Dish TV India Ltd
NSE:DISHTV
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Dish TV India Ltd
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Ladies and gentlemen, good day, and welcome to the Dish TV Limited Q4 FY '18 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Tarun Nanda, thank you, and over to you, sir.
Thank you, Karuna. Good evening, ladies and gentlemen, and thank you for joining us today for the Fourth Quarter FY '18 Earnings Conference Call of the new merged Dish TV India Limited. To discuss the results and performance, joining me today, as always, is Mr. Jawahar Goel, the Chairman and Managing Director of Dish TV India Limited. We also have Mr. Anil Dua, the Group Chief Executive Officer of the company; and Mr. Rajeev Dalmia, the Chief Financial Officer.We will start with a brief statement from Mr. Anil Dua, and he will then open the discussion for questions and answers.Just quickly, I would like to remind everybody that anything that we say during this call that refers to our outlook for the future is a forward-looking statement that must be taken in the context of the risks that we face.I would now request Mr. Dua to address the participants.
Thank you, Tarun.Good evening, ladies and gentlemen, and thank you for joining us today. It's my pleasure to report the first set of merged financials of Dish TV India Limited. I'm happy to share that merger integration across functions has been successfully completed. And new roles, responsibilities and key deliverables have been well received by our teams. I see a new sense of passion and urgency all around in the company. And believe that we have everything we need to surge ahead.Revival in rural demand, prospects of a good monsoon and an increase in infrastructure spending is likely to drive a broad growth recovery going forward. The merged company subscriber base is a fair mix of urban, semi-urban and rural subscribers that would enable it to benefit from increased discretionary spending across categories.A healthier urban mix would be beneficial to the revenue pool, while at the same time a stable, paying rural base would help buffer the platform from alternate technologies.There is a significant growth potential both in the short-term and the long-term, when it comes to acquiring new subscribers.While, in the short-term, digitization will continue to feed subscriber additions, government schemes focused on bridging the urban/rural divide will create demand for new televisions and Pay-TV connections in the years to come.Three well recognized and powerful brands Dish TV, D2h and Zing are now being marketed under the Dish TV India Limited umbrella with each being favorably positioned in its key target markets.Identifying the strengths of each brand, the company has been targeting profitable growth, while maintaining healthy competition and encouraging synergy in back-end operations.Separate sales teams with uniform structures are both complementing as well as productively competing with each other in the market. On the customer service front, the company aims to build a faster, better and efficient service model that no other DTH player can match.On the regulatory front, the recent ruling by the Honorable Madras High Court, on the TRAI Tariff and Interconnection Orders 2017 should go a long way in ensuring a level playing field in the television distribution space in India. Now coming to the financials. The fourth quarter fiscal 2018 consolidated subscription revenues and operating revenues stood at INR 13,771 million and INR 15,324 million, respectively. Adjusted EBITDA for the quarter stood at INR 4,606 million resulting in an adjusted EBITDA margin of 30.1%. Assuming that the financials for fiscal 2018 has represented 12 months each of Dish TV India Limited, and Videocon D2h Limited, operating revenues of the company would have been INR 62,377 million and corresponding adjusted EBITDA would have been INR 19,690 million with an adjusted EBITDA margin of 31.6%.We are confident that fiscal 2019 would be a year of exceptional growth for Dish TV India Limited. A fresh campaign and [ brand ] tagline is only the beginning of what will be a transformative year for the company. With that, I'd like to open the floor for the Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
Sir, thanks for the opportunity. My first question is on the sales team. You mentioned separate sales team with uniform structures, both complementing as well as competing with each other. So if you could elaborate how you're able to get the full efficiency from this, if they are competing, and also complementing? And how both are possible, if you could take us through that? And do you see this even after 1 year this kind of a sales structure still remaining?
Okay. Yes, thank you, Abneesh. I think, yes, that is what we are attempting. Right from day 1, we've been saying that it's our intention to see that this -- in this merger 1 plus 1, becomes 3, because if we are not careful, there's always a possibility of 1 plus 1 going less than 2. And one of the key things we thought towards that is that we should maintain 2 brands and 2 sales teams to healthily compete and to further increase our share of the dealer space as well the customer space. So they will compete with each other in the sense that they will continue going as 2 different brands as they have always gone. And they will compete for dealers -- funds and dealer shelf-space and the channel share and customer share as they have been competing. They will complement each other because they will pick up the best practices from both the platforms. And we will ensure that they are equally empowered, equally enabled in terms of MIS available to them, in terms of resources available to them, and in terms of all the policy uniformity that can be implemented across the 2 platforms. We feel that this will give the best combination of back-end complementarity as well as front-end competition -- healthy competition that we've spoken about. Also, because there are different regions of strength of the 2 brands, what this will also imply that we'll be able to regionally offer a better kind of sales mix in the marketplace. Wherever D2h is strong, we'll be able to ensure that we take that strength further and vice versa for Dish TV. So, that's what we mean in terms of competing and complementarity. In terms of whether it will continue even after 1 year, we see that, in foreseeable future, the 2 brands will continue. Eventually, there may be possibilities, which certainly is not within 1 year or within foreseeable future. But, yes, we cannot rule out eventual merger after a few years.
