Hathway Cable & Datacom (HATH IN, INR 233, Buy)
We recently interacted with Mr. G Subramaniam, CFO, Hathway Cable & Datacom (Hathway). The company is confident of seeding boxes within the October 31 deadline. It is well placed for digitisation as 75% of its subscriber base lies in Phase 1 & 2 areas. However, the full benefit of digitisation on subscription revenues in Phase 1 will be apparent only from Q1FY14 (lag of two quarters). With rapid digital subscriber additions, Hathway continues to execute the best amongst all MSOs. Maintain ‘BUY’.
ARPUs to surge post digitisation
Hathway intends to seed ~2.2mn boxes (1.2mn done) in Phase 1 cities of Mumbai, Delhi and Kolkata. Once the entire digitisation process is complete, ARPUs are expected to surge to INR225 for Hathway vis-à-vis current secondary ARPU of INR160. The company has chalked out a strategy for its broadband business and intends to invest further in it post digitisation. As per management, apart from the issue of branding where MSOs lose out to DTH players, cable technology is superior to DTH and digital cable subscriber additions will outnumber DTH additions.
Phase 1 digitisation on track in 3 cities
Digitisation has been progressing at a rapid pace in Mumbai, followed by Kolkata and Delhi, while Chennai remains a laggard. Currently, Hathway has sufficient inventory of boxes (0.5mn). Recently, the subscription packs have been made public by the company. The Ministry of Information & Broadcasting (MIB) has upped the ante in terms of government-run publicity campaigns in electronic and print media.
Outlook and valuations: Execution remains key; maintain ‘BUY’
Hathway is the best placed MSO to capitalise on the huge digitisation opportunity. Due to the ongoing digitisation process, the company’s EBITDA is likely to fluctuate on account of call centre expenses, ad expenses and LCO commissions. Hence, we value Hathway based on EV/sales multiple. Currently, the stock is trading at EV/sales of 3.3x and 2.7x FY13E and FY14E, respectively. Maintain ‘BUY/Sector Outperformer’.
Regards,
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