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Hathway Cable & Datacom Ltd. (Hathway) is a leading Multi System Operator (MSO) in India with active
subscriber base of ~8.8mn. It is also the largest cable operator to offer broadband services in the country. With
Government mandate of compulsory digitization, we see significant change in cable industry dynamics with
substantial boost in revenues for MSOs on the back of complete disclosure of subscribers by Local Cable
Operators (LCOs). With strong network and wide presence across key states in the country, we believe Hathway
is suitably placed to capture the big digitization opportunity.
Digitization: a game changer
Hathway has total universe of ~8.8mn active subscribers but
receives the revenue share of ~20% of subscribers due to significant
underreporting of subscribers by LCOs leading to major loss of
revenues. With implementation of mandatory digitization of cable
TVs, the company's subscription revenues (INR 3,227; 40% of
consolidated FY11 revenues) are expected to get a big boost with
complete disclosure of number of subscribers. We expect
subscription revenues to rise by 3.65x FY11 revenues to INR
11,778mn in FY14. Carriage & Placement (C&P) revenues (46% of
FY11 revenues) are expected to see decline with implementation of
digitization due to increase in channel carrying capacity in digital
mode. Despite estimated 40% decline in C&P revenues over FY12-
14, overall cable TV revenues (Subscription + C&P) of the company
are expected to grow at 3 year CAGR of 25.7% during FY11-14 to INR
14,926mn on the back of huge jump in subscription income.
Strong player
Hathway has 0.6mn primary subscribers and 8.2mn secondary
subscribers. Company has highest number of paying subscribers
(~1.9mn) among all the MSOs in the country. Company's network is
spread across India with presence in 140 cities and towns. Company
is supported by 71 analogue and 20 digital headends and has
15,000Km of cable network. Hathway in the past 3 years has
successfully acquired secondary subscribers through stake
purchase in more than 21 MSOs to consolidate its market presence
and increase its regional spread. Secondary point acquisition
helped the company augment its subscriber base and get healthy
carriage fee revenues. It acquired majority stake in Bhasker Multinet
(Cable TV arm of Dainik Bhaskar Group), 50% stake in largest MSO
in Gujarat - Gujarat Telelinks and few other MSOs in Maharashtra.
Gujarat Telelinks contributed 26.5% in consolidated FY11 revenues.
Broadband services: an additional growth driver
Hathway is the largest cable operator to offer broadband services
which accounted for 14.33% of consolidated FY11 revenues. The
segment recorded revenues of INR 1,475mn in FY11 at 3 year CAGR
of 19.93% and delivered much higher ARPU (INR 308 for Q3FY12)
with EBITDA margin of ~35%. Company has seen increase in its
broadband subscriber base from 0.23mn in FY08 to ~0.4mn
currently at a CAGR of 15%. We expect this segment to report
revenues of INR 2,153mn in FY14 at a 3 year CAGR of 19.38% on
the back of bundling opportunity with cable TV after digitization.
Outlook & Valuation
Structural changes in cable distribution with the implementation
of digitization open long term opportunities for the industry.
Hathway, having largest paying subscriber base of 1.9mn, is well
poised to be the major beneficiary from mandatory digitization.
We believe Hathway's strong network with presence in key markets
would enable the company to efficiently monetise the digitization
opportunity. Further value added services and broadband offering
would provide growth to overall ARPU. However, due to uncertainty
regarding smooth implementation of digitization and recent sharp
run-up in the stock price on talks of increase in FDI limit (for DTH
players and MSOs) from current 49% to 74%, we have no rating on
the stock at present.
Digitization Explained
Technically, Pay TV industry is broadly classified into digital and
analog technology. Analog cable accounts for 70% of total Pay TV
connections of 127mn in 2011 (Source: MPA 2011). In traditional
analog technology, the signals from the various satellites are
received at the Multi System Operator (MSO) end with the use of
multiple high end dish antennas. These signals are then multiplexed
at MSO end and then transmitted to homes using coaxial cables.