Sir, 1 follow-up here. Because foreseeable future both will coexist. In a lot of markets, both brands do compete. How do you ensure there is no price cutting? Because, I think, in terms of pricing, in terms of most other parameters, I think you will maintain similar. So then in the same market, when they compete don't you see some irrational behavior by the team on [ ground ]?
No, sufficient checks and balances will be put in place to see that such irrational behavior can be controlled, but to see at some -- at some level these 2 systems converge. So, while, at the front-end, sales people level and the first supervisory level, these 2 systems will operate independently, but above the first supervisory level, we will have a convergence. So let's say, each circle has a circle head who has a cluster head for Dish TV along with the sales team of Dish TV as 1 leg and cluster head of D2h along with the sales team of D2h as the other leg. So the circle head will bring in the necessary sanity to the whole system to ensure that there is no price cutting or incorrect practices that come into the system.
Sir, my second and last question is on à la carte. You have mentioned 2 million people have taken à la carte and this has led to incremental revenue. I thought, because an à la carte customer will choose and he watches very select number of channels, the revenue could have come down. So if you could explain that bit how incremental revenues have come? Second, on the Chennai Court ruling for fresh developments, but Tariff Order, we have seen lot of false starts and delays. What's your take on it, post-the Chennai ruling?
So I'll take the first one, which is on à la carte or Mera Apna Pack on Dish TV platform and Mera Wala Pack on D2h platform. Yes, we've aggressively acquired new channel sales under this. And there is certainly a risk, as you said, of revenue coming down. But please turn it on its head, revenue, in any case, is coming down. As you know, there is a wide-scale downgrading which has been happening in the market over last 2 years. Now people who have come down, we want to recover some revenue from them because, let's say, if they were paying INR 299 earlier and some of them are paying INR 199, Mera Apna Pack or Mera Wala Pack or à la carte pack is an opportunity for us to get back INR 20, INR 30, INR 50, from them. So that is what this initiative has been trying to do. On the Chennai Court Tariff Order, I'll ask Jawahar Ji to respond, please.
I think it is only 10 days now. The court has granted 2 weeks' time for -- to put it in under suspension that is if anybody is aggrieved they can go to Supreme Court. So far TRAI has only filed a caveat, and we have not seen any party going in the Supreme Court. So let's see by Monday, what happens.
The next question is from the line of Vivekanand Subbaraman from AMBIT Capital.
Couple of questions. One, can you please get the housekeeping questions out of the way, the revenue split, gross debt levels, net debt levels, regulatory dues, and also commentary on the accounting policy with respect to lease rental, license fee provisions, regulatory dues, that's question 1? And secondly, on revenue growth. You mentioned that you intend to grow faster than the industry. What is your turnaround plan here? Because we have seen that, in the last 3, 4 years, our revenue market share has dipped because of our presence in, say, the rural markets, and also Free Dish impacting us a lot more than other players. What gives you the confidence that now, after the merger, you will be able to grow faster, grow revenue faster than the industry? And if you could, extend your revenue argument to the long-term plan. Because if I look at Airtel DTH and Tata Sky both of them have broadband operations. Tata Sky is piloting it, and Airtel has a home broadband business already. So, you have outlined that you are going to launch integrated OTT services. But do customers really need one more app to watch content? Or is there any thought process with respect to investing in broadband? I'll stop here.
Yes. First housekeeping questions. So in terms of a split for the quarter: the subscription revenue is INR 1,377 crores; Teleport service is INR 6 crores; bandwidth is INR 51 crores; sale of customer devices equipment, which is a special item, INR 42 crores; advertisement is INR 20 crores; and lease rental is INR 35 crores. And total is INR 1,532 crores. In terms of gross debt, as on date, it is around INR 2,750 crores, and net debt is INR 2,200 crores. So INR 550 crores is the cash that is in the books of the company. In terms of regulatory dues, it is INR 1,950 crores without interest, plus we need to add interest also to make it the number which is published in the 1 pager. What were the other questions?
