Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hathway Cable & Datacom- all set to ride the digitisation wave
Hathway, the MSO with largest paying subscriber base of 1.8mn, is all set to
be the major beneficiary from compulsory digitisation. We expect a
turnaround in the business with strong traction in its profitability post Phase I
and Phase II of the sunset clause of mandatory digitisation. We believe changing
business strategy, strong execution capabilities and market leadership in the
metros would enable the company to monetise the digitisation opportunity.
We initiate coverage on the company with a ‘BUY’ recommendation on the
stock with a target price of Rs151(7.5x EV/EBITDA FY14E).
Paying subscriber base to augment 41% CAGR over FY12-FY14E
Currently Hathway reaches 8.7mn homes of which their digital subscriber base is
1.7mn with 40% market share in Mumbai and 30% in Delhi. We believe digitisation to
be a big kicker for MSOs like Hathway which will enable them to increase the revenue
and profitability manifold. With improved subscriber declaration post phase I and phase
II, the business is all set for a turnaround. We believe the company would be able to
capture 2.8mn paying subscriber post Phase I (32% of its current subscriber base)
and 5mn post Phase II (58% of its current subscriber base).
Blended offering allows for better Broadband penetration
The company has leveraged its cable infrastructure to provide Broadband services,
a high gross profit margin business. With 0.4mn broadband subscribers, this segment
contributes 14% to total revenue with 70% gross margins. Cross selling of broadband
to existing digital cable subscribers will help increase broadband penetration offering
attractive bundled packages to customers. We expect the company to achieve
0.48mn broadband subscriber base by FY13E and 0.53mn by FY14E.
Higher operating leverage to expand margins and thus profitability
We expect first round of digitisation gains to flow in with marked improvement in
revenue growth and less disproportionate increase in operational cost. With improved
paid subscriber base and faster growth in broadband business, we expect revenue
to show 20% CAGR (FY11-FY14E). With high operating leverage, we expect OPM
to expand to 23% by FY14E from 17% in FY11. We expect resultant PAT to be
868mn in FY14E from a loss of Rs236mn in FY11.
VALUATIONS & RECOMMENDATION
At CMP, the stock is trading at 7.5x FY13E EV/EBIDTA and 5.8x FY14E EV/
EBIDTA. With digitisation a reality, sustained leadership in its key markets, improved
business dynamics of cable and broadband businesses and clarity in profitability
makes Hathway a very attractive play in digitisation space. We initiate coverage on
the Company with a ‘BUY’ recommendation on the stock with a target price of
Rs151(7.5x EV/EBITDA FY14E). We have valued the stock on average of DCF,
EV/Subscribers and EV/EBITDA(taking Comcast and Time Warner as peers)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hathway Cable & Datacom- all set to ride the digitisation wave
Hathway, the MSO with largest paying subscriber base of 1.8mn, is all set to
be the major beneficiary from compulsory digitisation. We expect a
turnaround in the business with strong traction in its profitability post Phase I
and Phase II of the sunset clause of mandatory digitisation. We believe changing
business strategy, strong execution capabilities and market leadership in the
metros would enable the company to monetise the digitisation opportunity.
We initiate coverage on the company with a ‘BUY’ recommendation on the
stock with a target price of Rs151(7.5x EV/EBITDA FY14E).
Paying subscriber base to augment 41% CAGR over FY12-FY14E
Currently Hathway reaches 8.7mn homes of which their digital subscriber base is
1.7mn with 40% market share in Mumbai and 30% in Delhi. We believe digitisation to
be a big kicker for MSOs like Hathway which will enable them to increase the revenue
and profitability manifold. With improved subscriber declaration post phase I and phase
II, the business is all set for a turnaround. We believe the company would be able to
capture 2.8mn paying subscriber post Phase I (32% of its current subscriber base)
and 5mn post Phase II (58% of its current subscriber base).
Blended offering allows for better Broadband penetration
The company has leveraged its cable infrastructure to provide Broadband services,
a high gross profit margin business. With 0.4mn broadband subscribers, this segment
contributes 14% to total revenue with 70% gross margins. Cross selling of broadband
to existing digital cable subscribers will help increase broadband penetration offering
attractive bundled packages to customers. We expect the company to achieve
0.48mn broadband subscriber base by FY13E and 0.53mn by FY14E.
Higher operating leverage to expand margins and thus profitability
We expect first round of digitisation gains to flow in with marked improvement in
revenue growth and less disproportionate increase in operational cost. With improved
paid subscriber base and faster growth in broadband business, we expect revenue
to show 20% CAGR (FY11-FY14E). With high operating leverage, we expect OPM
to expand to 23% by FY14E from 17% in FY11. We expect resultant PAT to be
868mn in FY14E from a loss of Rs236mn in FY11.
VALUATIONS & RECOMMENDATION
At CMP, the stock is trading at 7.5x FY13E EV/EBIDTA and 5.8x FY14E EV/
EBIDTA. With digitisation a reality, sustained leadership in its key markets, improved
business dynamics of cable and broadband businesses and clarity in profitability
makes Hathway a very attractive play in digitisation space. We initiate coverage on
the Company with a ‘BUY’ recommendation on the stock with a target price of
Rs151(7.5x EV/EBITDA FY14E). We have valued the stock on average of DCF,
EV/Subscribers and EV/EBITDA(taking Comcast and Time Warner as peers)
No comments:
Post a Comment