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http://content.icicidirect.com/mailimages/ICICIdirect_HathwayCables_InitiatingCoverage.pdf
G e t ! S e t ! D i g i t i s e ! ! !
Hathway Cable & Datacom, one of the largest MSOs in India with a well
spread distribution network and adequate infrastructure, is perfectly
placed to be a major beneficiary of mandatory digitisation. About 85% of
its 8.9 million cable subscribers would be covered in the first two phases
of digitisation. Assuming 15% churn to DTH, we expect Hathway to
witness 1.9x growth in revenues, 2.0x growth in EBITDA and become PAT
positive by FY14E, led by the mandatory digitisation drive resulting in
revenue paying subscribers increasing ~4x in the next two years. Key risk
would involve price war against DTH operators and delay in digitisation.
We believe the growth delta achieved by accounting for all subscribers
(currently ~85% under-declaration) far outweighs the concerns. We are
initiating coverage on the stock with a BUY rating.
C&S industry to register robust growth…
The television industry has grown by leaps and bounds in the recent past
at a rate better than the overall media and entertainment industry. It is
expected to grow at a CAGR of 17.1% to | 618 billion by 2015E, led by a
subscription revenue CAGR of 18.4% to | 421 billion and an
advertisement growth of 14.2% to | 197 billion. Going forward, the C&S
industry will benefit from moving towards 100% declaration, increasing
pay TV penetration and higher ARPU led by uptake in HD channels, VOD
and interactive services.
Revenue to grow 1.9x; EBITDA 2.0x…
With digitisation, underreporting will cease and Hathway will witness a
4.3x jump in the revenue paying subscribers from 1.6 million in FY11 to
7.0 million in FY14E. Backed by this, subscription income is expected to
grow 3.3x from FY11-14. Carriage revenue, on the other hand, will halve
by FY14 due to increase in carrying capacity. While total revenues are
expected to increase 1.9x, the EBITDA is expected to increase 2.0x.
Valuations
Hathway being one of the top MSOs is all set to be one of the major
beneficiaries of digitisation. Thanks to its voluntary digitisation, the
company already has 1.9 million digital subscribers and 20 digital
headends. We expect revenues to grow at a CAGR of 22.8% (FY11-14E)
and EBITDA to double by FY14E. Using DCF methodology and assuming
a WACC of 13.7%, revenue CAGR of 19.1% over FY11-20, terminal
growth of 4% thereon, we have arrived at a target price of | 200. Our
target price implies an upside of 21%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_HathwayCables_InitiatingCoverage.pdf
G e t ! S e t ! D i g i t i s e ! ! !
Hathway Cable & Datacom, one of the largest MSOs in India with a well
spread distribution network and adequate infrastructure, is perfectly
placed to be a major beneficiary of mandatory digitisation. About 85% of
its 8.9 million cable subscribers would be covered in the first two phases
of digitisation. Assuming 15% churn to DTH, we expect Hathway to
witness 1.9x growth in revenues, 2.0x growth in EBITDA and become PAT
positive by FY14E, led by the mandatory digitisation drive resulting in
revenue paying subscribers increasing ~4x in the next two years. Key risk
would involve price war against DTH operators and delay in digitisation.
We believe the growth delta achieved by accounting for all subscribers
(currently ~85% under-declaration) far outweighs the concerns. We are
initiating coverage on the stock with a BUY rating.
C&S industry to register robust growth…
The television industry has grown by leaps and bounds in the recent past
at a rate better than the overall media and entertainment industry. It is
expected to grow at a CAGR of 17.1% to | 618 billion by 2015E, led by a
subscription revenue CAGR of 18.4% to | 421 billion and an
advertisement growth of 14.2% to | 197 billion. Going forward, the C&S
industry will benefit from moving towards 100% declaration, increasing
pay TV penetration and higher ARPU led by uptake in HD channels, VOD
and interactive services.
Revenue to grow 1.9x; EBITDA 2.0x…
With digitisation, underreporting will cease and Hathway will witness a
4.3x jump in the revenue paying subscribers from 1.6 million in FY11 to
7.0 million in FY14E. Backed by this, subscription income is expected to
grow 3.3x from FY11-14. Carriage revenue, on the other hand, will halve
by FY14 due to increase in carrying capacity. While total revenues are
expected to increase 1.9x, the EBITDA is expected to increase 2.0x.
Valuations
Hathway being one of the top MSOs is all set to be one of the major
beneficiaries of digitisation. Thanks to its voluntary digitisation, the
company already has 1.9 million digital subscribers and 20 digital
headends. We expect revenues to grow at a CAGR of 22.8% (FY11-14E)
and EBITDA to double by FY14E. Using DCF methodology and assuming
a WACC of 13.7%, revenue CAGR of 19.1% over FY11-20, terminal
growth of 4% thereon, we have arrived at a target price of | 200. Our
target price implies an upside of 21%.
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