I'll take that. Your second question, Vivekanand, was on how the revenue growth will come. And I think a couple of points here. One, I've already said that we do expect the economy to accelerate. We expect infrastructure spending and all other measures to translate into more consumer spending also and that should give us and, of course, the DTH industries a boost. But secondly, on our platform with these 2 platforms coming together, Dish and D2h coming together, we definitely see possibilities in terms of riding on each other's strengths to create some revenue synergies, which will help. And thirdly, if you look at the combination. For example, you spoke about rural market, et cetera. We have spoken in the past that 75% of Dish numbers come from rural. If you look at the combined platform, we are talking about not 75-25 split now, we're talking about 65-35 split. So we have a good profile in urban as well as a good concentration in rural, and we think that puts us ideally in to harvest both the ends of the spectrum. And, along with several other initiatives that we have in mind, including strengthening our brand, further building on the initiatives we've taken in terms of high definition, in terms of our day-term sales, in terms of Mera Apna Pack that we spoke about. We hope all these will help us build revenue. Your third question was on comparison with Airtel, Tata Sky, our integrated OTT service. Yes, we have -- we definitely have plans to be in OTT space. You said, does the market need yet another app. Well, the point is that, that space may be small today, but it's a growing space. It's a space where at least the upper end of the market is moving. So that is -- that needs to be derisked by all the platforms. That needs to be an area where we need to play in. Because, ultimately, it is the content consumption, which we do through our distribution. And therefore, it is not an area we can ignore. And that is why we have definitive plans to enter this space and make sure that when the segment becomes big enough we are already there to take advantage of that.
Right. Just 1 follow-up on the OTT side. Do you also intend to invest in wired broadband to connect boxes? Or what are your thoughts on two-way connectivity of set-top boxes and on-demand content in set-top boxes? Because you've written a bit on the set-top boxes, and how you are becoming more efficient due to the merger. Any thoughts on this?
This is Jawahar here. Mostly, we will target the homes who already have a Wi-Fi in the home. So we will not be wiring and creating infrastructure at all. We may tie up with the local service provider as well, that is in each vicinity there is a local service provider, to facilitate features.
[Operator Instructions] We move to the next question from the line of Yogesh Kirve from B&K Securities.
First question is regarding the subscriber additions. So first of all, what has been the additions for the quarter? And what has been the trend which is seen in the recent months? And also, if you could give some guidance or expectations pertaining to FY '19 in terms of gross or net additions?
Well, I think, we are talking about the financial year. We will talk to you on the first quarter results and on the subscriber what is happening in the current month. And this is also, keep in mind, that the -- there is a 30 days window on the -- of the tariff implementation from the TRAI. So the industry has to work together to continue the [indiscernible] that are in place. Dish TV is as -- we had said that we have a 2.2 million subscribers on Mera Apna Pack. This is a precursor of the implementation of the Tariff Order. Yet I think the -- we are the only one, I guess, in [indiscernible] including cable or the DTH industry that -- who are geared up to sell the pay channel based on the Tariff Order and the customer demand.
Right. Right. And can you state what has been the subscriber additions during the quarter in the fourth quarter?
It's been 0.2 million in the quarter 4.
The 0.2 million -- so this is across both Videocon and Dish TV brands?
These are net adds.
Yes, these are net adds.
Net adds across both the brands, right?
Yes.
Okay, sir. And secondly, regarding just a clarification. So I understand -- so there was differences in the accounting as per the license fees are concerned between Videocon and Dish TV. So our P&L for the full Q is as per the Dish TV's accounting in terms of the provisioning for the contested amount of license fees?
Yes.
It is not Dish TV practice.
Right. Right. And I understand -- if I get my understanding, right, so Videocon, we will have a similar arrangement regarding the passive Infra. So there would be further benefits that would flow in from the first quarter of FY '19?
Yes, it will flow from 1st April 2018. So it will be visible in the first quarter of this year.
The next question is from the line of Rajiv Sharma from HSBC.
So, just couple of questions from my side. What are your thoughts on the CapEx guidance? How much you plan to spend over the next few quarters? And second, if you look at the new Tariff Order and given that content costs go out, the EBITDA per subscriber improves significantly for DTH. So there will be some increased cost around consumer branding. So just want your thoughts and some color on this as to how do you see this playing. Will it be completely a 2x increase or it will be increased by 1.3, 1.4x?
The consumer spend is well within the budget of the company, both the brands. And we don't expect upfront spend on this. Number two, your question is on the CapEx. We estimate that the CapEx will be around INR 1,200 crores in the year.
Just a follow-up. So you think when the content costs go out as per the new Tariff Order, so the -- whatever increase in EBITDA per se of that entirely flows through? Or there will be -- you don't see any -- anticipate any kind of increase there, means lesser EBITDA?