These signals are amplified by placing signal amplifiers at strategic
points in the cable network. The whole network is managed by Local
Cable Operators (LCOs) authorized by MSO according to the area
divisions. With advent of digital technology and implementation
of digitization, the user needs to install a Set Top Box (STB) at home.
The signal distribution model still remains the same. But the signal
is now encrypted in digital format and can only be decrypted to
analog format by STB. This considerably reduces bandwidth space
required to carry signal from MSO end to the end consumer and
thereby increases the channel carrying capacity by ~20x.
Also, analog cable system is un-addressable whereas digital
system is addressable. Because of former, many LCOs have
been significantly underreporting the number of subscribers
leading to lower revenue disclosure. This leads to loss of
revenues to MSOs and broadcasters and to the government in
the form of taxes.
Digitization was initiated in 2003 but failed for 7 years due
to unwillingness of LCO, weaker MSOs and broadcaster
revenue model being dependent on ads. However, LCOs have
been forthcoming now with the real threat from DTH (Direct to
Home) players. MSOs have also grown in size through
inorganic route and raising funds through IPOs. Further,
broadcaster's ad growth is stabilizing (owing to cost cutting
measures adopted by many companies in order to contain
their margin erosion in high inflationary environment)
leading to focus on subscription income.
Favourable regulatory environment also paved way for digitization
to be a reality. According to the notification of Ministry &
Broadcasting (MIB) dated 11th Nov 2011, all pay TV connections
have to be switched from analog technology to digital technology
in the scheduled manner by December, 2014. Following is the
digitization time-line set by MIB:
Phase Region Sunset Date
Phase I 4 Metros: Delhi, Mumbai, Kolkata, Chennai 30-Jun-12
Phase II All 1mn+ cities 31-Mar-13
Phase III All urban areas (Municipal Corps/Muncipalities) 30-Sep-14
Phase IV Rest of India 31-Dec-14
Source: MIB, SPA Research
Benefits of Digitization
For Consumers
- Better viewing experience in terms of digital quality as against
current analogue picture quality. The major advantage comes
in the form of crystal clear video and audio
- As mentioned above, digital signals require less broadband
width vis-à-vis analog. With digital technology it is possible
to carry ~2k channels as against just ~90 channels in analog
technology. Digital technology therefore increases number of
channels for consumers to watch
- With digital technology, it is possible for consumers to pay
only for channels they want to watch
For Broadcaster and MSO
- Transparency in terms of number of subscribers and therefore
opportunity to capture due share of revenues from LCO
resulting in higher revenues
- Ability to increase average revenue per user per month (ARPU)
and reduced cost on back of clear customer segmentation and
value added service (VAS)
For Government
- Transparency resulting in higher tax inflow
- Efficient use of scarce broadband resources
Only stakeholder to get impacted would be LCOs in the short term
due to loss of control on disclosure of subscribers and related
revenues. However, they would be benefitted in the long term with
increased revenue from second TV at home which is not charged
currently to subscriber (though ARPU from second TV would be
lower than ARPU for the first TV) and also from growth in ARPU.
Key Requirements for digital cable TV:
1) A conditional access system (CAS) like NDS that enables and
secures the enhanced TV experience
2) A digital headend (at MSO end) that processes and secures an
enormous quantity of information
3) A set-top-box (STB) at the consumer end with installed software
chip, that can be tuned to the digital signal sent out by headend
Installation of STB at consumer premises takes very less time of
~15mins. Process involves connecting STB with already existing cable
connection. STB is then connected to TV with another cable wire.
Awaited Regulations by the Government
Cable TV rule to decide cap on payment by customer for free to air
(FTA) channels beside revenue sharing between broadcaster, MSO
and LCO. There is not much clarity on fee cap on FTA channels.
