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Hathway Cable & Datacom Ltd
Gearing up for digitalisation
„In-line results, margins tad lower
Hathway reported in-line results, with 4Q revs of Rs2.4bn vs. Rs2.5bn BofAMLe.
EBITDA margin of 14% was 200bps lower than expected and impacted by higher
pay channel cost and higher provisioning for bad debts. We retain our estimates
and maintain Buy rating, given our view that revenues and EBIT are likely to jump
2x and 5x over next two years from the implementation of regulations to roll out
digital services in metros. We see further upside from the implementation in other
tier 2/3 cities. While our target multiple is at 6x EV/EBITDA, we see scope for
valuation multiples to expand to 9x, as clarity emerges on timelines for digitalisation.
FY11- growth driven by carriage
FY11 cable rev (~80% revs) increased 20% yoy, to Rs7bn, in line with BofAMLe,
largely driven by growth in carriage & placement (C&P) revenues. C&P
contributed ~45% vs. 40% in FY10. Broadband revenues (15% revs) were flattish
yoy. EBITDA margins stood at 18.4% vs. 18.9% BofAMLe.
Gearing up for digitalisation
We believe recent approval from the I&B ministry for digitalisation and setting up
of a taskforce to oversee the process is positive. Management is hopeful of the
digitalisation bill getting approved over next 3-6 months and it now intends to
achieve voluntary digitalisation at 30% of its subscriber base, up from 18%
currently, over the next one year. It plans to voluntarily seed at least 0.9mn digital
set top boxes in FY12 vs. 0.4mn seeded in FY11. In broadband, it intends to
improve the quality of offerings and grow its subscriber base by 25% during FY12.
Key risks
While the I&B ministry has given its approval, the process requires cabinet
approval and could see delays
Price objective basis & risk
Hathway Cable & Datacom Ltd (XHKYF)
Our PO of Rs130 implies a 6x EV/EBITDA FY13E, in line with valuations for
global peers, and is backed by a DCF value of Rs200 (WACC:13.5% and Teminal
Growth rate:4%). Our Buy rating is based on our view that digitalisation of the
cable & satellite industry in India is inevitable and is likely to throw potential
opportunities for leading multi-system operators such as Hathway. While we
assume upside from Phase I (metros) implementation, we believe the valuation
multiple could expand further to 9x as clarity emerges on timelines for
digitalisation.
Key risks are a delay in regulatory clearance for digitalisation and intense
competition from other MSOs and DTH players.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hathway Cable & Datacom Ltd
Gearing up for digitalisation
„In-line results, margins tad lower
Hathway reported in-line results, with 4Q revs of Rs2.4bn vs. Rs2.5bn BofAMLe.
EBITDA margin of 14% was 200bps lower than expected and impacted by higher
pay channel cost and higher provisioning for bad debts. We retain our estimates
and maintain Buy rating, given our view that revenues and EBIT are likely to jump
2x and 5x over next two years from the implementation of regulations to roll out
digital services in metros. We see further upside from the implementation in other
tier 2/3 cities. While our target multiple is at 6x EV/EBITDA, we see scope for
valuation multiples to expand to 9x, as clarity emerges on timelines for digitalisation.
FY11- growth driven by carriage
FY11 cable rev (~80% revs) increased 20% yoy, to Rs7bn, in line with BofAMLe,
largely driven by growth in carriage & placement (C&P) revenues. C&P
contributed ~45% vs. 40% in FY10. Broadband revenues (15% revs) were flattish
yoy. EBITDA margins stood at 18.4% vs. 18.9% BofAMLe.
Gearing up for digitalisation
We believe recent approval from the I&B ministry for digitalisation and setting up
of a taskforce to oversee the process is positive. Management is hopeful of the
digitalisation bill getting approved over next 3-6 months and it now intends to
achieve voluntary digitalisation at 30% of its subscriber base, up from 18%
currently, over the next one year. It plans to voluntarily seed at least 0.9mn digital
set top boxes in FY12 vs. 0.4mn seeded in FY11. In broadband, it intends to
improve the quality of offerings and grow its subscriber base by 25% during FY12.
Key risks
While the I&B ministry has given its approval, the process requires cabinet
approval and could see delays
Price objective basis & risk
Hathway Cable & Datacom Ltd (XHKYF)
Our PO of Rs130 implies a 6x EV/EBITDA FY13E, in line with valuations for
global peers, and is backed by a DCF value of Rs200 (WACC:13.5% and Teminal
Growth rate:4%). Our Buy rating is based on our view that digitalisation of the
cable & satellite industry in India is inevitable and is likely to throw potential
opportunities for leading multi-system operators such as Hathway. While we
assume upside from Phase I (metros) implementation, we believe the valuation
multiple could expand further to 9x as clarity emerges on timelines for
digitalisation.
Key risks are a delay in regulatory clearance for digitalisation and intense
competition from other MSOs and DTH players.
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