billion. This is up 21.9% year on year if the Company was to compute its subscription and activation revenue for Q2 FY17 under its former accounting treatment.
  
• Adjusted EBITDA grew 37.3% year on year to INR 2.63 billion.
  
• Adjusted EBITDA margin came in at 33.8%. This is up 380 basis points year on year if the Company was to compute its revenue from operations for Q2 FY17 under its former accounting treatment.
  
• Gross subscribers[3] and net subscribers increased by 0.59 million and 0.23 million subscribers, respectively, during the quarter; Net subscribers base stood at 12.52 million.
  
• Free cash flow[4] came in at INR 199 million.
  
• The Company reported profit after tax of INR 148 million during the quarter. This compares to a net loss of INR 246 million during the second quarter of fiscal 2016.
  

[misterkrusty]

share price is baffling ... this is the cheapest pay-TV (cable & satellite) provider in the world

[SlowAppreciation]

share price is baffling ... this is the cheapest pay-TV (cable & satellite) provider in the world

 

Yeah... subscribers were a little light but even still.

[misterkrusty]

2Q is the seasonally weakest quarter.  yoy gross adds were up up wee bit, churn was down meaningfully

[Packer16]

It is cheap compared to other Indian providers at 7.9x EBITDA (based upon Q2 annualized EBITDA) which range from 9.6x to 11.5x EBITDA but not so much when compared to US companies like Cogeco (6.9x EBITDA) and Japanese firms like SKY Perfect (4x EBITDA) or Korean firms like KT Syklife (3.7x EBITDA) or CJ Hellovision (4.2 x EBITDA).  India does have higher growth but at this point a portion of that is baked in the price.  To give you an idea of how much is baked into the price, if DISH India were to pay its multiple (10.8x EBITDA) for VDTH the upside would be 58% or at 10x EBITDA it would be 38%.

 

Packer

[iambagman]

I am not an expert on the nuances of the comps you site - but I believe the primary difference between Videocon and companies like KT Skylife is the growth profile.  Videocon is growing top line at 20%+ and EBITDA at 30% plus - there is operating leverage here, they continue to take share, the country has a digitization initiative that provides a multi-year runway to growth.  The infrastructure (or lack thereof) in India makes cord-cutting less of a threat.  Their churn numbers are quite good Y/Y and on an absolute basis.  There continues to be an opportunity to raise prices as the service is cheap relative to other emerging markets such as China and Vietnam (see company slide deck) and there is likely consolidation in the country as there are six providers vs. 2-3 in just about every country. 

 

Again, I cannot speak to the particulars of all the comps - but my sense is that the setup for Videocon to continue to grow are quite strong - and when you factor in the growth profile Videocon risk/reward strikes me as attractive.  If the company continues to execute - good things should happen. 

 

[Packer16]

I agree but a portion of the growth is in the price & you have the India corp governance issues versus the US and more Western modes of thinking.  In this case the company is a sub of a larger Indian conglomerate so the key is how much do you trust management & will they sell if the price is right.  If not then you may be right about the valuable asset but others will get the reward versus you.  This IMO is the biggest difference between Anglo/Dutch systems like the US and the rest of the world.

 

Packer

[Alex.N.B]

Agree on the corporate governance issue. However, I will note that the board is only comprised of two family members if I recall correctly. In addition, Harry Sloan and Jeff Sagansky also sit on the board, probably an underappreciated factor by investors. These are two very successful media executives who could help add value to the Videocon brand. (They also have a history of successful deal making eg: sold SBS Broadcasting to KKR/Permira a while back).

 

At the end of the day, this is a scale business where operating costs are quite high so I would expect to see consolidation once subscriber growth slows at some point down the road. Until then subscriber growth should drive the stock price.

[kab60]

I'm long, but corporate governance does worry me a bit. I don't like that they don't have an auditor from one of the big four, and I don't like how current assets is dropping, nor that they still haven't refinanced.

[misterkrusty]

VDTH is not a sub of Videocon Industries.  There are no cross-holdings.  only 2 Dhoot family members on the board, and one of them is the Chairman (Saurabh), who is the largest shareholder by far.  I suspect (but don't yet know for sure), that this is his bulk of his net worth. 

