Author Topic: VDTH - Videocon  (Read 31185 times)

kab60

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Re: VDTH - Videocon
« Reply #10 on: February 08, 2016, 12:30:24 PM »
What effect can currency volatility have? Would it be better if the currency appreciated or depreciated?
It's an ADR so a stronger rupee and a weaker dollar is a plus.

Markets have really puked this out, but I haven't really been able to find a good reason why. EBITDA might come in a tiny bit below FY guidance because of some small increases in Indian taxes, but I haven't seen anything but short term noise. My spreadsheet has it trading at 6,7xEV/EBITDA and leverage @ 2xEBITDA. They should turn FCF positive in the next couple of quarters and according to the recent QQ it seems like January started out on a high note even though the digitalization seems like it'll be lumpy.
« Last Edit: February 08, 2016, 12:32:36 PM by kab60 »


doughishere

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Re: VDTH - Videocon
« Reply #11 on: February 08, 2016, 02:20:07 PM »
How did US companies fair during the switch from analog to digital? What did the comps look like at the beginning and after the switch?

Who are their competitors in the switch over? Are they doing it better?
« Last Edit: February 08, 2016, 02:40:28 PM by doughishere »

KJP

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Re: VDTH - Videocon
« Reply #12 on: February 13, 2016, 08:16:18 AM »
For those interested, the comments to the Videocon writeup on VIC now include some discussion of the Dhoots' history and how that relates to VDTH.  I don't have access to the full discussion, but didn't see anything too concerning in what was accessible to me.
« Last Edit: February 14, 2016, 12:21:41 PM by KJP »

muscleman

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Re: VDTH - Videocon
« Reply #13 on: February 14, 2016, 11:51:25 AM »
A few newbie questions.
1. What's the competitive advantage of VideoCon vs DISH India? If the only competitve advantage is the number of channels offered, as stated in CoHo capital's letter, then it is not a strong moat.
2. What's the competitive advantage of satellite broadcasters vs cable cos? I understand that cable cos can offer internet and TV bundles, but can satellite broadcasters offer internet? It seems to me that cable cos have the advantage but why does satellite broadcasters and cable cos still co-exist today even in the US?

indirect

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Re: VDTH - Videocon
« Reply #14 on: February 14, 2016, 12:25:29 PM »
For me VDTH is a no go.

1. Is the management as good as Tata in the same business? By history of Dhoots and watching few CNBC interviews my answer is not 

2. Is the fiduciary gene there? Not sure but definitely not at the level of Tata.

muscleman

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Re: VDTH - Videocon
« Reply #15 on: February 14, 2016, 04:26:46 PM »
For me VDTH is a no go.

1. Is the management as good as Tata in the same business? By history of Dhoots and watching few CNBC interviews my answer is not 

2. Is the fiduciary gene there? Not sure but definitely not at the level of Tata.

Can you please provide a bit more details?

I looked through their 20-F and found a few things making me uncomfortable.
1. The satellite is leased. The lease expired in May 2015. What happened later? I can't find anything. But I guess any competitor can lease the same satellite if they pay more.
2. They have defaulted on certain bank loan payments in 2015 and before. This does not make me feel comfortable. The operations may not be as good as Coho capital described.
3. I can't figure out the moat here, especially when the satellite is leased.


misterkrusty

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Re: VDTH - Videocon
« Reply #16 on: February 14, 2016, 07:14:30 PM »
doughishere-  I'm not sure how companies in the US fared during the switchover to digital, but keep in mind that the cable sector in the US was already fairly concentrated by then, and I'm pretty sure everyone had the financial resources to upgrade their infrastructure.  In contrast, the cable sector in India is much less concentrated and there are literally thousands of tiny cable companies that serve the more rural areas that likely will not be able to make the requisite upgrades, which should allow DTH providers to poach their analog subs, especially in phase 4 (the final phase of digitalization covering the most rural areas, which contain over 50 million analog cable subs out of a pay TV market of roughly 50 million).  granted many of these will be lower ARPU subs, but the gross margins on the cheaper packages are at least as good due to lower content costs (i.e. fewer channels)

misterkrusty

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Re: VDTH - Videocon
« Reply #17 on: February 14, 2016, 07:32:13 PM »
muscleman-  regarding videocon vs dish tv india, advantages are:

