Hathway Cable & Datacom (Hathway) is well equipped for the impending June 30 deadline for Phase 1 of digitisation. As per Ministry of Information & Broadcasting (MIB) data, only ~24% (2.9mn) set top boxes have been seeded, out of the total 12.3mn required. Out of these, Hathway alone has seeded 0.9mn boxes (40% penetration of its universe) and is the best prepared MSO. Even though the government, as of now, remains firm on meeting the Phase 1 deadline, we expect a ~3-6 months’ delay. This delay is a minor hiccup as major stakeholders remain committed to digitisation. Also, Hathway will now offer 20 HD channels, one of the highest amongst both MSOs and DTH operators, which will aid digitisation and improve ARPU. Though the stock has outperformed the Sensex ~43% since our initiating coverage report on January 17, 2012, we remain positive on the stock over the longer term. Maintain ‘BUY’.
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Best equipped MSO for Phase 1
Hathway leads MSOs considerably in terms of preparedness for Phase 1. Its digital penetration stands at 29% in Delhi, 58% in Mumbai and 28% in Kolkata. DEN’s total digital penetration stands at 21.5% of its universe with 26% in Delhi, 22% in Mumbai and 7.5% in Kolkata. WWIL has achieved total digital penetration of 17% with 11.7% in Delhi, 9.6% in Mumbai and 23% in Kolkata. IMCL has achieved total digital penetration of 26%, with 10% in Delhi and 37% in Mumbai.
Attractive HD pricing along with high number of HD channels
The operator will now showcase 20 HD channels at an attractive annual price of INR6,666, including the price of set top box. Initially, the 20 will be available in Mumbai, Pune, Delhi, Hyderabad and Bengaluru only.
Outlook and valuations: Positive over long term; maintain ‘BUY’
Hathway is the best placed cable company to capitalise on the huge digitisation opportunity. Our key concerns are a weak brand against DTH players and delay in on-ground implementation of digitisation. Currently, the stock is trading at EV/EBITDA of 14.1x and 12.2x FY13E and FY14E, respectively. We maintain ‘BUY’ recommendation and rate it ‘Sector Outperformer’.
Regards,
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