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HATHWAY CABLE & DATACOM
Expanding bandwidth
India Equity Research| Media
We recently met Mr. Jagdish Kumar, MD & CEO, and Mr. G Subramaniam, EDELWEISS 4D RATINGS
CFO, Hathway Cable & Datacom (Hathway). The management stated that Absolute Rating BUY
as a result of greater clarity on the number of cable households and Rating Relative to Sector Outperformer
expansion in new areas during digitisation, the company’s universe has Risk Rating Relative to Sector Medium
expanded to ~10.5mn subscribers (including multi‐TV households) from Sector Relative to Market Overweight
~9mn earlier. It has seeded ~6.5mn boxes so far (mostly in Phases 1 and
2). Post TRAI’s recent diktat on the KYC process in Mumbai and Delhi,
MARKET DATA (R: HAWY.BO, B: HATH IN)
Hathway has been scurrying to meet the June 25, 2013 deadline (only
CMP : INR 271
~60% complete). We expect success in KYC data and package selection to
Target Price : INR 347
be important milestones. INR depreciation is a concern since set top box 52‐week range (INR) : 306 / 169
cost increases ~INR25 for every 100bps depreciation. Also, Hathway has Share in issue (mn) : 143.2
~USD80mn foreign debt. However, with rapid seeding of boxes, Hathway M cap (INR bn/USD mn) : 39/ 666
continues to execute the best amongst MSOs. Maintain ‘BUY’. Avg. Daily Vol.BSE/NSE(‘000) : 244.7
Retail billing to spur realisation in Mumbai and Delhi SHARE HOLDING PATTERN (%)
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Hathway Cable & Datacom
Deal with broadcasters: In a growing market, Hathway would prefer the fixed fee model.
Phase 3: GTPL will be a big contributor in Phase 3 because it has a huge share in Gujarat.
South Indian market: Will not enter South Indian markets like Tamil Nadu because of
political pressures in these areas. The company, however, may return to these markets with
its broadband offering as the company has a good share in broadband in these areas.
Fund raising: For its existing business, the company is largely well funded as it already has
inventory of 1mn STBs. However, if an expansion opportunity arises, the company is open to
raising funds for it.
Debt: Hathway has a debt of ~INR10bn which is at its peak and is not expected to increase
further.
Foreign debt: The company has a USD denominated debt of ~USD80mn. Total debt is a mix
of buyer’s credit and supplier’s credit.
Average cost of borrowing: 11%.
Hedging cover: Hathway has hedged ~12‐13% of its forex exposure. Hedging cost is ~5‐6%.
Vendor credit: The company has the option of vendor credit for a period of 18 months @
4.5%, but it has got it at a better term from banks @ 3.75%.
Broadband: Hathway has a subscriber base of ~0.4mn in broadband and it wants to double
its broadband subscriber base in three years. Broadband business has a gross margin of
~70%. The company will be rolling out the new Docsis 3 technology in Mumbai, Bengaluru
and Hyderabad. Of its total broadband subscribers, ~90‐95% are of the standalone entity.
Government support: In all the phases of digitisation the government has taken a firm stand
which is positive for the industry.
HD: In December 2013, the company will be launching HD+DVR set top box.
Structure: Going forward, Hathway will not form JVs and would rather like expand on its
own. It is also considering the franchisee model.
Other key developments
TRAI prescribes standard tariff packages for STBs
TRAI has issued two tariff orders which prescribe standard tariff packages for set top boxes
for DAS and consumer premises equipments for DTH service providers. The objective of this
order is to make available STBs and CPE at a reasonable price while protecting the interests
of service providers. The order contains four options that can be provided to consumers
with different rentals and security deposit plans. The standard tariff package is to be
mandatorily provided for by DTH and cable TV operators. As per the order, DAS service
providers can provide STBs at a monthly rent of INR55.66 or INR50.66 (excluding taxes) if
the security deposit is INR400 and INR800, respectively. For DTH service providers, the
monthly rent for the CPE can be offered at a rental of INR71.75 per month and INR65.50 per
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month if the security deposit is INR500 and INR1,000, respectively. DAS service providers
can offer STBs at a monthly adjustable rent of INR46.80 or INR32.93 if the security deposit is
INR400 and INR800, respectively, while DTH service providers can provide STBs at a monthly
adjustable rent of INR60.66 and INR43.32 if the security deposit is INR500 and INR1,000,
respectively.
