Hathway (Buy, PO Rs140) 􀂄 BofA Merrill Lynch,

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Hathway (Buy, PO Rs140)
􀂄 We forecast revenue to jump 2x and EBIT to jump10x over the next 4-5
years, led by implementation of the cable digitalization Bill. The Bill was
recently passed through an ordinance and has been introduced in Parliament
for discussion and approval.
􀂄 We expect Hathway to benefit the most, given its strong market share in
metro cities (Delhi 25%) and Mumbai (40%) and Tier 2 cities. Nearly 80% of
Hathway’s cable TV subscribers reside in Phase I/ Phase II locations, which
have been earmarked to be digitalized by March 2013.
􀂄 We expect the stock to re-rate as clarity emerges on its revenue-sharing
agreement with local cable operators (LCOs). We factored in 25% revenue to
be shared with LCOs in our estimates.
􀂄 Hathway should also gain from its strong presence in the cable broadband
business. The company intends to offer bundled services (cable and
broadband) to its subscribers, which will be a key differentiator.
􀂄 The stock trades at 6x our EV/EBITDA in FY13E vs. 11x for Dish TV. While
we have raise target multiples to 7x, it has the potential to re-rate to 9x as
clarity emerges on the digitalization Bill’s clearance and the revenue-sharing
agreement with local cable operators.