Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hathway Cable & Datacom Ltd
Strong upside from
digitalisation
We organized investor meetings with Hathway in the US where management
highlighted opportunities from impending digitalisation.
„Reiterates strong upside from digitalisation
With nearly 80% of its subscribers residing in Phase I and Phase II locations, both
revenues and profitability likely to see strong growth over next 2-3 years from
implementation of digital cable TV roll out in India. We expect cable subscription
revenues to double and PBIT to increase 6x over next two years from
implementation of mandatory digitalisation. While I&B ministry have approved the
digitalisation process, the bill requires government approval and is expected to be
tabled in the current monsoon session. Retain Buy rating with PO of Rs130.
Expects industry to consolidate post digitalisation
While management is reluctant on acquiring local cable operators (LCOs) given
high valuation expectations, it expects smaller LCOs to partner with players such
as Hathway given investments required in digitalisation. Also multi system
operators and large operators are well placed to adhere to regulations such as
underground laying of cables as mandated by a few states such as Hyderabad
and Delhi.
Renewed focus on Broadband likely
Hathway currently has 45% market share in cable broadband market and has
~375K subscribers. It expects ARPUs to improve from current Rs290/p.m to
Rs310-320 given recent launch of new schemes. It expects broadband business
to get boost from digitalisation given its plans to offer bundled services
(broadband & cable) in a post digitalized era. Broad band contributes ~14% to
revenues and has EBITDA margins of 26% vs. 19% for the company. We have
assumed broad band revenues to grow at CAGR of 24% over next two years.
Key queries/ discussion areas
„ View on LCO acquisition: Given high valuation demanded by LCOs,
management reiterated that it is not keen on acquiring LCOs currently. Focus
is on voluntary seeding of digital boxes. Seeded 425000 boxes in FY11, and
plans to seed ~1mn in FY12. However company expects valuation multiples
for LCOs likely to come down to 15-20x monthly ARPU vs. 25-30x currently
post digitalisation given investments required. Also believes LCOs with less
than <1000 subscribers will find it difficult to operate and may be willing to
consolidate with MSOs.
„ View on opposition from LCOs: Many LCOs have recommended
staggered movement to digital and have recommended both analogue and
digital co existence (as in CAS). As per management Government is keen on
100% digital roll out.
„ Likely opportunities from Digitalisation : Management expects quality of
services to improve- number of channels offered to consumers to increase
from current 100 to over 200 and Hathway would be able to bundle services
i.e. offer both Broadband and Cable. Also able to offer value add services
such as video on demand.
„ Opportunities from Broadband : Company currently has ~375K
subscribers and ~1.4mn home passed. In FY12 likely to focus on ramping
subscriber base. Mentioned broad band ARPUs will likely increase from
current Rs290/p.m to Rs310-320 p.m given recent upgradation of schemes.
Broad band has EBITDA margins of 26% vs 19% for the company. Intends to
offer bundled broadband and cable services in digitalised era.
„ View on regulatory hurdles: Management indicated that the digitalisation
bill is likely to be tabled in the monsoon session. Is hopeful of it getting
passed given strong support from I&B ministry. Worst case could see six
month delay given parliament being pre occupied with other issues such as
2G scam.
„ View on capex for next year: Given plans to seed 1mn set top boxes it
expects to incur capex of Rs1350mn on cable. However cash out flow will be
staggered given its agreement with STB manufacturers- Hathway need to pay
only 30% upfront. The balance need to be paid over next 3 years. We have
assumed capex for ~770000 boxes and staggered impact on cash flows.
„ No of subs covered in phase I / II of digitalisation: Nearly 82% of
Hathway subscribers will be covered in Phase 1(Metros) & Phase II (Tier 2
cities). Company is hopeful that timelines approved by I&B ministry on Phase
I& Phase II likely to be met.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hathway Cable & Datacom Ltd
Strong upside from
digitalisation
We organized investor meetings with Hathway in the US where management
highlighted opportunities from impending digitalisation.
„Reiterates strong upside from digitalisation
With nearly 80% of its subscribers residing in Phase I and Phase II locations, both
revenues and profitability likely to see strong growth over next 2-3 years from
implementation of digital cable TV roll out in India. We expect cable subscription
revenues to double and PBIT to increase 6x over next two years from
implementation of mandatory digitalisation. While I&B ministry have approved the
digitalisation process, the bill requires government approval and is expected to be
tabled in the current monsoon session. Retain Buy rating with PO of Rs130.
Expects industry to consolidate post digitalisation
While management is reluctant on acquiring local cable operators (LCOs) given
high valuation expectations, it expects smaller LCOs to partner with players such
as Hathway given investments required in digitalisation. Also multi system
operators and large operators are well placed to adhere to regulations such as
underground laying of cables as mandated by a few states such as Hyderabad
and Delhi.
Renewed focus on Broadband likely
Hathway currently has 45% market share in cable broadband market and has
~375K subscribers. It expects ARPUs to improve from current Rs290/p.m to
Rs310-320 given recent launch of new schemes. It expects broadband business
to get boost from digitalisation given its plans to offer bundled services
(broadband & cable) in a post digitalized era. Broad band contributes ~14% to
revenues and has EBITDA margins of 26% vs. 19% for the company. We have
assumed broad band revenues to grow at CAGR of 24% over next two years.
Key queries/ discussion areas
„ View on LCO acquisition: Given high valuation demanded by LCOs,
management reiterated that it is not keen on acquiring LCOs currently. Focus
is on voluntary seeding of digital boxes. Seeded 425000 boxes in FY11, and
plans to seed ~1mn in FY12. However company expects valuation multiples
for LCOs likely to come down to 15-20x monthly ARPU vs. 25-30x currently
post digitalisation given investments required. Also believes LCOs with less
than <1000 subscribers will find it difficult to operate and may be willing to
consolidate with MSOs.
„ View on opposition from LCOs: Many LCOs have recommended
staggered movement to digital and have recommended both analogue and
digital co existence (as in CAS). As per management Government is keen on
100% digital roll out.
„ Likely opportunities from Digitalisation : Management expects quality of
services to improve- number of channels offered to consumers to increase
from current 100 to over 200 and Hathway would be able to bundle services
i.e. offer both Broadband and Cable. Also able to offer value add services
such as video on demand.
„ Opportunities from Broadband : Company currently has ~375K
subscribers and ~1.4mn home passed. In FY12 likely to focus on ramping
subscriber base. Mentioned broad band ARPUs will likely increase from
current Rs290/p.m to Rs310-320 p.m given recent upgradation of schemes.
Broad band has EBITDA margins of 26% vs 19% for the company. Intends to
offer bundled broadband and cable services in digitalised era.
„ View on regulatory hurdles: Management indicated that the digitalisation
bill is likely to be tabled in the monsoon session. Is hopeful of it getting
passed given strong support from I&B ministry. Worst case could see six
month delay given parliament being pre occupied with other issues such as
2G scam.
„ View on capex for next year: Given plans to seed 1mn set top boxes it
expects to incur capex of Rs1350mn on cable. However cash out flow will be
staggered given its agreement with STB manufacturers- Hathway need to pay
only 30% upfront. The balance need to be paid over next 3 years. We have
assumed capex for ~770000 boxes and staggered impact on cash flows.
„ No of subs covered in phase I / II of digitalisation: Nearly 82% of
Hathway subscribers will be covered in Phase 1(Metros) & Phase II (Tier 2
cities). Company is hopeful that timelines approved by I&B ministry on Phase
I& Phase II likely to be met.
No comments:
Post a Comment