No, we have never said so. We had never said so that the content costs will go away because of the new Tariff Order. I think new order will come. So we don't know how industries will sit together, and how the industry pan out. There are -- the industry has been working in a certain fashion like "might is right" kind of environment for last 25 years. So it has to gel. We will keep you informed what is happening in the -- at that front.
But overall, you see this Tariff Order as positive for DTH?
Yes. Because we have been -- we will be allowed to charge for the pipe and for providing free-to-air channels, [indiscernible] free-to-air channels. And plus for the pay channels, we will get a margins there. Plus, most of the thing is that it will be nondiscriminatory. So the prices what has been given to a cable operator in the Chennai, Arasu Cable, the same price will be applicable to us.
Okay. And 1 just a separate question. What are your plans to drive ARPU the next year apart from HD? And what is your HD base now in the combined entity?
So this will be 1 major focus area for us in terms of driving ARPU. First of all, we are -- we started it last year and we continue to persist with focusing on quality over quantity. So we are looking at better quality of customers. We're looking at better channels, which bring better quality customers. In the traditional channels, we are looking at better controls, which bring quality, which lower churn. And we're looking at incentivizing our teams on quality. So that's one thing which should certainly help get more revenue from the same base. Secondly, we -- secondly, while you said, other than HD, I think HD is going to be one major area that we will drive because it started giving us good dividends and we will like to build further on it for both the brands, for Dish as well as D2h. The numbers on HD, since you asked, the numbers are in the region of about 3.5 million, both the platforms put together, net base, which is on 60-day basis, which is about 15% of our overall net base.
[Operator Instructions] We move to the next question from the line of Ankur Periwal from Axis Capital.
Most of the questions have been answered. Just on this HD subscriber base that we mentioned. The 2.2 million à la carte based -- the customer who are opting for à la carte channels, does that include HD as well? And is there a count including 3.5 million?
Yes. That's a small percentage. Majority of them are standard definition customers, but there are some who are high definition also. Majority of this 3.5 million are customers who are taking our full-slated HD offering and not just 1 or 2 HD channels.
Sure. That's helpful. Secondly, on the subscriber base, we did mention net subscribers are 23 million versus earlier cumulative number of around 29, 30 million. So all the clean-up in terms of the revision of the lives that we calculate is all done? And what numbers are we looking at over there?
So we've gone in line with the industry practice. Earlier we used to take 120 days, now we looked at -- now we looked at 60 days. So we feel that this is, a, in line with industry practice and, b, a more rational way of accounting for the number of subscribers.
Plus, we have also removed complimentary subscribers, demo subscribers and lifetime subscribers.
Complimentary, demo and lifetime, okay. That's helpful. Sir, lastly, on the content cost, if you can share the -- either the H1 numbers for us, after the merger that is?
I think we can discuss this one-on-one.
The next question is from the line of Dipesh Mehta from SBICAP Securities Ltd.
Yes. Sir, most of the questions have been answered just 2 questions.
Mr. Mehta, can you speak closer to the phone, please.
Just wanted to get sense about what kind of FCF we might have generated during the year, if you can help us with that number? And how you expect, considering the INR 1,200 crores CapEx which you indicated for the next year as well, how one should look at gross debt and FCF kind of number entering into '19? And second question is similar about content. Can you help us understand, because one of the synergy benefit which we anticipate was related to content negotiation also. So if you can provide some color about synergy benefits, how we expect it to play out in next couple of years?
I think, I've already mentioned about the gross debt, which is INR 2,750 crores, and we have INR 550 crores in the books as cash. So the debt is around INR 2,200 crores. In terms of free cash flow, because it was a very heavy year in terms of exceptional expenses like one-time merger expenses and the development of [indiscernible]. So it was restricted to around INR 250 crores. But we have been able to reduce our debt from INR 2,950 to INR 2,750 that means we have paid INR 200 crores in the last 90 days.
Okay. And, second question if you can address?
In terms of content, as we have said that we are not willing or we are not discussing the content over the telephone, over this [ call ]. And the synergy, we still stick to the figure of INR 510 crores, and out of which, we can give some kind of split on the call, which will be around INR 70 crores, INR 75 crores interest, around INR 110 crores, INR 120 crores of CapEx. And the balance will be a combination of content to the back end services, administrative expenses and call center expenses.
Next question is from the line of Jay Doshi from Kotak Securities.
Just want to understand how will you continue with revenue recognition? I believe lease rental revenue recognition was different from Videocon DTH. So are you intending it to align with Dish TV in FY 2019 or...