Hathway consolidates to gain from Phase 2
Hathway acquired complete control of its cable TV joint venture with DB Corp’s Bhaskar in
which it held 51%. The company acquired the balance 49% stake in the JV Hathway Bhaskar
Multinet. Hathway Bhaskar is a cable TV distributor in Bhopal, Indore and Jaipur. This
underscores the company’s increased focus on digitisation as it will help increase its
footprint in tier 2 and 3 markets.
Hathway appoints President for digital platform and EVP for operations
Mr. K V Anand, Tata Sky’s ex‐Chief Service Officer, has been appointed as President of
Hathway’s digital platform. He will be reporting to Mr. Jagdish Kumar, MD and CEO. He has
about 20 years of experience in the broadcast and distribution industry. Hathway also
appointed Mr. Jagadesh Babu Botta as EVP operations.
Fig. 1: KYC ads have started in Delhi
Source: Company
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Hathway Cable & Datacom
Table 1: Hathway’s presence in Phase 2 cities: Immense potential
Presence of MSO Sizeable presence
City State State government Hathway DEN Siti Cable IMCL ZEE Sun TV
Bengaluru Karnataka Congress 9 9 9 9 9 9
Hyderabad Andhra Pradesh Congress 9 9 9 9 9
Jaipur Rajasthan Congress 9 9 9 9
Ahmedabad Gujarat BJP 9 9 9
Surat Gujarat BJP 9 9 9 9
Ludhiana Punjab Akali Dal 9 9 9
Pune Maharashtra Congress 9 9 9
Lucknow Uttar Pradesh SP 9 9
Kanpur Uttar Pradesh SP 9 9 9
Nagpur Maharashtra Congress 9 9 9
Indore Madhya Pradesh BJP 9 9 9 9
Thane Maharashtra Congress 9 9 9 9
Bhopal Madhya Pradesh BJP 9 9 9
Visakhapatnam Andhra Pradesh Congress 9 9
Pimpri‐Chinchwad Maharashtra Congress 9 9 9
Patna Bihar JDU 9 9 9
Vadodara Gujarat BJP 9 9 9 9
Ghaziabad Uttar Pradesh SP 9 9 9
Agra Uttar Pradesh SP 9 9
Nashik Maharashtra Congress 9 9 9 9
Faridabad Haryana Congress 9 9 9 9 9
Meerut Uttar Pradesh SP 9 9
Rajkot Gujarat BJP 9 9 9
Kalyan‐Dombivli Maharashtra Congress 9 9 9 9
Varanasi Uttar Pradesh SP 9 9 9
Srinagar J&K J&K NC 9
Aurangabad Maharashtra Congress 9 9
Amritsar Punjab Akali Dal 9 9
Navi Mumbai Maharashtra Congress 9 9 9 9 9
Allahabad Uttar Pradesh SP 9 9 9 9
Ranchi Jharkhand President's rule 9 9 9
Coimbatore Tamil Nadu AIADMK 9
Jabalpur Madhya Pradesh BJP 9 9 9
Jodhpur Rajasthan Congress 9 9
Chandigarh Chandigarh Union Territory 9 9 9
Howrah West Bengal Trinamool Congress 9 9 9 9
Solapur Maharashtra Congress 9 9
Mysore Karnataka Congress 9 9 9 9 9
Total 26 cities 24 cities 16 cities 14 cities 37 cities 5 cities
Source: Company websites, Edelweiss research
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Outlook and valuations: Positive; maintain ‘BUY’
Hathway is the best placed MSO to capitalise on the huge digitisation opportunity. We have
revised our earnings model to factor in the changes in revenue and cost structures due to
digitisation and also the higher debt levels. Though increased debt remains a concern,
increased debt levels are for rapid seeding of boxes by the company. The company seeded
more than 3mn boxes in FY13. Currently, Hathway’s digital subscriber base stands at ~6.5mn.
Hathway has increased its geographic presence and Phase 3 provides further growth
opportunities. Compared to DEN, Hathway has a sizeable primary subscriber base, well‐
entrenched broadband operations and has seeded the highest boxes amongst all MSOs.
TRAI’s diktat to complete the KYC process by June 25, 2013 will speed up the retail billing
process in Mumbai and Delhi, which is a key positive. Hence, we assign Hathway and
EV/EBITDA target multiple of 16x (15x earlier) and arrive at a target price of INR347 (INR352
earlier). In spite of the increased multiple, the target price has reduced slightly due to
increased debt levels and reduced cash due to high capex. Currently, the stock is trading at
EV/EBITDA of 16.2x and 13.2x FY14E and FY15E, respectively. Maintain ‘BUY/Sector
Outperformer’.
