Stocks Update - Dish TV n Mahindra and Mahindra

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BSE INDEX

Dish TV : High Churn Concerns Priced In......

Reco : Buy    Cmp : 56    Target : 70

Key takeaways from our recent interaction with the management of Dish TV:

Churn peaked at ~16% in Q3; to stabilize at ~13% in FY13: Dish TV saw high churn in 9MFY12 (peak of ~16% in Q3) as subscribers added during cricket World Cup (Q4FY11) started moving back to analog cable. We expect churn to stabilize at 13% in FY13 as (a) majority of one-off subscriber churns would be over in FY12, (b) mandatory digitization would limit churn to analog cable, and (c) increase in entry level price to Rs1,590 from Rs1,190 in Q3 will act as a barrier.

Subscriber additions to pick up in FY13: We expect subscriber additions to increase in FY13 led by (a) mandatory digitization in metros (8-10mn cable households) and (b) Olympics and T20 WC - with mandatory digitization, post event churn will be lower. We maintain our estimate of 3mn gross subscriber additions each in FY13 and FY14.

5% ARPU growth in FY13E led by higher sub addition from metros: We expect ~5% increase in ARPU in FY13, driven by consumer upgrades (from basic to mid-tier packages) and higher incremental sub additions from metros. The company generates higher ARPU (2x of national average) from metros. We expect 15% of metro sub additions to be on HD, which generate even higher ARPU (3x of national average).

Mahindra & Mahindra : Sharp Drop in Tractors - A Big Worry......

Reco : Hold    Cmp : 682    Target : 721

Demand for tractors contracted sharply (by 20% YoY and MoM) to 15,316 units in Feb-12. We understand that the continued weakness in volumes (from Nov-11) is due to various factors (discussed below) and is likely to continue for the coming months. We expect the management volume guidance of 15% growth in FY12 and 8-10% for FY13 to be missed. We now factor in tractor growth of 10% for FY12E (vs. 13% earlier) and 3% for FY13E (vs. 8% earlier). Our EPS (M&M+MVML) now stands at Rs 44 for FY12E (lowered by 4%) and Rs 50 for FY13E (lowered by 7%). We introduce FY14 estimate with revised SOTP TP of Rs 721 (vs. earlier Rs 749) and maintain HOLD rating.

Tractor volumes likely to struggle in the short term

Drought in AP/Karnataka/Maharashtra:

These states have been hit by weak post monsoon showers (drought declared in AP/KTK) and account for ~25% of industry (~30% for M&M). Nov onwards volume decline is 20-25% YoY vs. volume growth of 24% YoY (April to Oct). We expect weak demand to continue till onset of monsoons (Q1FY13).

Elections in UP: Dealer checks indicate that cash sales (35% for industry) have reduced during the time of election. UP accounts for ~16% of overall domestic volumes.