FDI cap raise to generate interest in Cable & Satellite Industry… :: ICICI Securities

FDI cap raise to generate interest in sector…
Foreign funds to flow in!!!
The government has increased the FDI limit in the broadcasting carriage
services including MSOs and DTH companies to 74% from 49%. Total
49% of the revised FDI cap would be through the automatic route while
beyond that FIPB approval would be required. Also, while calculating
FDI, FIIs, FCCBs, ADRs, GDRs and stocks held by NRIs would also be
included. This move is positive for the industry as previously foreign
companies would have to take FIPB approval for investing above 10% in
a company. However, now through the automatic route a foreign
company could invest up to 49%. Also, now a foreign player could have
a controlling stake in a distributor, which makes the industry more
attractive. It is difficult to predict right now as to what amount of funds
could flow into the distribution industry and the timeline of it. The
sentiment, however, remains positive for the sector

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Digitisation slows down… but light ahead!!!
According to the I&B ministry, ~68% of the subscribers in Phase I have
been digitised with Mumbai leading the pack with 95% of its subscribers
digitised, followed by Kolkata at 67%, Delhi at 53% and Chennai at 49%.
Hathway had digitised ~1.1 million of its subscriber base of 2.2 million
in the metros by August end. The management indicated that the pace
of digitisation has been slow in the last two months. However, the
government along with other stakeholders has been taking initiatives to
stick to the revised deadline of October 31 for Phase I. Broadcasters
have blacked out telecast for two minutes in metros to make consumers
aware of digitisation. Also, the five national level MSOs have jointly
been running ad campaigns. Even DTH players have been going
aggressive with their campaigns. We believe that digitisation will gain
pace as the deadline approaches and consumers are more aware.
However, the availability of set top boxes and LCO cooperation remain
major concerns for the MSO industry overall. Hathway, on the flip side,
is sitting on an additional inventory of ~1 million set top boxes, which is
sufficient to digitise its subscriber base in the metros.
Time to buy Hathway!!!
The increase in the FDI cap in the sector would increase interest in the
MSO segment. Any potential deal in the industry could lead to sector re
rating. Easier access to FDI would help the industry with the
investments which has till now been scarce. The management of
Hathway has indicated that the current deadline may not be revised for
Phase I, which is a positive for the industry. Also, the carriage fees,
which were expected to reduce  by ~50%, would now fall less than
expected due to tiering fees. The company has already negotiated the
content agreement with most distributors including Media Pro, MSM,
India Cast and ESPN. The content cost is within the expected lines. In
line with the improved scenario, we increase our target price on
Hathway to | 250 and rate the stock as BUY.

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