Table 2: Hathway’s target price calculation
EV/EBITDA FY15E
EBITDA (INR mn) 3852
Target EV/EBITDA Multiple (x) 16
Minority interest (INR mn) 2643
Less: Debt (INR mn) 9700
Add: Cash and Investments (INR mn) 394
Target Market Cap (INR mn) 49684
No. of shares (mn) 143
Target price (INR) 347
Source: Edelweiss research
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Hathway Cable & Datacom
Company Description
Hathway is one the largest MSOs as well as one of the leading cable broadband service
providers in India. Having entered the cable and entertainment business in 1995, the
company offers three broad services—analog cable television, digital cable television and
broadband internet. Its key promoter is the Rajan Raheja Group with a ~49.5% stake. While
Hathway currently provides analog TV services in 140 cities, it is the largest digital cable TV
provider in India. It is also the first cable TV service provider to offer broadband services in
19 cities. The company has bagged the ‘Best Cable TV Operator of the Year’ award by the
Indian Television Awards eight times. Hathway has launched a channel Hathway Music
(music channel).
Investment Theme
The compulsory digitisation mandate will lead to digitisation of cable TV services across
India over the next 2‐3 years. Converting its existing analog subscriber base on the digital
platform will provide Hathway a huge opportunity to increase subscription revenue due to
lower under‐declaration and higher ARPU. Hathway’s digitisation progress is on track and
the company is looking to build on to its broadband subscriber base as well.
Key Risks
• DTH players can be at an advantage in Phase 3 and Phase 4
• Fund raising may be required
• Loss of subscribers if LCOs shift loyalties
• Intense competition may limit ARPU growth
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Financial Statements
Key Assumptions Income statement (INR mn)
Year to March FY12 FY13E FY14E FY15E Year to March FY12 FY13E FY14E FY15E
Macro Net revenue 10,121 11,325 15,683 19,421
GDP(Y‐o‐Y %) 6.2 5.0 6.0 7.0 Pay channel cost 4,295 4,325 5,964 6,680
Inflation (Avg) 8.9 7.4 5.2 6.0 Other operating expenses 3,224 3,301 5,525 7,665
Repo rate (exit rate) 8.5 7.5 6.8 6.0 Employee costs 926 961 1,098 1,224
USD/INR (Avg) 48.0 54.5 55.0 53.0 Total operating expenses 8,445 8,587 12,588 15,569
Company EBITDA 1,676 2,738 3,096 3,852
Sales assumptions Depreciation & Amortization 1,409 1,661 1,988 2,185
Digital subscriber additions (mn) 0.2 3.1 2.3 1.7 EBIT 268 1,078 1,108 1,666
Digital subscribers (mn) 2.1 5.2 7.5 9.2 Other income 131 115 157 136
Primary subscribers' ARPU (INR) 172 180 190 200 Interest expenses 520 602 996 1,056
Total subscription revenue (INR mn) 3,087 3,768 6,709 11,095 Exceptionals 148 36 ‐ ‐
Activation revenue (INR mn) 150 1,860 1,610 1,224 Profit before tax (269) 555 269 746
Broadband subscriber additions (mn) 0.0 0.1 0.1 0.1 Provision for tax 153 179 235 311
Broadband subscribers (mn) 0.4 0.5 0.6 0.7 Net profit (422) 376 34 435
Broadband ARPU (INR) 305 312 325 330 Extraordinary income/ (loss) 32 30 30 30
Placement & Carriage Revenue growth (%) 21.5 6.3 (15.0) (15.0) Profit After Tax (390) 406 64 465
Broadband revenue (% of rev.) 14.4 13.0 14.6 13.3 Minority interest 102 249 266 325
Cost assumptions Profit after minority interest (492) 157 (202) 140