However, as per industry sources in terms of revenue share, it
would be such that atleast 30% of subscription income would be
earned by MSOs while remaining would be divided between LCOs
and broadcasters
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hathway Cable & Datacom Ltd. (Hathway) is a leading Multi System Operator (MSO) in India with active
subscriber base of ~8.8mn. It is also the largest cable operator to offer broadband services in the country. With
Government mandate of compulsory digitization, we see significant change in cable industry dynamics with
substantial boost in revenues for MSOs on the back of complete disclosure of subscribers by Local Cable
Operators (LCOs). With strong network and wide presence across key states in the country, we believe Hathway
is suitably placed to capture the big digitization opportunity.
Digitization: a game changer
Hathway has total universe of ~8.8mn active subscribers but
receives the revenue share of ~20% of subscribers due to significant
underreporting of subscribers by LCOs leading to major loss of
revenues. With implementation of mandatory digitization of cable
TVs, the company's subscription revenues (INR 3,227; 40% of
consolidated FY11 revenues) are expected to get a big boost with
complete disclosure of number of subscribers. We expect
subscription revenues to rise by 3.65x FY11 revenues to INR
11,778mn in FY14. Carriage & Placement (C&P) revenues (46% of
FY11 revenues) are expected to see decline with implementation of
digitization due to increase in channel carrying capacity in digital
mode. Despite estimated 40% decline in C&P revenues over FY12-
14, overall cable TV revenues (Subscription + C&P) of the company
are expected to grow at 3 year CAGR of 25.7% during FY11-14 to INR
14,926mn on the back of huge jump in subscription income.
Strong player
Hathway has 0.6mn primary subscribers and 8.2mn secondary
subscribers. Company has highest number of paying subscribers
(~1.9mn) among all the MSOs in the country. Company's network is
spread across India with presence in 140 cities and towns. Company
is supported by 71 analogue and 20 digital headends and has
15,000Km of cable network. Hathway in the past 3 years has
successfully acquired secondary subscribers through stake
purchase in more than 21 MSOs to consolidate its market presence
and increase its regional spread. Secondary point acquisition
helped the company augment its subscriber base and get healthy
carriage fee revenues. It acquired majority stake in Bhasker Multinet
(Cable TV arm of Dainik Bhaskar Group), 50% stake in largest MSO
in Gujarat - Gujarat Telelinks and few other MSOs in Maharashtra.
Gujarat Telelinks contributed 26.5% in consolidated FY11 revenues.
Broadband services: an additional growth driver
Hathway is the largest cable operator to offer broadband services
which accounted for 14.33% of consolidated FY11 revenues. The
segment recorded revenues of INR 1,475mn in FY11 at 3 year CAGR
of 19.93% and delivered much higher ARPU (INR 308 for Q3FY12)
with EBITDA margin of ~35%. Company has seen increase in its
broadband subscriber base from 0.23mn in FY08 to ~0.4mn
currently at a CAGR of 15%. We expect this segment to report
revenues of INR 2,153mn in FY14 at a 3 year CAGR of 19.38% on
the back of bundling opportunity with cable TV after digitization.
Outlook & Valuation
Structural changes in cable distribution with the implementation
of digitization open long term opportunities for the industry.
Hathway, having largest paying subscriber base of 1.9mn, is well
poised to be the major beneficiary from mandatory digitization.
We believe Hathway's strong network with presence in key markets
would enable the company to efficiently monetise the digitization
opportunity. Further value added services and broadband offering
would provide growth to overall ARPU. However, due to uncertainty
regarding smooth implementation of digitization and recent sharp
run-up in the stock price on talks of increase in FDI limit (for DTH
players and MSOs) from current 49% to 74%, we have no rating on
the stock at present.
Digitization Explained
Technically, Pay TV industry is broadly classified into digital and
analog technology. Analog cable accounts for 70% of total Pay TV
connections of 127mn in 2011 (Source: MPA 2011). In traditional
analog technology, the signals from the various satellites are
received at the Multi System Operator (MSO) end with the use of
multiple high end dish antennas. These signals are then multiplexed
at MSO end and then transmitted to homes using coaxial cables.