- better distribution network (they can leverage the 200k+ stores that sell videocon industries' TVs, etc. 
- in-house installation and repair team, leading to quicker install/repair times.  this is unique among DTH operators
- domestic STB (set top box) manufacturing (thru videocon industries), allowing for lower STB costs and better availability (again, unique among DTH operators)
- better demographics.  the positioning of the four main DTH players is as follows, from high-end to low-end: TataSky, Videocon, Airtel Digital, Dish TV India.  Dish tv has the most rural sub base and thus lower ARPUs.  In the early stages of industrialization, the majority of gains in wealth flow to the more urban populations.  Dish TV has suffered more from subs switching to lower tier packages as DTH operators implement their (typically) bi-annual price increases.

regarding DTH vs cable, DTH is much, much better positioned.  The cable sector in India suffers from a two-tier structure where the MSOs cover the headend/satellite/programming/STB procurement portion and the LCOs (local cable operators) maintain the last-mile infrastructure.  the LCOs routinely under-report the actual sub numbers (to evade taxes) and pass on a crappy % of the money collected from subs to the MSOs.  The MSOs don't even know exactly how many analog subs they have, only how many STBs they've sold to the LCOs, who turn around and sell them to the end customers.  Digitalization is supposed to change all this, but the benefits have been slow in coming to the MSOs.  Meanwhile, the MSOs have all stretched their balance sheets to supply digital STBs in advance of digitalization. 

I encourage you to look at debt/ebitda and interest coverage ratios for the big MSOs (siticable, den networks, hathway).  they're terrible, as are the profitability metrics.  Videocon should be earning an ROE over 30% soon.  Dish TV might be there already (can't remember).  Meanwhile, the MSOs are earning low single digit returns on capital.

Yes, the MSOs have broadband, and its a good business for them, but its expensive to roll out and very expensive for the subscribers.  thus broadband penetration in India is in the mid/high single digits.

misterkrusty

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Re: VDTH - Videocon
« Reply #18 on: February 14, 2016, 07:40:23 PM »
muscleman-  every DTH operator in India leases their satellites.  (I believe this is typically the case in most countries as well.)  They currently are leasing ST-2, which is a fairly new satellite operated by SingTel.  It's difficult for companies in India to get satellite capacity due to government red-tape, and other operators sometimes have older, crappier satellites, e.g. TataSky, which is spending tons of capex to upgrade all their subs to MPEG4 STBs in order to overcome the capacity limitations of their satellite (Videocon's subs have been on MPEG4 STBs from the beginning, in addition to having a better satellite.)

Like most every DTH operator, Videocon found its balance sheet stretched by a subscriber landgrab that took place around fall 2012 thru fall 2013.  The IPO fully addressed all debt issues.  Today their net debt/TTM ebitda is around 2x and should rapidly decline from there.

misterkrusty

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Re: VDTH - Videocon
« Reply #19 on: February 14, 2016, 07:46:41 PM »
KJP/indirect-  regarding the Dhoots, here's the discussion from VIC:

mpk391:
the Dhoot family mothership - Videocon Industries - has been a disaster for shareholders.  the guy in charge there - Venugopal Dhoot (uncle of VDTH chairman) - took a decades-old consumer electronics company and steered it into offshore oil exploration and other ventures.  needing vast amounts of cash for this, he cut the dividend and levered up massively.  Supposedly they did find a lot of oil, but it will be years before any of it reaches the market due to lack of infrastructure, so the stock is the ultimate "show me" story.

VDTH actually filed to go public in India but withdrew their application.  maybe the price talk was coming in low because local investors feared a repeat of the above.  Just my speculation.

With a US listing and the Silver Eagle guys on the board (plus in the stock) there are presumably more safeguards in place for minority investors.  I say "presumably" only because I don't know what they'd be with an India listing.  I do think the current safeguards are good (e.g. only one Dhoot family member on the Board, no cross-holdings, etc.).  Talking to mgmt, they're very sensitive to this issue.

In any case, VDTH should be able to reinvest in its own business for years to come at a high IRR.  No reason to veer off-course, even if they could.

gophar571:
We spent considerable time and money hiring an outside reputable consultant and accounting firm who spent several months doing investigative work and produced a 100 page report for us on all ethical and integrity issues at the company and with the Dhoots specifically, and, frankly, came back with basically nothing.