 

I definitely appreciate Packer's info - don't get me wrong!  but the difference in growth rates is so stark that I believe 7.0x for VDTH is a bargain compared to comps at 4.0x.  admittedly I haven't looked at CJ Hellovision, but all the other comps I've seen at that price are barely growing, if at all.  I think VDTH is probably trading at 4.0x based on ebitda in 3-4 years time.

 

Plus with VDTH you have other tailwinds like consolidation (highly likely), and tax reform (likely).  together these could boost EBITDA margins by 10% or more.  And God forbid that a month's worth of 300+ channels ever approach the cost of seeing one movie (in India) ... the cable guys are now claiming that they're finally making progress on raising ARPU, FWIW

 

By the way, they have in fact paid down some of their term loan recently.  I get the sense that they can't just pay it down ahead of time without consent from their banks, and thus they've not been able to progress as quickly here as they'd like

 

[Packer16]

You are correct they are not a sub but the Dhoots own almost 59% of the equity.  There are also two former SPAC officers (US executives) on the board.  There are differences in growth rates as you all have mentioned but there also valuation differences.  The question is the higher growth reflected in the multiple?  One way to see is to compare to other Indian DTV firms.  If we use DISH India's multiple, then there is some upside here (about 60%).  If we use a discount from the multiple given the smaller size, which is reasonable, the discount is reduced then it will be lower. 

 

To use your example, if VDTH is going to sell at 4x in 3 to 4 years then EBITDA will have to grow in USD by 82% to $283M from a current run rate of $155M, about 20% annually.  Over the past 2 years, the growth has been 52% or about 23% annually.  I am not sure how to factor in all the tailwinds or how much of this is baked into the past 2 years of growth but if the current trends continue you are correct about a cheap valuation.

 

Packer   

[Packer16]

You are correct they are not a sub but the Dhoots own almost 59% of the equity.  There are also two former SPAC officers (US executives) on the board.  There are differences in growth rates as you all have mentioned but there also valuation differences.  The question is the higher growth reflected in the multiple?  One way to see is to compare to other Indian DTV firms.  If we use DISH India's multiple, then there is some upside here (about 60%).  If we use a discount from the multiple given the smaller size, which is reasonable, the discount is reduced then it will be lower. 

 

To use your example, if VDTH is going to sell at 4x in 3 to 4 years then EBITDA will have to grow in USD by 82% to $283M from a current run rate of $155M, about 20% annually.  Over the past 2 years, the growth has been 52% or about 23% annually.  I am not sure how to factor in all the tailwinds or how much of this is baked into the past 2 years of growth but if the current trends continue you are correct about a cheap valuation.  How do you get comfort that this growth will continue so the firm will "grow" into a cheap valuation?  I do have to admit this type of thinking is something I am trying to learn more about. 

 

Packer 

[misterkrusty]

I would argue that VDTH deserves a higher multiple than Dish TV India due to slower growth.  Dish TV typically adds a slightly smaller # of net subs each quarter to a larger base.  also, Dish TV's customers are the least wealthy out of all the DTH players, which is why they haven't been able to raise ARPU recently (when they raise prices a higher % of customers skip paying each month or trade down to a lower price package.)

 

note that VDTH plans to list their shares in India and maybe this could close the multiple discrepancy

 

regarding EBITDA growth, I'm basically assuming flat subscriber additions (in absolute terms), flat ARPU (adjusted for inflation), flat churn, and operating leverage coming mostly from content expense.  All of this is just a continuation of long-running trends, except maybe for the last one.

 

they way content deals work is that broadcasters charge a flat fee that grows each year by some % (currently 9% for VDTH) , plus a per-sub fee that also grows each year, but at a smaller % increase (currently about 3-4% for VDTH).  Each deal typically lasts 3 years.  because VDTH's net sub count is growing in the teens (%), content as % of subscription revenue falls over time.

 

VDTH saw content as % of subscription revenue increase in the December 2014 quarter because broadcasters were playing catch-up.  When VDTH first launched, nobody thought they would grow as fast as they did.  Thus the broadcasters were getting less per sub than what they would have agreed to had they foreseen the future.  Hence the bump in content cost stalled the natural decline as % of subscription revenue, but post the December 2015 quarter it has resumed its decline once again.  This metric is like 10% lower for Dish TV India and Tata Sky and the gap should close somewhat over time.