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UBS Investment Research
Hathway Cable & Datacom
Execution is key for re-rating
„ Event: stock underperforms on poor execution; digitisation imminent
Hathway’s stock price has underperformed the BSE Sensex 53% since February
2010, in our view mainly due to disappointing financial performance and poor
execution led by supply side constraints, resistance from local cable operators to
seed digital set top boxes, and increased competition from the direct-to-home
(DTH) platform. We believe mandatory digitisation is imminent, likely to be
implemented from 31 March 2012—we view this as a key catalyst.
„ Impact: significant reduction in earnings estimates due to poor execution
Given the slower execution in the past, we lower our estimates for FY12-13
significantly. We lower our FY12/13 EPS estimates from Rs4.06/5.51 to
Rs0.31/2.19. We revise our forecasts beyond FY12 assuming mandatory
digitisation will be implemented starting March 2012. We assume 82% of
Hathway’s 8.2m subscriber homes reach is under Phase I and II implementation,
and it will be able to retain 60% of undeclared subscriber base.
„ Action: maintain Buy; Hathway trading close to our worst-case value
We maintain our Buy rating as we believe Hathway will gain from digitisation. We
believe there is limited downside at current levels, if digitisation gets necessary
government approvals. We estimate a worst-case value of Rs100 per share based
on conservative assumptions, while our best-case estimate is Rs200.
„ Valuation: lower price target to Rs140 from Rs275
We switch our valuation methodology from DCF-based to EV/EBITDA multiplebased given limited earnings visibility in the medium term. We value Hathway at
9x FY13E EV/EBITDA, a 15% discount to broadcasters and a 35% discount to
Dish TV. We prefer Dish TV due to its better execution and earnings visibility.
Q Hathway Cable & Datacom
Hathway Cable & Datacom (Hathway) began operations in 1998. It is one of
India's leading cable multi-system operators with a pan-India presence. It
distributes cable TV on digital and analogue platforms, and provides broadband
services. Its cable services reaches 8.2m homes. It has a backend network of 71
analogue and 19 digital head-ends, and 15,000km of hybrid fibre-coaxial
network. The Rajan Raheja group holds a 50.6% stake in the company.
Q Statement of Risk
We believe the key risk for Hathway is poor execution. Other risks include
intense competition from DTH and regulatory risks. Placement costs could
decline to zero in case of complete digitisation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Hathway Cable & Datacom
Execution is key for re-rating
„ Event: stock underperforms on poor execution; digitisation imminent
Hathway’s stock price has underperformed the BSE Sensex 53% since February
2010, in our view mainly due to disappointing financial performance and poor
execution led by supply side constraints, resistance from local cable operators to
seed digital set top boxes, and increased competition from the direct-to-home
(DTH) platform. We believe mandatory digitisation is imminent, likely to be
implemented from 31 March 2012—we view this as a key catalyst.
„ Impact: significant reduction in earnings estimates due to poor execution
Given the slower execution in the past, we lower our estimates for FY12-13
significantly. We lower our FY12/13 EPS estimates from Rs4.06/5.51 to
Rs0.31/2.19. We revise our forecasts beyond FY12 assuming mandatory
digitisation will be implemented starting March 2012. We assume 82% of
Hathway’s 8.2m subscriber homes reach is under Phase I and II implementation,
and it will be able to retain 60% of undeclared subscriber base.
„ Action: maintain Buy; Hathway trading close to our worst-case value
We maintain our Buy rating as we believe Hathway will gain from digitisation. We
believe there is limited downside at current levels, if digitisation gets necessary
government approvals. We estimate a worst-case value of Rs100 per share based
on conservative assumptions, while our best-case estimate is Rs200.
„ Valuation: lower price target to Rs140 from Rs275
We switch our valuation methodology from DCF-based to EV/EBITDA multiplebased given limited earnings visibility in the medium term. We value Hathway at
9x FY13E EV/EBITDA, a 15% discount to broadcasters and a 35% discount to
Dish TV. We prefer Dish TV due to its better execution and earnings visibility.
Q Hathway Cable & Datacom
Hathway Cable & Datacom (Hathway) began operations in 1998. It is one of
India's leading cable multi-system operators with a pan-India presence. It
distributes cable TV on digital and analogue platforms, and provides broadband
services. Its cable services reaches 8.2m homes. It has a backend network of 71
analogue and 19 digital head-ends, and 15,000km of hybrid fibre-coaxial
network. The Rajan Raheja group holds a 50.6% stake in the company.
Q Statement of Risk
We believe the key risk for Hathway is poor execution. Other risks include
intense competition from DTH and regulatory risks. Placement costs could
decline to zero in case of complete digitisation.
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