Dish TV, Den Networks, Telecom, Hathway

Dish TV, Den Networks, Telecom, Hathway

Den Networks

Den Networks

Den Networks

Den Networks

Den Network

Den Network

Den Network

Den Network

Grey Market Premium - Den Networks, Indiabulls Power, Astec Life Sciences

Company Name	Offer Price (Rs.)	Premium (Rs.)
Indiabulls Power	45	+/- 2 to 3
DEN Network Ltd.	195 to 205	5 to 6
Astec Life Science	77 to 82	4 to 4.50

IPO Analysis - Den Networks

Den Networks is a cable distribution entity with a pan-India footprint. The company is into distribution of analogue and digital cable television services. The New Delhi-based company currently provides cable television services in Delhi, Uttar Pradesh, Rajasthan, Maharashtra, Gujarat, Karnataka, Haryana, Madhya Pradesh and Kerala. The issue comprises 15.2% of the company’s post IPO paid-up equity capital. The promoter’s holding will decline to 59.68% (including locked-in shares) based on post-IPO equity dilution.

BUSINESS:

It was incorporated in July 2007 by Sameer Manchanda a Delhi based media professional and entrepreneur. Other key investors in the company includes TV18, which hold 7% stake, ILFS Group with 10.1% and Mauritius based EMSAF with 3%. All these holdings are based on post-IPO equity. The company began its operations by providing analogue cable services and is currently present in 77 cities. In the recent months, however, the company is aggressively betting on digital cable services, which it launched in February 2009 under the brand ‘Digitelly.’

In last 18 months, it has expanded its digital coverage to 37 cities and expects it to grow faster than the analogue service in the future. Den Networks growth strategy is to acquire Multi-system Operators (MSOs) and then integrate latter’s cable network into its own system. Digitalisation helps the company to effectively track the usage patterns of its subscribers, which in turn helps its to negotiate better carriage charges from pay-channels. In last two years the company has acquired 65 MSOs across the country. It earns revenues in two ways: one it gets a cut from the subscribers’ fee charged by pay channels and other content providers and second its charges fee from mini-MSOs and franchises involved providing the last mile connectivity.

The company thus acts as intermediary and is akin to a power transmission company which mediates between the generator and the power distributor. In January 2008, the company set up a 50:50 joint venture with STAR network – STAR-DEN. The JV has the exclusive rights to distribute 23 channels that the Star bouquet including channels from Disney group, Times group and MGM among others. In addition to this, the company also offers Internet broadband facility like any other cable operator.

OBJECTIVES:

Considering its price band of Rs 190-205, the company would raise around Rs 390-410 crore. Of the total issue proceeds, it plans to use around Rs 210 crore for the expansion of its cable television infrastructure and a further Rs 25 crore for growing its cable broadband business.

VALUATION:

For the quarter ended June, the company reported revenues of Rs 99 crore from its cable business and a further Rs 109 crore came from its STAR-DEN operations during the same period. The company’s main strategy is to digitise its analogue subscribers. For this the company would be purchasing 7,17,500 set-top boxes. For the quarter ended on June, the company posted a profit of Rs 3.2 crore, while for the year ended on March 2009; the company posted a loss Rs 15 crore. Considering the loss, it would be meaningless to use price to earnings multiple as the valuation tool.

Instead we have used price/book ratio and market cap to revenues to assess its valuation. The IPO is priced at around 4.5 times its book value (based on post IPO networth), which compares favourably with Wire & Wireless (5x) and Dish TV (6x), its two key listed peers. It is available around 3 times its annualised revenues during FY09, which is lower than the corresponding ratio for its key peers. As the stock is likely to attract premium over its peers, given its bigger size, we advise our readers to subscribe to the issue at the upper price band.

IPO details

Price Band:

Rs 190-205

Net issue size:

Rs 390-410 crore

Date:

October 28 – 30

via Economic Times

Den Networks IPO

Den Networks IPO

Den Networks IPO Review

Incorporated in July 2007, Den Networks is promoted by Sameer Manchanda, a veteran in the television industry. It is one of the largest national cable television companies in India, distributing analog and digital cable television services as per the MPA Report 2009. The company has analog cable presence in 76 cities across India and digital services in 37 cities across India. Den Networks currently provides cable television services in the National Capital Region of Delhi and Uttar Pradesh, Rajasthan, Maharashtra, Gujarat, Karnataka, Haryana, Madhya Pradesh and Kerala. The company has obtained an all-India Internet services provider (ISP) license and recently commenced a limited roll-out of broadband internet services in select areas, which it intends to expand in all of the other cities in which it operates. As per the MPA Report 2009, the company's reach is approximately 10 million analog homes and 3,00,000 digital homes.