These signals are amplified by placing signal amplifiers at strategic
points in the cable network. The whole network is managed by Local
Cable Operators (LCOs) authorized by MSO according to the area
divisions. With advent of digital technology and implementation
of digitization, the user needs to install a Set Top Box (STB) at home.
The signal distribution model still remains the same. But the signal
is now encrypted in digital format and can only be decrypted to
analog format by STB. This considerably reduces bandwidth space
required to carry signal from MSO end to the end consumer and
thereby increases the channel carrying capacity by ~20x.
Also, analog cable system is un-addressable whereas digital
system is addressable. Because of former, many LCOs have
been significantly underreporting the number of subscribers
leading to lower revenue disclosure. This leads to loss of
revenues to MSOs and broadcasters and to the government in
the form of taxes.
Digitization was initiated in 2003 but failed for 7 years due
to unwillingness of LCO, weaker MSOs and broadcaster
revenue model being dependent on ads. However, LCOs have
been forthcoming now with the real threat from DTH (Direct to
Home) players. MSOs have also grown in size through
inorganic route and raising funds through IPOs. Further,
broadcaster's ad growth is stabilizing (owing to cost cutting
measures adopted by many companies in order to contain
their margin erosion in high inflationary environment)
leading to focus on subscription income.
Favourable regulatory environment also paved way for digitization
to be a reality. According to the notification of Ministry &
Broadcasting (MIB) dated 11th Nov 2011, all pay TV connections
have to be switched from analog technology to digital technology
in the scheduled manner by December, 2014. Following is the
digitization time-line set by MIB:
Phase Region Sunset Date
Phase I 4 Metros: Delhi, Mumbai, Kolkata, Chennai 30-Jun-12
Phase II All 1mn+ cities 31-Mar-13
Phase III All urban areas (Municipal Corps/Muncipalities) 30-Sep-14
Phase IV Rest of India 31-Dec-14
Source: MIB, SPA Research
Benefits of Digitization
For Consumers
- Better viewing experience in terms of digital quality as against
current analogue picture quality. The major advantage comes
in the form of crystal clear video and audio
- As mentioned above, digital signals require less broadband
width vis-à-vis analog. With digital technology it is possible
to carry ~2k channels as against just ~90 channels in analog
technology. Digital technology therefore increases number of
channels for consumers to watch
- With digital technology, it is possible for consumers to pay
only for channels they want to watch
For Broadcaster and MSO
- Transparency in terms of number of subscribers and therefore
opportunity to capture due share of revenues from LCO
resulting in higher revenues
- Ability to increase average revenue per user per month (ARPU)
and reduced cost on back of clear customer segmentation and
value added service (VAS)
For Government
- Transparency resulting in higher tax inflow
- Efficient use of scarce broadband resources
Only stakeholder to get impacted would be LCOs in the short term
due to loss of control on disclosure of subscribers and related
revenues. However, they would be benefitted in the long term with
increased revenue from second TV at home which is not charged
currently to subscriber (though ARPU from second TV would be
lower than ARPU for the first TV) and also from growth in ARPU.
Key Requirements for digital cable TV:
1) A conditional access system (CAS) like NDS that enables and
secures the enhanced TV experience
2) A digital headend (at MSO end) that processes and secures an
enormous quantity of information
3) A set-top-box (STB) at the consumer end with installed software
chip, that can be tuned to the digital signal sent out by headend
Installation of STB at consumer premises takes very less time of
~15mins. Process involves connecting STB with already existing cable
connection. STB is then connected to TV with another cable wire.
Awaited Regulations by the Government
Cable TV rule to decide cap on payment by customer for free to air
(FTA) channels beside revenue sharing between broadcaster, MSO
and LCO. There is not much clarity on fee cap on FTA channels.
However, as per industry sources in terms of revenue share, it
would be such that atleast 30% of subscription income would be
earned by MSOs while remaining would be divided between LCOs
and broadcasters
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