Emkay Global Financial Services has come out with its report on media & entertainment sector. "TRAI has released recommendations on new/migration of DTH licenses and Cross holding/control in broadcasting and distribution sector", says the report.
TRAI released recommendations on new/migration of DTH licenses and Cross holding/control in broadcasting and distribution sector
Relaxation in license fee at 8% of adjusted gross revenue (AGR) is prospectively positive for DTH industry. However, assuming same license fee structure for retrospective calculation, Dish TV would have an outflow of ~Rs 4.9bn
As per cross holding and vertical integration recos. the entity that controls a broadcaster or the broadcaster itself to be permitted to "control? only one distribution platform operator
These recommendations would require Ministry of information and Broadcasting approval for implementation
Lower license fees to benefit Dish TV in long term
With the new license fee structure, Dish TV would save ~Rs500mn annually (~200bps margin expansion). However, assuming the similar license fee structure for retrospective calculation, Dish TV would have an outflow of Rs4.9bn to the government (the matter is currently sub-judice).
Our DCF based target price gets revised upward by Rs4.6/share due to lower license fee assumption going forward but at the same time an outflow of Rs4.9bn (Rs4.6/sharepertaining to past dues of license fees) would neutralize the positive impact. Nevertheless, the clarity on actual outgo on license fee would remove overhang on the stock. In our view, under-performance of Dish TV stock price is partially factoring above stated license fee pay-out.
Content agreements with Zee Entertainment would be non-discriminatory, which means Dish TV or Siti Cable will have to pay the RIO (reference interconnect offer) rates for content deals. In our view, this would lead to rise in content cost for both the distribution companies going forward. In the worst case, benefit of license fee savings might get offset with higher content cost.
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To read the full report click here
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