Den Networks has been increasing its reach through acquisition of multi-system operators (MSO). The company has majority interest in 62 MSOs. It uses local cable operators (LCOs) to provide the "last mile" cable link to reach its subscribers. Den Network currently offers up to 180 channels through its digital cable television service compared with up to 100 channels through its analog cable television service. The company plans to commence offering digital cable subscribers additional value-added services such as pay-per-view services, interactive educational programmes, personal video recording and mosaic viewing. It also operates between one to three own brand television channels from each of its head-ends, which are telecast exclusively on its cable distribution network.

In January 2008, Den Networks entered into a 50:50 joint venture agreement with Star. Star-Den will act as content aggregator and currently has the exclusive right to distribute 23 television channels, including the entire Star group of channels, the entire Disney group of channels, select Network18 channels, the entire Times Group of channels, and MGM to providers of various television distribution platforms such as cable television, DTH satellite television and IPTV in India, Bhutan and Nepal. The company's share of revenue in the joint venture (JV) was Rs 364.85 crore and profit after tax (PAT) Rs 2.32 crore in the fiscal ended March 2009 (FY 2009). Revenue was Rs 107.64 crore and PAT Rs 2.65 crore in the quarter ended June 2009.

The net proceeds of the issue are to be utilized for development of cable television infrastructure & services, for development of cable broadband services in Kanpur Delhi, NCR and Bangalore, repayment of debt, and acquisition of content.

Strengths

* As per the FICCI KPMG Report 2009, the media & entertainment industry is projected to grow at a CAGR of 12.5% to Rs 1052 billion by end of calendar year (CY) 2013 from CY 2009. The television industry is expected to grow at CAGR of 14.5% to Rs 472.6 billion. As per PWC's India Entertainment & Media Outlook 2009 Report, the TV distribution segment grew at CAGR of 18.8% to Rs 150 billion over CY 2004-2008, contributing to 60% of the total television industry revenues of Rs 244.7 billion in CY2008. The television industry expected to grow at CAGR of 11.4% to Rs 420 billion over CY 2009-13. The distribution pie is expected to grow at CAGR of 10.8% to Rs 250 billion by end CY 2013.

* The number of TV owning households would grow to 149 million by end CY2013. The cable households will increase from 72 million in CY 2008 to 90 million in CY 2013. Of this, the number of digital cable homes will increase from 2 million in CY 2008 to 35 million in CY 2013. The increased adoption of digitization will mean higher declaration leading to higher revenue.

* There were 623,000 cable broadband Internet subscribers, or 11.3% of total Indian broadband Internet subscribers, in India in 2008. The MPA Report 2009 predicts that the number of cable broadband Internet subscribers will increase to approximately 2.30 million, or 16.5% of all Indian broadband Internet subscribers, by CY2013.

Weaknesses

* The television distribution is highly competitive and is often subject to rapid and significant changes in the marketplace, technology and regulatory and legislative environments. The market is very fragmented with approximately 50,000 LCOs and 1,000 MSOs. Also, with increased adoption of direct-to-home (DTH), the DTH subscriber base is expected to grow from 10 million in CY 2008 to 28 million in CY 2013.

* The cable distribution industry is prone to under-reporting by LCOs the number of subscribers, thereby impacting revenue.

* LCOs are the last-mile link that connects the company's cable lines to the homes of the subscribers. The affiliation agreements are typically valid for one year. However, an LCO may terminate the agreement on 30 days' notice. Also, the service quality of LCOs will impact subscriber preference.

Valuation

The promoters of Den Networks had entered into an agreement with the IL&FS Investors not to price the IPO below the conversion price of cumulative convertible preference shares (CCPS) issued to the latter on 21 January 2008 and 17 February 2009. The conversion price of the CCPS was Rs 146.94–161.47 per share. These were converted on 27 July 2009. On being asked the basis of arriving at the issue price of Rs 195 – Rs 205, the lead manager was prompt is saying the company has issued shares at Rs 190 to other investors on 29 July 2009.

At the issue price of Rs 195– Rs 205, EV/sales comes to 3.1– 3.3 times. However, excluding the share of revenue of the Star–Den JV, thereby keeping just the cable distribution revenue, the EV/sales comes to 6.4 – 6.8 times. Wire & Wireless India is trading at EV/sales of 4.2 times.