No, we will have to follow Ind AS 115, which is different than whatever we have been following so far, both the companies, then their progress. And our first quarter results will be as per Ind AS 115. We will try to maintain the revenue closer to whatever it is by adjusting or restating the revenue of the past 3, 4 years. We are in discussion with the auditor. Otherwise, we have to slightly postpone the activation revenue to the extent of the customers' life.
I'm sorry, so would you be, I mean, so there must be some amount on balance sheet that you amortize on a quarterly basis pertaining to Videocon DTH, so will that be fully amortized in FY 2019? And going forward, the entire activation fee will be recognized upfront the way it is done for Dish TV? Is that...
No, as far as D2h is concerned, whatever was previously collected as activation revenue, which needs to be amortized as per the plan of that year that will continue to follow that. But new revenue which has accrued from 1st April 2018, will be same for Dish TV as well as D2h, and which will be in line with Ind AS 115. Now there will be some impact of Ind AS 115. We need to postpone some of the revenue, which is not forming part of the upfront costs. That needs to be apportioned over a period of, say, 2 years or 3 years, which will -- we can give you more color maybe in the call of the first quarter this year.
Understood. Second question is this INR 132 crores interest cost in this quarter. What -- how much of that is actually interest outgo and what component is pertaining to provisioning related to prior period liabilities and license fee?
No, license fees, we are doing like any other year, any other quarter. In terms of INR 132 crores, we have paid some of the interest costs pertaining to D2h because it was 22nd of March. So as on 31st of March, we have paid some amount of interest on behalf of D2h, also. And as far as license fee provisioning is concerned, I think it is much bigger than whatever we are discussing. For the quarter, I think it was around INR 55 crores to INR 60 crores.
Right. So INR 55 crores is provisioning and the balance is actual outgo? Have you already refinanced some of the Videocon DTH debt? Or in the synergies that you're talking about is already captured here or there is something we'll see in FY 2019?
Around 75% of the loan we already replaced with the low-cost loan. And balance 25% will be done before 30th of June.
Okay. Understood. So it's already reflected in the number?
Yes.
Now is there going to be -- have you had a proper look at the depreciation accounting of Videocon DTH? And for the full year FY '18 and for Q4. So Dish TV is to follow accelerated depreciation and -- which used to happen. So has that also been taken care of for Videocon DTH? Or can the depreciation run rate go up next year, if there is any?
Now both the brands are on a 5-year period, as it is 7-years for D2h. That is the change that we have done in the fourth quarter. And it will continue for the next 5 years.
Okay. Both the brands are on 5-year now. And the accelerated write-off that you used to do is also done for Videocon DTH?
The accelerated that we see is a test, which is conducted by the auditor on a case-to-case basis. But now we are and have depreciated in a net block. So we don't need an accelerated depreciation every quarter.
Right. Final one, what should we build as tax rate, because -- going forward effective tax rate?
You see, as far as tax is concerned, we will have a long period of tax holiday because of the goodwill generated out of the transaction. So at least for the next 4 or 5 years, we don't see any tax payout, because we will have the garb of goodwill amortization at least over a period of next 5 years.
But on the P&L also that effective tax rate will be 0 or P&L will still show some tax rate?
P&L will show some tax rate because of MAT provision, but that will also is very small, because goodwill amortization will also take place in the company's -- as per the company's books also, which is a huge sum.
No, but if you're mentioning MAT, then it will be like 20% effective tax rate of PBT?
Maybe 20%, but the amount or the quantum will be very small because the amount which is subject to MAT will be very small. So there is a huge flow of goodwill, which needs to be amortized over a period of 5 years or maybe longer.
Understood. Right, one more if I may. The synergies that you're mentioning, and -- so is it going to be sort of -- should we expect some benefit in terms of lower content cost starting first quarter or it will be back-ended?
It will flow throughout the year, may not be the entire flow in the first quarter, but yes, a major part of it will be [indiscernible] in third and fourth quarters.
I can say -- this is Jawahar here, I should say the broadcaster has recognized the combined entity and then -- earlier we used to give 7%, 8%, 5% increase. So this is not the case rather in some of the cases, we are reducing content costs. And some agreements are still pending. So...
So are the agreements closure also a function of this Tariff Order? So do you think if the Tariff Order things get resolved and if there is no further litigation then do you expect to close the agreements a little bit sooner?
Well, that's why we had the contract, which is a short-lived contract for 3, 4 months. So this is what we had kept in mind keeping in mind this new Tariff Order.
[Operator Instructions] We move to the next question from the line of Rohit Dokania from IDFC Securities.
