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Hathway Cable & Datacom
We recently met with the management of Hathway (HATH IN) to understand
the outlook for the Indian cable players, business drivers of the company, and
its positioning vs. the offerings of other vendors.
The company is promoted by the Raheja group, and global media
conglomerate Newscorp holds a 16% stake in the company.
Presence in CAS areas positions as leading digital player
Over 1 million digital cable subscribers. Hathway is one of the largest
cable TV providers in the country, having a subscriber base of ~8.5m. The
company’s digital subscriber base stands at close to 1.4m – representing 18%
of its subs base. This is higher than that of its closest competitor Den
Networks (DEN IN, Rs42, NR), which has 7% of its subscriber base on a
digital platform. The reason for this performance is Hathway’s strong position
in the Mumbai and Delhi markets, which have been CAS compliant since
2007.
Revenue mix equally split between subs and carriage & placement. Like
most cable operators, Hathway has equal revenue share flowing in from
subscription revenues from customers and carriage and placement fees
charged to TV broadcasters. Though the digitisation theme is likely to play out
for cable operators as well, we think the pressure on carriage and placement
fees might hurt the profitability of the cable operators.
Bundling strategy might not yield desired result
Low broadband penetration offer opportunity… India’s internet penetration
is extremely low at ~2%. Hathway believes that it is in a unique position to
provide both TV and internet services by leveraging the last mile connectivity.
We recognise the latent demand for internet services, but do not think the
bundling strategy is an effective marketing tool to increase digital cable uptick.
…but dilutes the focus on cable in capital scarce market. The other point
of contention with broadband expansion is prioritising the use of cash in
difficult markets. For digital cable to flourish in India, we believe the
consolidation of LCOs (Local Cable Operators) and the seeding of set top
boxes is crucial.
Balance sheet cushioned from IPO cash infusion. Hathway raised
Rs4.8bn from its IPO in February 2010. The company has spent Rs113m on
customer acquisitions and Rs7bn on digital capex. The current net cash on
the balance sheet stands at ~Rs1bn.
Risks & valuation
Scale advantage of DTH players missing. Hathway has one of the largest
cable subscriber bases in the industry. Even so, at 1.4m digital customers, the
DTH operators have established a commendable lead in the space. We
recognise that the valuation differential between Dish TV (DITV IN, Rs81.45,
Outperform, TP: Rs95.00) (16x FY12E EV/EBITDA) and Hathway (6x
EV/EBITDA, based on Bloomberg estimates) is stark, but we believe that the
industry structure favours the DTH platform.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hathway Cable & Datacom
We recently met with the management of Hathway (HATH IN) to understand
the outlook for the Indian cable players, business drivers of the company, and
its positioning vs. the offerings of other vendors.
The company is promoted by the Raheja group, and global media
conglomerate Newscorp holds a 16% stake in the company.
Presence in CAS areas positions as leading digital player
Over 1 million digital cable subscribers. Hathway is one of the largest
cable TV providers in the country, having a subscriber base of ~8.5m. The
company’s digital subscriber base stands at close to 1.4m – representing 18%
of its subs base. This is higher than that of its closest competitor Den
Networks (DEN IN, Rs42, NR), which has 7% of its subscriber base on a
digital platform. The reason for this performance is Hathway’s strong position
in the Mumbai and Delhi markets, which have been CAS compliant since
2007.
Revenue mix equally split between subs and carriage & placement. Like
most cable operators, Hathway has equal revenue share flowing in from
subscription revenues from customers and carriage and placement fees
charged to TV broadcasters. Though the digitisation theme is likely to play out
for cable operators as well, we think the pressure on carriage and placement
fees might hurt the profitability of the cable operators.
Bundling strategy might not yield desired result
Low broadband penetration offer opportunity… India’s internet penetration
is extremely low at ~2%. Hathway believes that it is in a unique position to
provide both TV and internet services by leveraging the last mile connectivity.
We recognise the latent demand for internet services, but do not think the
bundling strategy is an effective marketing tool to increase digital cable uptick.
…but dilutes the focus on cable in capital scarce market. The other point
of contention with broadband expansion is prioritising the use of cash in
difficult markets. For digital cable to flourish in India, we believe the
consolidation of LCOs (Local Cable Operators) and the seeding of set top
boxes is crucial.
Balance sheet cushioned from IPO cash infusion. Hathway raised
Rs4.8bn from its IPO in February 2010. The company has spent Rs113m on
customer acquisitions and Rs7bn on digital capex. The current net cash on
the balance sheet stands at ~Rs1bn.
Risks & valuation
Scale advantage of DTH players missing. Hathway has one of the largest
cable subscriber bases in the industry. Even so, at 1.4m digital customers, the
DTH operators have established a commendable lead in the space. We
recognise that the valuation differential between Dish TV (DITV IN, Rs81.45,
Outperform, TP: Rs95.00) (16x FY12E EV/EBITDA) and Hathway (6x
EV/EBITDA, based on Bloomberg estimates) is stark, but we believe that the
industry structure favours the DTH platform.
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