VDTH - Videocon

[rkluwer]

i think the GDR listing will put a pressure on VDTH. Don't understand why the didn't hold on to the ADR listing, but maybe it is to costly, instead of an GDR in lux.

 

Dish Tv rising more than 4% this morning and giving even more to the Premium. Seems like the investors in India really likes the deal. This should support VDTH even further.

[SlowAppreciation]

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

 

This is what I'm thinking too

[muscleman]

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..

 

You cannot hold NSE shares either, unless you meet the following standards.

 

http://ibkb.interactivebrokers.com/node/848

 

 

[misterkrusty]

Apparently, Luxembourg is the most common trading venue for Indian GDRs (see http://bit.ly/2fLoexu ).  I don't think the company had any idea that this would be a problem for U.S. based investors and/or investors using Interactive Brokers.

 

I've encouraged them to consider listing instead (or dual-listing) on the NASDAQ, or on the London Stock Exchange.  If anyone here feels similarly, I suggest firing off a quick email to the company to let them know.

 

nupur.agarwal@d2h.com

[misterkrusty]

Good news, good news...

 

company now says it will do an ADR for the new shares.  will be "unrestricted" - meaning not a Reg-S ADR (US brokerages don't typically trade Reg-S.  Basically, US shareholders should have no trouble owning the newco - via IBKR or anyone else.

 

While I'm viewing this as a long term hold, you merger arb types might want to take a look at this.  19% annualized IRR closing in 7-8 months.  no financing issues (stock for stock merger), friendly deal, and India has 7(!) satellite TV providers so I just don't see any regulator blocking this ... everyone knows this sector needs to consolidate.  My guess is that most of the recent selling in VDTH has been from folks whose brokers said they couldn't trade a Reg-S GDR, but this problem just disappeared (the merger is clearly a win-win for both sides - hard to imagine anyone selling b/c they don't like the deal).

[rkluwer]

Souns like the way forward is cleared for us to keep our stocks :)

 

Here is a nice write up and buy reco from centrum India. VDTH still Trading at 34% Premium, so if things just falls into place, there should be a nice upside in the stock. If DISH TV also advances from current lvl arround 82, there should be even more on top of the Premium.

-----------------------------------------------------------------------------------------------------------------

Significant upside in cost saving

We maintain BUY rating on Dish TV, with a TP of Rs130 (10x FY18E EV/EBIDTA). We

believe the merger of Videocon d2h at 8.7x FY17E EV/EBIDTA is in-line with

current Dish TV valuations and 34% premium to the current price of Vd2h. Dish TV

promoters have the option of buying shares from Videocon promoters is a

positive. The combined entity would have 42% market share in DTH industry with

27.6mn subscribers. While the company would maintain the all 3 brands, we

believe the cost synergies in terms of content cost, infrastructure sharing with

reducing transponder cost, rationalisation in A&P expenses, buying of STB,

common backend customer service and IT would help in margin expansion with

triggers of GST and reduction in license fees.

 

http://www.moneycontrol.com/mccode/news/article/article_pdf.php?autono=8007841&num=0

 

[muscleman]

Good news, good news...

 

company now says it will do an ADR for the new shares.  will be "unrestricted" - meaning not a Reg-S ADR (US brokerages don't typically trade Reg-S.  Basically, US shareholders should have no trouble owning the newco - via IBKR or anyone else.

 

While I'm viewing this as a long term hold, you merger arb types might want to take a look at this.  19% annualized IRR closing in 7-8 months.  no financing issues (stock for stock merger), friendly deal, and India has 7(!) satellite TV providers so I just don't see any regulator blocking this ... everyone knows this sector needs to consolidate.  My guess is that most of the recent selling in VDTH has been from folks whose brokers said they couldn't trade a Reg-S GDR, but this problem just disappeared (the merger is clearly a win-win for both sides - hard to imagine anyone selling b/c they don't like the deal).

 

 

Could you please tell me the source? Thanks!

[misterkrusty]

Nupur (IR person for VDTH ... see email in my recent post) emailed me the following message: 

 

"Just to update you on your concerns regarding the GDR issue:

We intend to establish an "unrestricted" DR facility that will be available to all U.S. investors and through which U.S. investors will be able to hold and trade their DRs."

 

I know she sent the same message to at least two other people .... probably sent it to everyone who had expressed concern about being able to trade a Reg-S Luxembourg GDR

 

[muscleman]

Nupur (IR person for VDTH ... see email in my recent post) emailed me the following message: 

 

"Just to update you on your concerns regarding the GDR issue:

We intend to establish an "unrestricted" DR facility that will be available to all U.S. investors and through which U.S. investors will be able to hold and trade their DRs."