Just 2 quick questions from my side. One is, can you talk about the reason for the sequential fall in subscription revenue? And second, if you can give some indication of how the full year sort of revenue and EBITDA should look like in FY '19 for the combined entity?
Yes, last quarter has seen some fall in subscription revenue. And I think there are a couple of reasons for it. One, we spoke about our focus on quality versus quantity, which we've started in full earnest last quarter. Second is the fact that this quarter is 2 days shorter than the previous quarter that both the platforms put together is about INR 40 crores lower. Even if you see the difference of the 2 quarters, it's about INR 95 crores, and about INR 40 crores can be accounted for because of what is lower. And thirdly, I will say that you know the merger ran into some amount of uncertainty in the last quarter, and that has taken a bit of toll on that. But going forward, which is your second question, we do feel that we should be able to pick our revenue growth from here, while last year our combined platform growth is about 3%, we are looking at about a 7% to 8% kind of revenue growth in the coming fiscal.
Okay. And sir, any sort of guidance on the EBITDA side please?
On EBITDA, last year, it is 31.5%. We're looking at taking that up to 34% to 35% in this fiscal.
For the full year FY '19?
That's right.
Okay. Great. So just 1 sort of bookkeeping question. Can you disclose the ARPU on a pro forma basis for the combined entity for FY '18? For the full year, that is.
I think we have to recalculate [indiscernible] whatever we have [indiscernible]
Next question is from the line of [ Avinash Kumar ] from Moon Capital.
Just 1 question from my side. I mean, earlier you said on the call that post the Tariff Order, the content costs will not become a complete pass-through. So can you provide a bit more color on it? I mean, content cost saving was one of the major benefits we expected from the TRAI order. And a similar follow-up question would be, do you see any execution challenges in the implementation of the Tariff Order, I mean, on the ground implementation. I know there is some further legal window open. So the court can -- the case can go to Supreme Court, but apart from the legal hassles, do you see any other execution challenges for the on-ground implementation of this TRAI order?
Yes, the order as stands today, we can keep 35% from [ 20% plus 15% ], from the price which is charged by the broadcaster. Now it depends on us how much of that 35% is passed on to the consumer. [ That is ] a discretion and enabled to the [ DPO ]. Now like when MD was detailing about the modus operandi of content cost, we were skipping this commission factor into the mind.
Okay. Okay. That's fair enough. And can -- the second part of the question was, do you see any further execution challenges for this Tariff Order to see the light of the day? I mean, keeping aside the legal hassle, because there is a window open for the case to go to Supreme Court. Keeping aside the legal hassles, do you see any, I mean, execution challenges for the DPO industry to completely come in terms with this new Tariff Order?
No, no, like I said, we have already done a replica of -- or a trial run for the Tariff Order, like Mera Wala Pack or Mera Apna Pack. It is in operation since last 3 to 6 months. So we already had a flavor of how it is going to get [ played ] and how to handle the call center, SMS services and consumer-related grievances. So we can have a firm start the moment it is implemented.
Okay. So you feel, I mean, you're completely prepared in the back end to take this up as soon as the legal hassles gets cleared.
Yes. More or less, we are ready.
Next question is from the line of Alankar Garude from Macquarie.
Firstly, you highlighted down trading has been happening for the past couple of years, and now with Phase 4, this trend can perhaps intensify going forward. And on the other hand you also mentioned about improving quality of subs as well as increasing high definition penetration. So keeping these 2 factors in mind, how should we look at this ARPU of INR 201 going forward?
Yes. So both are realities. You know in terms of down trading, which has been happening over the last 2 years, and we are trying to salvage something out of that through our various initiatives like high definition and other things I spoke about, focusing on quality, selling more add-on tags, and so on. So this ARPU of INR 201, I will say that in last quarter, while you are seeing revenue and we discussed its INR 95 crores less than the previous quarter, and we discussed the reasons thereof. But clearly, we've had a slight lift up in our ARPU in this quarter, because if you were to look at the ARPUs of the 2 platforms earlier on as shared by them in the first 3 quarters, you can see that there is some underlying improvement in ARPU, which, as Mr. Dalmia said some time back, we are not getting into, right now, platform-wise, ARPUs. But certainly, going forward, with the revenue guidance as we spoke about, 7% to 8%, with the EBITDA guidance that we spoke about, 34% to 35%, we definitely hope this ARPU could be moving up, unlike last year, where we saw that for a good part of the year on both the platforms it had been fairly static. Our plans are building an increase in ARPU as we go forward.
Understood, sir. Sir, and secondly, on the net subscriber base, now adjusted for the other factors which Dalmia Ji mentioned. So how much of this drop from INR 30 million to INR 23 million is purely because of the change in the churn policy?
