VDTH - Videocon

[rkluwer]

Misterkrusty.....

 

im am long myself and my only worry is cash.....

 

u think the are gonna issue equity to fund som of there debt, or try to re-fund it ? The have talked about this in earlier conference calls, that the where talking with banks, but we have never heard anything back on it.

 

Regarding cash, the are running low on it and debt seems to have been paid with the cash the had at hand. I think if the saw a cash situation, we would have seen a sale to dish already, as have been talked about some time now. But this isn't the case, so one would think the have it under control, but can't see where the should get the extra cash from ??

 

 

[rkluwer]

Dish Tv out with Q2 report try.

 

Seeing less growth then videocon, only growing ebitda 3.6% yoy and sub rev 11.9% yoy against videocon +20% and +30% on ebitda.

 

http://www.dishtv.in/App_Documents/Reports/EarningsReleasefortheQuarterEndedSeptember30-2016.pdf

 

Its not hard to see why Dish Tv would want to buy Videocon and buy its growth and try to increase its ARPU (162) towards videocons 209.

[misterkrusty]

rkluwer-  I don't think they're going to issue equity to repay debt.  mgmt recognizes that their shares are undervalued.  adjusted for inflation, the debt is costing them 7-8% a year ... expensive, but not an overwhelming concern.

 

I'm not sure why you're concerned about their cash position.  please tell me if I'm missing something.  I see a business with little need for cash on-hand as every subscriber pays cash in advance of each month of service.  the only significant need for cash comes from set top boxes, and INR 3B ought to be enough.

 

It's true that Videocon Industries is on a short-leash with their lenders, but VI doesn't own any VDTH.  I don't think VI is insolvent, either.  I think they've just been reticent to sell assets in order to placate lenders.  but now they're doing that (e.g. wireless spectrum, real estate, etc.).  the main thing they want to hold on to is their oil reserves, which could have massive value if oil gets above $70 and stays there for a while.

[rkluwer]

the only thing is, that there cash holdings are zero in the Q2 report, there current assets have been decreasing over some time. Maybe the have been paying back debt or using money in other areas. The fact is that the are using more cash, then the are getting. Thats hopefully gonna balance in the near future.

 

But all there debt is current in the Q2, so something has to happened with that.... what that is im not sure.

 

The only worry on the cash side is - the dont hold enough cash to keep that last couple of quarters burn..... i heard the conference call ? and did the mention anything about debt ??   

 

your india listing quote, is that from the old conference call or ??

[misterkrusty]

from the 2q17 press release: The Company had term loans of INR 19.12 billion and total cash and short term investments of INR 3.76 billion as of September 30, 2016.

 

at an investor presentation in NYC about a year ago, the CEO said they have to list in India because they've given out equity based comp to employees and it's a meaningful amount to them vs their salaries, and the only way for these employees to ever monetize it would be if VDTH was listed in India.  i believe they've also said they intend to dual list on one or more past earnings calls

 

 

[rkluwer]

From there 6-k.

 

Current assets                          2017SEP      2017MARCH 

Inventories                            515.09          400.23

  Trade receivables                    2.51            2.79

Other financial assets            3,408.06      5,547.82

Other non-financial assets    694.16        1,481.61

Cash and cash equivalents      70.14          1,428.69

 

Just from here, it doesn't look like the have a lot of hard cash left. But yes it is correct, that the still hold an okay amount in current assets, but this has been shrinking. Just thinking about the future and how the will refinance, as i think this is the only worry (governance maybe too) that the market could have and why we aint seeing VDTH any higher.

 

Looking fwd to read the conference call and see if management mention the debt there.

[SlowAppreciation]

Any news this week causing the sell off?

[misterkrusty]

I see nothing.  dish TV india up 1%, BSE Sensex index up 3%, VDTH down 7%.  this is likely just a repeat of jan/feb technical selling from US hedge funds with weak hands due to the election uncertainty.  eventually we should wind up with a more stable shareholder base.  until then take advantage!

 

 

[SlowAppreciation]

http://economictimes.indiatimes.com/et-now/corporate/videocon-d2h-to-merge-with-dish-tv-sources/videoshow/55211638.cms

 

Dish TV rumors again for ~$1b

[misterkrusty]

still baffled by these rumors.  first of course because I think the stock is cheap, and so does mgmt per their comments on the last call.  balance sheet is fine and FCF is positive, subscriber adds are going well, so I see no compulsion to sell.

 

the reporter says debt is US$320 ... I guess she's including "other non-financial liabilities ... anyway, if that's true and Dish TV is going to pay a total of just under a billion US$, does that not imply not more than US$680 for the equity?  which would be a big discount from the current US$976M market cap ... why on Earth would VDTH agree to that?

[kab60]

Merger is official.

 

http://ir.videocond2h.com/Cache/1500093198.PDF?O=PDF&T=&Y=&D=&FID=1500093198&iid=4392170

 

Seems like a premium of 30 pct.? (but paid in mergerCO stock, not cash)

[iambagman]

Here is a link to a presentation explaining the deal - found it helpful

http://ir.videocond2h.com/Cache/1500093198.PDF?O=PDF&T=&Y=&D=&FID=1500093198&iid=4392170

 

[Alex.N.B]

anyone understand the deal mechanics here? Is Dish TV paying: ~858mm shares ..@ current price of ~87 INR equal approx. 75bn INR = US$ ~1.1bn (US$11 per share) vs. current mkt cap of VDTH of ~ US$900mm, or ~ 22% premium...?? please correct me if I'm wrong... if that is it, doesn't seem like a great deal for investors who bought at the IPO around $12 (US$1.2bn mkt cap).. 

