Hathway Cable- Top Pick by UBS

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Hathway (Buy; price target Rs275)
Company background
Hathway Cable & Datacom (Hathway) is one of the largest cable TV
distributors or multi-system operators (MSO) in India. The company estimates it
currently reaches 8.2m homes. Hathway provided cable TV (on digital and
analog platforms) to around 1.7m subscriber homes and cable broadband to
356,000 subscribers as at end-1HFY11.




Key takeaways
􀁑 Hathway believes Phase I of the TRAI recommendations on mandatory
digitisation (complete digitisation of metros: Mumbai, Delhi and Kolkata) is
likely to be implemented by July 2011. Hathway has an estimated reach of
1.6-1.7m homes in Mumbai and Delhi. Hathway is currently trying to seed as
many set top boxes (STBs) as possible before mandatory digitisation
becomes a law, as the subsidy on STB could increase.
􀁑 In the light of recent TRAI recommendations on mandatory digitisation,
management is focussing more on upgrading analog subs homes to digital
platform as compared to last-mile acquisitions. Hathway is likely to acquire
around 200,000 last-mile subscribers in FY11.
􀁑 Hathway plans to increase its broadband subscriber base to 500,000 (from
356,000 in 1HFY11) and its digital subscriber base to 1.7-1.8m homes (from
1.2m in 1HFY11) by end-FY11.
􀁑 Hathway has set an internal target of achieving Rs2.5bn EBITDA in FY11.
􀁑 Hathway highlighted that customer stickiness is higher in cable as compared
to DTH as the churn is less than 5% per annum in cable.


UBS view
We believe Hathway is a long-term play on increasing digitisation in India.
There are around 68m analogue cable homes serviced by about 60,000 local
cable operators (LCO) in India, according to TRAI. We believe the LCOs underreport
the analogue subscriber base to retain a higher share of the subscription
revenue. We think Hathway will benefit from digitisation as: 1) it will improve
subscriber disclosures as usage can be tracked; and 2) its ARPU might improve
as subscribers will be able to view more channels and access value-added
services.