 

I know she sent the same message to at least two other people .... probably sent it to everyone who had expressed concern about being able to trade a Reg-S Luxembourg GDR

 

 

Thank you very much!

 

 

[muscleman]

https://www.sec.gov/Archives/edgar/data/1629220/000119312517023456/d361445dex991.htm

 

Q4 out. Adjusted EBITDA growth of Q4 compared to Q3 is only up slightly. Revenue is also flat compared to Q3.

 

Is this likely impacted by the Indian government's cash ban?

Do you think the growth will continue at the 30% range next year?

 

 

In terms of EV/EBITDA, even if there is no growth, EBITDA will come in at 11 bn INR, which is 160 m USD. Market cap 866 M. debt........ I am a bit confused about "Other Financial Liabilities" on page 6. There is no explanation, and it is 24.7 bn INR, which is 360 m USD.

 

https://www.sec.gov/Archives/edgar/data/1629220/000119312516656592/d205441d20f.htm#fin932764_3

 

 

 

[frankhkii]

https://www.sec.gov/Archives/edgar/data/1629220/000119312517023456/d361445dex991.htm

 

Q4 out. Adjusted EBITDA growth of Q4 compared to Q3 is only up slightly. Revenue is also flat compared to Q3.

 

Is this likely impacted by the Indian government's cash ban?

Do you think the growth will continue at the 30% range next year?

 

Dish reported yesterday morning and profit was down 61% with management pointing to the demonetization. So VDTH's numbers are impressive relatively.  I believe the demonetization is heavily responsible for the hiccup and believe it to be temporary and good for the long term of the country and business there. This type of move is unprecedented so all of the different impacts are impossible to know,However I do think the demographics point to plenty more growth over the longer term.

 

Any thoughts on ARPU decline other than ^?

[misterkrusty]

what do you mean by "^" ?

 

regarding the apparent ARPU decline, first off I'd say ARPU for this past quarter as well as next quarter (4q17) needs to be taken with a big grain of salt due to demonetization, which in the long run will be positive (more electronic recharge means fewer commissions to distributors).  When you pull 86% of the currency (by value) out of circulation you will naturally get more people skipping a recharge or two ... which will put some subs past the 120 cutoff and thus increase churn (which was up yoy), but most of the affected subs will still be below the 120 cutoff, which therefore affects ARPU (when a sub skips a recharge without being counted in churn, it's referred to as a "suspension")

 

second, ARPUs need a lot of adjustment to really see how the business is doing.  for one thing, ARPU should really be measured on subscription revenues only ... the point is to examine pricing, but activation, carriage, advertising, etc. are only indirectly affected by pricing.  next you need to proforma the numbers for the accounting change in 1q17 (netting the entertainment tax off of reported subscription & activation revenues).  and if you're going back far enough you should also proforma for the service tax hike and intro of clean India tax in 1q16 (which probably didn't hit results until partway thru 2q16).

 

if you do all that, you get the following for yoy change in ARPU 1q16 thru 3q17:

 

12.2% 9.0% 12.4% 7.1% 9.4% 5.7% 1.3%

 

Clearly 1.3% growth ain't great, but I think the drop is simply due to demonetization.  note that Airtel reported 1.5% growth.  DishTV reported -12% ... clearly they are having pricing issues with their more rural/poor sub base and demonetization hit these folks the hardest.

 

also note mgmt comments on HD penetration imply that the HD take rate improved in 3q17.  by how much is hard to say

[frankhkii]

Thank you. By "^" I just meant any impact other than the demonetization I has spoken of above (^).

 

 

[muscleman]

Looks like the acquisition discount is much less now. Anyone holding this for the longer term after the merger? I am weighing which is the best way to play this. Seems like there is still a long run way. On the other hand, Dish TV's valuation seems a bit high from EV/EBITDA, but P/E seems ok to me.

[winjitsu]

Looks like the acquisition discount is much less now. Anyone holding this for the longer term after the merger? I am weighing which is the best way to play this. Seems like there is still a long run way. On the other hand, Dish TV's valuation seems a bit high from EV/EBITDA, but P/E seems ok to me.

