Author Topic: VDTH - Videocon  (Read 40125 times)

oplia

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VDTH - Videocon
« on: January 07, 2016, 04:58:52 AM »
Starting this thread on Videocon. It's a Sat TV company and one of the biggest pay TV operators in India (listed on NASDAQ).

Thesis in a nutshell:
Indian pay TV market appears to be least penetrated and fastest growing in the world. Videocon in turn appears to be the fastest growing company within this market.
Upcoming regulatory change (analog to digital shift) is expected to give signiicant boost to subscriber growth.
The company trades at 6x-7x next year's EBITDA, while growing at 40%-50% annually. I consider this to be very cheap.
Multiple tailwinds from subscriber growth, ARPU growth, industry consolidation and etc.
Currently the company is selling at all time lows.

More detailed story can be found on VIC.

Wondering if anyone has looked at this?
Special Situation Investments www.specialsituationinvestments.com


kab60

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Re: VDTH - Videocon
« Reply #1 on: January 07, 2016, 05:53:57 AM »
Here are my rough notes:

Videocon d2h ADR @ 8,16 USD (27-12-2015)

Valuation: Marketcap: 802m (excluding milestone payments in stock), net debt: 16.000m INR = 242m USD, EV = 1044m USD

Q2FY16 ADJ EBITDA: 1.912m INR = 29m USD, FY2016E = 120m USD

EV/EBITDA: 1044m / 120m = 8,7

Plus: Massive operating leverage, +30 percent EBITDA growth, growth due to volume and growth in ARPU, taking market share, penetration and pricing still low, long growth runway

Notes: According to management (Q2 CC) earnings should rise even more in H2 2016 because renegotiated content agreements put a small damper on EBITDA-margins in H1. According to management (Q2 CC) H2 started out very well so Q3 might include a positive surprise.

kab60

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Re: VDTH - Videocon
« Reply #2 on: January 07, 2016, 05:55:28 AM »

KJP

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Re: VDTH - Videocon
« Reply #3 on: January 07, 2016, 06:22:06 AM »
You're not going to get dividends, so you're relying on minority shareholders getting a fair share of gains from this business.  Do you have any insight into how the Dhoots have treated minority shareholders in the past?

kab60

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Re: VDTH - Videocon
« Reply #4 on: January 27, 2016, 07:19:47 PM »
Q3 out:
Subscription and activation revenue grew 26.0% year on year to INR 6.65 billion
Adjusted EBITDA(1) grew 42.2% year on year to INR 2.01 billion
Gross subscriber base stands at 14.95 million and net subscriber base at 11.27 million

kab60

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Re: VDTH - Videocon
« Reply #5 on: January 28, 2016, 10:07:33 AM »
Just a small update; I thought the results were very good.

Gross and net subscribers increased by 0.67 million and 0.43 million subscribers during the quarter (up y/o/y and q/o/q), while churn was down to 0,73 per month.

I think the valuation is pretty crazy (as in cheap) for the #2 out of #6 satellite TV companies in India taking market share. They're gaining on volume, they're gaining on pricing, the runway for double digit growth is very long, and this is an extremely lucrative business model as witnessed in other places of the world, but here you also have a tailwind from an economy growing double digit and very low tv penetration.

I'm not sure how Dhoot treats minority shareholders, so that - along with only(?) one satellite - are probably the risks. As for the first I'm comforted by the fact that two proven US media execs are on the board and with a significant ownership stake, and that most of the board members will soon be independent. I'm also glad that the CEO is a young member of the Dhoot family educated in London (I believe) and not the old gang. Anyone who have more knowledge of Dhoot please do tell. As for one satellite, I really have no idea if that's an issue or if competitors usually have a backup in case something bad happens (I don't suppose satellites crash too often?).


AzCactus

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Re: VDTH - Videocon
« Reply #6 on: January 28, 2016, 11:54:01 AM »
If I'm not mistaken CoHo Capital has a stake in this company.  Not sure though. 

intothebreach

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Re: VDTH - Videocon
« Reply #7 on: January 28, 2016, 12:23:20 PM »
Thanks for the info on Coho. Here's the write-up:

http://www.valuewalk.com/2015/08/coho-capital/

misterkrusty

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Re: VDTH - Videocon
« Reply #8 on: January 31, 2016, 08:04:29 PM »
oplia - you beat me to posting this one.  this stock is extremely cheap, and I think victim to some forced selling as this was a "hedge-fund hotel" and y'all know what a curse that's been lately.  Certainly, the selloff is not due to fundamentals, which have been great.  Since the IPO, VDTH is down 45%, which peer Dish TV India is up ~11% and trades at much higher multiples despite lower subscriber additions.  VDTH will eventually dual-list in India - perhaps that could help to close the gap?

I estimate ROEs in the high 30% range just a couple years out.  that's simply assuming that VDTH just continues adding subs at similar rate to the past four years or so, and flat ARPU (adjusted for inflation).  In the long-run, there is potential to increase prices quite a bit as pay TV in India is dirt cheap ... a plain-vanilla standard definition 250-channel satellite TV package costs like $3 bucks a month.  In Malaysia, for example, it's $20.

Also, this sector will almost certainly consolidate.  You just don't see mature markets with 6 DTH (aka satellite TV) providers.  It'll go to 2 eventually.  I've heard the Chairman say he would expect at least 5% EBITDA margin accretion from a merger. 

As for the Dhoots, the bad news is that their flagship conglomerate Videocon Industries has been a disaster for shareholders, as it veered off into offshore oil exploration in the last decade, forcing them to lever up and stop paying dividends.  VDTH is very conscious of investor concerns about this, hence the 8 person board has only 1 family member (the Chairman), there are no cross-holdings, etc.  Frankly, they would be crazy to divert cashflows from VDTH to anything else, as they have a long runway of high-IRR opportunities in simply picking up analog cable subs as they are forced by the gov't to go digital.  The competition (cable) is at a disadvantage as their balance sheets are weak just as digitaliztion requires them to make large new investments they can't afford. 

Schwab711

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Re: VDTH - Videocon
« Reply #9 on: January 31, 2016, 08:57:16 PM »
What effect can currency volatility have? Would it be better if the currency appreciated or depreciated?