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History and Business Model
Hinduja Ventures (HVL) earlier known as Hinduja TMT (name changed after
demerger of ITES and Hutch Sale), is in the business of incubating and nurturing
new business ventures. It currently operates in three major business segments -
Media, Real Estate and Treasury. Media is the company’s principal business
segment whereas real estate business relates to a 47-acre property at Bengaluru
and recently acquired 4.75 acres of land in Hyderabad. The treasury segment
comprises deployment of cash surplus in various avenues. In FY11, HVL invested
at par 8.95 of the equity of the newly formed Hinduja Leyland Finance Ltd, a startup
company engaged in leasing & hire purchase for automotive and capital goods.
It also intends to invest in the power generation sector through Hinduja Energy
India Ltd. Its subsidiary, IndusInd Media and Communications (IMCL) wherein HVL
holds 65.78% shares is the major media cable subsidiary of the Company.
Financials
Operating income has grown at a CAGR of 17.6% over FY08-11 while PAT has
grown at a CAGR of 16% over the same period. The media venture (IMCL) formed
major portion of total income (86%) in FY11 and the balance revenues were from
treasury operations. The media business reported a 24% rise in revenues while
profits grew from Rs 34 crores to Rs 67crores in FY11. In the treasury segment,
the Company booked profit of Rs 39.2 crores during the year.
Growth Drivers
• Among the top 3 MSOs: IMCL remains among the top 3 MSOs in the country
with the distinction of having the highest profitability in the Indian cable TV
industry. It operates under the brand INDIGITAL and INCABLE. It has a pan
India foot print and presence in 28 cities with an estimated reach of around 8.5
million subscribers. It has first mover advantage with established infrastructure
of 10,000 km of hybrid fiber optic network including 2,000 km of underground
fiber optic network.
• Industry growth drivers: Post digitization, the company expects the share of
MSOs to go up to 23% (from 5% earlier) in the total revenue pie which is
currently weighed down by under reporting by LCOs (retention of 80% of the
revenue pie under earlier model).
• Expected increase in ARPU: Mandatory digitization offers opportunity to
expand and grow exponentially as it is expected to pave way for triple-play
and more robust subscription revenues. Additionally, value-added services
such as video on demand (VoD) and pay per view, games, online shopping
and other interactive services will increase the ARPU.
• High dividend yield: It is a consistent dividend payer with payout of 51.8%
during FY11, the yield works out to be 3.8%.
• Vale unlocking potential in IMCL: With the need to raise more capital to
invest in digitization, network up-gradation, acquisition of subscribers & last
mile operators and to launch a new initiative for improving its Broadband
delivery, the Company is considering an option to raise equity by listing IMCL
in stock exchanges.
Valuations:
At CMP of Rs 320, the stock quotes at EV/EBIDTA of 8x its FY11 earnings which is
in line with Den Networks and at discount to Hathway Cables (12x). With value
unlocking potential in its media business and high dividend yield, the stock seems
attractive.
Technicals
HVL is moving in a long range channel with base near Rs 235 levels. This level has
multiple supports in history and would be crucial. The higher end of channel run
towards Rs 500+ levels which is obvious target for all longs which would be
initiated at lower end. Accumulation in this scrip should be done below Rs 300
levels.
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