 

My spreadsheet shows the spread still at 9.36% as of today, 2/9, down from maybe like 17-20% a little while back. Still think that's an easy ~9% to earn, and if the deal does't work out, you'll own a solid asset trading at a fair price (not as nice as DTV acquisition by ATT, but similar style of thinking). That being said, might not be worth the potential brokerage hassle of owning Lux. GDRs. I'm a retail investor, and IBKR and Fidelity don't allow for Lux trading, only Schwab does. Some investors from the VIC thread mentioned they're speaking with management to continue listing a US ADR, but I have no insight into that.

 

You could try a traditional merger arb play by shorting Dish, but I looked into shorting Indian shares and seems complicated and the short interest seems quite high. Curious if anyone has experience with this.

 

 

 

[misterkrusty]

I'm pretty sure they're going to do a london GDR, which should not be a problem for anyone with a US brokerage account (FWIW, I have accounts at both fido and IBKR).  they discussed this on the last earnings call, as well as with me when I met them in december.  I've made it clear to them (as have others) that luxembourg listing would mean I could no longer be an investor.

 

i've heard that shorting the dish tv GDR is pretty much impossible.  the entire reason that GDR got listed was to provide liquidity to Apollo (the PE shop) for an investment that apollo made long ago in dish tv

[winjitsu]

I'm pretty sure they're going to do a london GDR, which should not be a problem for anyone with a US brokerage account (FWIW, I have accounts at both fido and IBKR).  they discussed this on the last earnings call, as well as with me when I met them in december.  I've made it clear to them (as have others) that luxembourg listing would mean I could no longer be an investor.

 

i've heard that shorting the dish tv GDR is pretty much impossible.  the entire reason that GDR got listed was to provide liquidity to Apollo (the PE shop) for an investment that apollo made long ago in dish tv

 

Ah missed this. Thanks.

[_JJ_]

Premium is over 16% right now. I don't see why this deal would not close. This is just easy money. I bought more.

 

I'm just holding this as a merger arbitrage with limited downside and will re-evaluate the valuation of the combined entity after the deal closes.

[rkluwer]

Videocon teams up with Netflix.

 

Not the worst partnership the could enter into.

 

https://finance.yahoo.com/news/videocon-d2h-signs-partnership-netflix-144800226.html

 

 

[muscleman]

Videocon teams up with Netflix.

 

Not the worst partnership the could enter into.

 

https://finance.yahoo.com/news/videocon-d2h-signs-partnership-netflix-144800226.html

 

"The set top box can be connected to the Internet through any Wifi or Ethernet connection in the home for accessing a curated set of applications available through the Internet. The minimum Internet speed needed is 2 Mbps."

 

So they have this STB that connects to both satellite and internet. Probably not many people in India have broadband internet so the impact is minimal for now, but I think internet should growth fast from here on.

 

Like the NFLX-Comcast deal, I think this is complimentary to VDTH.

Do you guys know if other DTH providers can do this as well? Does "a standalone deal" means an exclusive deal?

 

 

 

[_JJ_]

Videocon teams up with Netflix.

 

Not the worst partnership the could enter into.

 

https://finance.yahoo.com/news/videocon-d2h-signs-partnership-netflix-144800226.html

 

"The set top box can be connected to the Internet through any Wifi or Ethernet connection in the home for accessing a curated set of applications available through the Internet. The minimum Internet speed needed is 2 Mbps."

 

So they have this STB that connects to both satellite and internet. Probably not many people in India have broadband internet so the impact is minimal for now, but I think internet should growth fast from here on.

 

Like the NFLX-Comcast deal, I think this is complimentary to VDTH.

Do you guys know if other DTH providers can do this as well? Does "a standalone deal" means an exclusive deal?

 

 

 

 

No it's not an exclusive deal. Netflix signed Airtel as well, but I think it's a good development anyway.

 

http://gadgets.ndtv.com/entertainment/news/netflix-partners-with-airtel-videocon-and-vodafone-in-india-1666572

 

[RoadToUtopia]

Finally caved and bought some. Seems pretty juicy trading at >20% deal spread

[winjitsu]

Regulators approved the deal: https://seekingalpha.com/pr/16827139-competition-commission-india-cci-approves-videocon-d2h-and-dish-tv-merger

 

Closing in September. Currently at a 10% spread.

[muscleman]

I am out. It is a good trade.

 

I find it puzzling that after the regulator approval, the stock didn't go higher to close the gap. But I am happy to exit now because I eventually decided that I don't have a solid understanding of the Indian DTH market like some other members do here.

 

But thank you for the idea, especially thank you misterkrusty.  :)

 

[clutch]

Instead of VDTH closing the gap, DISHTV's price dropped.  :o

 

Looks like ~7% spread as of today's prices...