Yes, it was less than INR 0.5 million because of the churn policy and around INR 0.5 million was because of complimentary demos and first-time-acquired lifetime customers.
Understood sir. And maybe a small follow-up to that. In the overall business, now that the merger has been completed, have we seen any write-offs coming through at Videocon's end?
It has already been factored into -- in the fourth quarter. That is the quarter which we are addressing.
And, can you quantify the amount sir?
No, it was not like that. They were petty expenses or maybe some distributor accounts but nothing substantial that was very usual.
The next question is from the line of Naval Seth from Emkay Global.
One question, was there any impact on account of change in our churn policy as subscriber number has fallen? Because, in the past, whenever subscribers were past due the 120 days, they were written-off or, say, inactive beyond 500 days, they were written off through P&L. And there used to be one-off expenses in our admin expenses. So with this change in policy, any impact in 4Q numbers?
No, it has not been depreciated or accelerated depreciation has taken place, because of the reduction in the numbers [indiscernible]. We already have enough depreciation in the book for the only 5-year [indiscernible]
Apart from, sir, depreciation there used to be some expense in the OpEx as well so...
No, it was CWIT [ right now ], which is not required these days because of the automated system introduced for tracking of the set-top boxes.
CWIT would be the inventory which was not approved.
Yes, it was CWIT from set-top box, which was not traceable or which was not used say within first period of to [indiscernible] by the company to the distributor step-wise that was written-off before 2016, but that is not required now because we have a system in place now that is tracking each and every box wherever it is [indiscernible].
The next question is from the line of Vikash Mantri from ICICI Securities.
Sir, do we have any content deals which are on a per subscriber basis?
I believe there is 1 broadcaster out of south.
So sir, when we restate our subscribers from 29-odd million to 23 million, do we get a huge benefit of content because of that itself?
That is based on the how many subscribers consume the content, and that is counted on monthly basis. So that will not have an impact.
Okay. Fair enough. Also sir, these 6 million subscribers that were written off, were they largely from the Dish TV brand? Because the average ARPU was has trended closer towards Videocon, I am asking this question.
Around 3 million plus was from D2h brand, 2.5 million was from Dish brand, and 0.5 million was from both the brands who have complimentary demo and lifetime subscribers.
Okay. On the license fee question, where we said we are going to use the same policies. Sir, my question here is, effective license fee of Videocon comes to close to 6% and -- 5.5% to 6%, and ours also comes at the same range, because we first have revenues in Dish Infra, on which we don't pay. So next year, if we use the same policy, it will not give us any benefit is what I wanted to say, earlier question you said there will be some benefit.
The treatment was totally different. We were not recognizing it and putting it in contingent liabilities. Now by virtue of creation of Dish Infra it will not be provided for. So there is a difference. And of course, there will be change in the cognizance, because whatever is there in Dish TV will be provided for and paid for, and whatever is there in the Infra will not be paid for.
Yes. But on a -- as a percentage of consolidated revenues both pay around 6%.
That may be an outcome, but it can be 4% also or 7% also basis is -- revenue recognition is Dish TV, and the Tariff Order -- and the TDSAT order we will get in which we are paying the final license fees.
Okay. Fair enough, sir. On the depreciation, I see that you have said that you have moved both for 5 years, but if I look at your Q3 numbers of both, the depreciation is actually the same. So Videocon reported close to INR 184 crores of depreciation.
You are right. Like we said, we only added [ INR 0.2 million ] in the fourth quarter. So the overall activation numbers were less in fourth quarter. Plus it is on a revolving basis, some of the depreciation has already been adjusted with the past 5-years period.
No, sir, when we would have changed the accounting policy of Videocon from 7 years to 5 years, then there would have been a lumpy depreciation recording?
Yes, some of it is [ gelled ] in the working of purchase price allocation and some of it is recognized in the books of accounts and from first quarter it will be regularized, that is the current quarter.
So it will be higher from the run rate that we are seeing right now?
Yes. Slightly higher.
Okay. And sir, are we going to give a breakup of cost of goods going forward to understand the synergy benefits better going forward? Or there will be just this line of reporting that we have shared in this quarter?
Look, beyond whatever we have reported this quarter it is difficult to give details. Maybe on a one-on-one basis when we meet with analysts, we can provide some details.
Okay. And sir, as per the new Ind AS 115 you mentioned, activation income has to be over 5 years the life of the subscriber? Like we used to do earlier in Dish?
Yes, but the life of the subscriber will be determined by the auditor based on past data. So he is working on it, but the only 1 element of cost which is consumed instantly. That will be recognized in -- as upfront revenue, balance will be accounted over the life of the customer.
