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UBS Investment Research
Hathway Cable & Datacom
EBITDA growth momentum to continue
2Q FY11 results: Revenue was in line with UBS estimates
Consolidated revenue grew 20% QoQ to Rs2,265m in line with UBS estimates.
EBITDA grew 34% QoQ to Rs502m (UBS estimate Rs550m), EBITDA margin
expanded 240 bps QoQ to 22.2% (UBS estimate 24.3%). PBT came in at Rs118m
(UBS estimate Rs85m). Hathway is hosting a results call on Nov 10, 2010 at 12
noon India time (refer to table 2 for dial in details).
Expect strong growth in revenue and EBITDA in 2HFY11
We expect Hathway to report strong revenue growth and expand EBITDA margins
in 2HFY11 as we expect subscriber disclosures to improve led by increase in
digital subscribers and last mile acquisitions. We expect digital subscriber base to
increase from 1.2m in 1HFY11 to 1.7m subscribers by Mar 2011.
Hathway is a long term growth story led by cable digitisation
There are ~68m analogue cable homes serviced by ~60,000 local cable operators
(LCO) in India, as per TRAI. We believe LCOs under-report analogue subs base to
retain a higher share of the subscription revenue. We think Hathway will benefit
from digitisation as it will improve subs disclosures and help improve ARPU.
Valuation: Maintain Buy with DCF based PT of Rs275
Hathway stock trades at an attractive valuation at FY12 EV/EBITDA of 8.8x (33%
discount to other media stocks under UBS India coverage). Hathway is focussing
more on upgrading analog subs homes to digital platform versus last-mile
acquisitions, given TRAI recommendations on digital systems implementation. We
see upside risks to our estimates, even if these get partly implemented.
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