[SlowAppreciation]

anyone understand the deal mechanics here? Is Dish TV paying: ~858mm shares ..@ current price of ~87 INR equal approx. 75bn INR = US$ ~1.1bn (US$11 per share) vs. current mkt cap of VDTH of ~ US$900mm, or ~ 22% premium...?? please correct me if I'm wrong... if that is it, doesn't seem like a great deal for investors who bought at the IPO around $12 (US$1.2bn mkt cap)..

 

Would have to think that it was a disappointment. I believe VDTH could also issue ~ 114m shares for earn outs if the stock hit $15/share, so I'd think that was the price management had in mind at one point. Not really sure what happened....

[SlowAppreciation]

http://www.moneycontrol.com/news/business/dish-tv-videocon-d2h-merger-to-bringcost-synergies-dhoot_7952621.html

 

I have no idea what they're saying in half this interview.

 

Q: Help us understand the equity valuation because Rs 7,200 odd crore is looking like is the equity valuation, while the enterprise valuation of the company Videocon D2H as per this transaction is Rs 9,000 crore on the higher side? Goel: When we say that the Dish TV valuation is 55:45 ratio, so the rationale has been discussed by the board and presented by the consultant who has been engaged as specialist for the transaction. There are the criteria of whatever is the industry norm in Indian market and in media space globally, so the factor has been applied and we have to respect and obey the judgement of the consultant and the board.

 

This reads to me as "I did whatever the consultants said to do and don't really understand the deal we agreed to".

[misterkrusty]

deal is for stock, not cash.  too early to call VDTH a disappointment.  merger synergies in satellite TV are pretty big, which is why you rarely see more than two providers in one country.

[Homestead31]

agree with Krusty.  if this was a cash deal, i'd be unhappy.

 

i would have thought implied price would have been higher, but as it is a stock deal, investors still get to participate in the macro (ie ARPUs a fraction of comparable countries / continued growth of Indian pay tv market) and consolidation is excellent news for ARPUs over time.

[SlowAppreciation]

There won't be any US-listed shares though, correct?

[iambagman]

Here is my thinking – feel free to poke holes in it.

For Videocon d2H the business has been far healthier than the share price.  The vital signs are good.

- Growth (Rev +20% Y/Y)

- Raising prices

- Realizing operating leverage

- Lowering churn

 

How the Transaction Helps

1) Reduces Pricing War Threat – To me, the biggest threat to margins and growth was a price war.  Going from 4 major players to 3 does not eliminate this – but is a positive. 

2) Allows VDTH Shareholders to Capture combined company benefits – which include lower content costs, and SG&A synergies.  In the past management has indicated those would be on the order of 5% even if they kept operating septate satellites. 

3) Allows VDTH shareholders to benefit from possible tax changes which would benefit both companies (caveat – not even remotely an expert on Indian corporate taxes)

4) Remove governance questionsR as now VDTH sponsors are minority

5) Provides listing in India

So in effect we gave up some of our growth to the slower growing DishTV holders in exchange for their shares that trade at a higher multiple and the ability to get the post deal synergies that both parties benefit from.  Consolidation should happen, it is the only country with 4 providers – I would rather be able to participate with stock than just be given cash as so many of the benefits are post transaction.  The post deal synergies are likely greater than the 10%-15% difference in growth profile.  This is cheap, all parties are rolling into the new deal - in total it looks positive to me - bought shares today.

 

[kab60]

Another positive is that the combined entity will have lower leverage. Videocon had too much leverage (debt/ebitda seemed low, but rates/inflation is high and so was capex). I have a decent gain but not what I had hoped for. I really hoped to just set this aside and let it compound. Might keep the new share but it probably depends on what the American sponsors do. Did anyone do a rought and dirty valuation on NewCo?

[misterkrusty]

iambagman - i agree 100%

 

VDTH net debt/ 2017e ebitda was <2.0x (my estimates).  i'd say that's modest leverage, but call it what you will

[rkluwer]

From the PM, it seems like that the VDTH ADR's will be transfrom into GDR and be put on the lux exchange

 

"Upon closing of the Proposed Transaction, Dish TV Videocon shall continue to be listed on the National Stock Exchange of India and the BSE Limited in India and on the Luxembourg Stock Exchange in the form of GDRs. In the Scheme, holders of Vd2h ADRs will receive their new shares in the form of GDRs, unless they elect to receive and hold new shares directly"

 

So in the next½ year, that is a eur exposure for the US-holders. Usd has come back strongly, so its fine for the European holdes to get eurobased asset here i think.

 

It also seems like that Dish Tv is still in talks about buying out, some of the VDTH holders. Guess it maybe our US friends from the Eagle co. ?

 

"The Dish TV principals are also in discussion with the Vd2h principals to purchase some of the Vd2h principals' shares in Dish TV Videocon post the amalgamation, details of which are likely to be finalized soon."

[misterkrusty]

I think the Dhoot family wants to raise cash to pay down debt at Videocon Industries

[frankhkii]

Do your brokers allow you to hold GDR's? We're primed with IB and they won't hold Lux shares. I guess we will have to take NSE of India shares..

 

 

[misterkrusty]

that IB issue may be a big reason why the risk arb spread on this deal is so wide, for now