What is the policy of Videocon as of now in terms of accounting for lease rental?
1/3 of lease rental, they are providing for 7 years, and 1/3 we are providing instantly. And 1/3 is passed through dealer distribution commission from the top itself.
The next question is from the line of Amit Kumar from Investec.
Just wanted to understand, you have mentioned INR 60 crores of exceptional cost in this particular quarter on account of the merger, but when I look at, I mean, on a Y-o-Y basis we can't compare because of the merger itself, but when I look at it on a Q-o-Q basis your overall cost has gone up by only INR 10 crores, if you can just help me understand exactly where is this cost getting booked? And second what is the nature of this cost as well?
See, the total one-off for the year was INR 84 crores. Out of which, INR 24 crores was booked in the previous 2 quarters and INR 60 crores was provided in the fourth quarter. And this is a stamp duty paid to the Maharashtra government and fees paid to the consultant. Why there is only INR 10 crore increase in the fourth quarter, because there was no Forex loss booked in the fourth quarter, which was around INR 26 crores in the third quarter, and also legal and professional expenses, which are usual, was less, and relating to merger was high.
And this stamp duty paid exactly, which line item is this coming into?
It will be in administration.
Sorry.
Administration expenses.
The next question is from the line of Jay Doshi from Kotak Securities.
So just trying to do some numbers, so you indicated as a guidance that you are expecting about 8%-odd growth in revenues, which effectively means about INR 500 crores of additional revenues for the next year. And other number that you indicated was CapEx guidance of INR 1,200 crores, which I believe would be about 4.5 million set-top boxes. So if I go ahead with a 10% churn rate, you're -- ballpark, you are targeting about 2 million net additions or maybe a little lower than that. So roughly 10% subscriber growth and 8% revenue growth. So is my understanding correct that right now you're not assuming any growth in ARPU for FY 2019 as a base case?
8% growth is resultant of whatever we are able to visualize so far. Because previous year it was only 2.8% to 3%. Now because we have just changed the ARPU definition from 120 days to 60 days, so we really need to work that what will be the impact on ARPU. How much it is going to go up if the revenue is going to go up by 8%? Now in terms of do we -- have we said that the subscribers will move by 10%? No, subscriber...
INR 1,200 crores CapEx, I'm just back calculating.
No, no, CapEx is on gross subs, and we are talking of net subs. So we are only saying the net subs will go up by 1.3 million.
Okay. Sorry, I may have missed that number. In that case, the churn rate there you may be expecting would be higher.
Not really. Because the gross installation will be over 4 million, whereas, the net will be only 1.3 million, hence the ARPU will move only by net and not by gross.
Right. So 2.7 million is the churn, 2.7 million is the churn that can possibly something...
[indiscernible] [ 2.8 million, 2.9 million ] per month. If you do this math, it will be right.
Right. Okay. And the second question is, 34% to 35% EBITDA margins, if I go with 34.5% that means incremental EBITDA of INR 350 crores. Now your synergy guidance of INR 510 crores probably captures about INR 110 crores of CapEx synergy, INR 75 crores of interest cost synergy. So EBITDA synergy that you are guiding is INR 325 crores and your EBITDA margin guidance, ballpark, indicates about INR 350 crores incremental. So does it mean that, again, on organic basis, EBITDA growth will be very small? Or that synergy number that you indicated also captures the organic EBITDA growth?
I think latter is the more appropriate phenomenon. And if we have said 34%, 35% it includes the synergy benefit, but it also includes the -- some of the organic benefits that we accrue because of the size of the company.
We take the last question from the line of Vivekanand Subbaraman from AMBIT capital.
Two questions. One, any updates from the government on the -- on our new license and the possible settlement of the regulatory dues? Secondly, what is the government thinking on DD Free Dish, what are your discussions indicating there?
I think there was another satellite, ABS platform, which has been shut down. That was a Free Dish kind of a platform. On Prasar Bharati Free Dish, I don't think there is a decision yet. We are expecting the new Secretary to join on 1st of June. Then he will take up all the issues, and we have to wait. There is no news so far. License renewal is also one of the issues, which will be tackled by the person -- by the new Secretary.
Ladies and gentlemen, this was the last question for today. I now hand the conference over to Tarun Nanda for his closing comments. Over to you, sir.
Thank you, ladies and gentlemen, and we soon will be talking to you again, at the end of the first quarter. The transcript will be uploaded on the website, www.dishtv.in. And look forward to talk to you again. Thank you, and have a good day.
Thank you very much. So ladies and gentlemen, on behalf of Dish TV Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.