Deutsche Bank Markets Research Hoting Buy .4cia India Broadcasting / Movie & Entertainment Dish TV DSIV BO 210:41-4:er, DfRr IN Back to the good old days of operating leverage EN,17",n,a , SSE DSTV I ov: inflation in content cost provides vinibilitv on siren() earninas growth During FY10-12, Dish TVs EBITDA grew 4.2x as the company doubled its number of subscribers and entered into fixed content cost deals with the broadcasters. We believe operating leverage will play out for Dish again as its content costs are now largely fixed, at least for the next 1.5 years (with 5-6% annual increase), and it aggressively adds subscribers. EBITDA growth of 72% in 4QFY15 (22% ahead of estimates) is a testimony. Continuing strong subscriber addition and an ARPU increase of INR 10 (4%) in May 2015 will be strong near-term catalysts. Filed content cost deals resulted in a big beat in earnings Dish TV reported sales/EBITDA growth of +19%/+72% (+2%/+22% vs. our est.). Strong customer addition of 405k net subscribers (vs. our 180k est.) and flat content cost were key drivers for the beat. If one stripped off the impact of activation revenue (accounting change done in Q4FY14), EBITDA growth would still have been 72%. Dish TV has content cost fixed for at least the next 20 months (management guiding for 5-6% annual inflation). The Star and Zee content-cost deal expires September 2016, India Cast in March 2017, and Sony in March 2018. While fixed content costs will drive earnings growth over the next six quarters, ARPU increases will drive long-term earnings growth. Cost pass-through for cable (broadcasters push) gives DTH players headroom to raise prices (see Figure 2 for ARPU trend). Dish also implemented differential pricing for metros, which is working well, but it may have to roll back the price increase if peers do not follow; otherwise, subscriber addition may be affected. DTH seems to be benefitting trout a delay in digitization Phase 3 and