Pay channel costs (% of rev.) 42.4 36.9 38.0 34.4 Shares outstanding (mn) 143 143 143 143
Prov. for Doubtful Debts/Bad Debts (% of rev.) 4.5 4.5 5.0 4.3 Diluted EPS (INR) (3.7) 0.9 (1.6) 0.8
Personnel cost (% of rev.) 9.1 7.4 7.0 6.3
Admin and other expenses (% of rev.) 12.3 10.4 9.6 8.1 Common size metrics
Ad & publicity expenses (% of rev.) 0.8 1.0 1.0 0.8 Year to March FY12 FY13E FY14E FY15E
Bandwidth & Lease Line Cost (% of rev) 2.8 2.7 2.7 2.6 Pay channel cost 42.4 38.2 38.0 34.4
Financial assumptions Other operational expenses 31.9 29.1 35.2 39.5
Capex (INR mn) 2,338 6,000 3,000 2,200 Employee expenses 9.1 8.5 7.0 6.3
Debtor days 87 87 95 100 EBITDA margins 16.6 24.2 19.7 19.8
Inventory days 4 4 4 4 Net profit margins (4.2) 3.3 0.2 2.2
Payable days 119 119 115 110
Cash conversion cycle (days) (28) (28) (16) (6) Growth ratios (%)
Interest rate on o/standing debt (%) 11.0 11.0 11.0 11.0 Year to March FY12 FY13E FY14E FY15E
Depreciation as % of gross block 9.8 9.0 8.2 8.2 Revenues 14.7 11.9 38.5 23.8
EBITDA 11.7 63.3 13.1 24.4
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Hathway Cable & Datacom
Balance sheet (INR mn) Cash flow metrics
As on 31st March FY12 FY13E FY14E FY15E Year to March FY12 FY13E FY14E FY15E
Equity capital 1,429 1,429 1,429 1,429 Operating cash flow 1,636 1,878 2,849 3,037
Reserves & surplus 6,598 6,755 6,554 6,695 Investing cash flow (1,515) (6,124) (3,099) (2,336)
Shareholders funds 8,028 8,185 7,983 8,124 Financing cash flow (147) 4,058 (96) (856)
Minority interest (BS) 1,802 2,052 2,318 2,643 Net cash flow (26) (187) (346) (155)
Short term debt 1,241 1,600 2,000 2,500 Capex (2,338) (6,000) (3,000) (2,200)
Long term debt 2,700 7,000 7,500 7,200
Borrowings 3,940 8,600 9,500 9,700 Profitability & efficiency ratios
Deferred tax liability 103 103 103 103 Year to March FY12 FY13E FY14E FY15E
Sources of funds 13,873 18,939 19,903 20,569 ROAE (%) (5.3) 5.3 0.4 5.4
Tangible assets 6,969 11,308 12,576 12,864 ROACE (%) 2.1 6.6 5.8 8.3
Intangible assets 2,244 2,483 2,484 2,483 Inventory day 4 4 4 4
CWIP (incl. intangible) 1,005 1,005 1,005 1,005 Debtors days 87 87 95 100
Total net fixed assets 10,219 14,797 16,065 16,352 Payable days 119 119 115 110
Goodwill on consolidation 1,947 1,947 1,947 1,947 Current ratio 1.4 1.6 1.3 1.4
Non current investments 53 53 53 53 Debt/EBITDA 2.4 3.1 3.1 2.5
Current Investments 105 105 105 105 Debt/Equity 0.5 1.1 1.2 1.2
Cash and equivalents 976 789 443 288 Adjusted debt/equity 0.5 1.1 1.2 1.2
Inventories 55 48 94 65 Interest coverage 0.5 1.8 1.1 1.6
Sundry debtors 2,492 3,083 5,235 5,560
Loans and advances 1,693 1,693 1,693 1,693 Operating ratios
Other current assets 229 229 229 229 Year to March FY12 FY13E FY14E FY15E
Total current assets (ex cash) 4,628 5,211 7,410 7,706 Total asset turnover 0.7 0.7 0.8 1.0
Trade payable 1,583 1,245 2,513 1,513 Fixed asset turnover 1.5 1.2 1.3 1.5
Others current liabilities 2,313 2,559 3,448 4,210 Equity turnover 1.2 1.4 1.9 2.4
Total CL & provisions 3,896 3,804 5,961 5,723
Net current assets (ex cash) 732 1,407 1,449 1,983 Valuation parameters
Uses of funds 13,873 18,939 19,903 20,569 Year to March FY12 FY13E FY14E FY15E
Book value per share (INR) 56.2 57.2 55.8 56.7 Diluted EPS (INR) (3.7) 0.9 (1.6) 0.8
CEPS (INR) 6.3 12.5 12.3 16.0
Free cash flow (INR mn) Price/BV (x) 4.8 4.8 4.9 4.8
Year to March FY12 FY13E FY14E FY15E EV/Sales (x) 4.3 4.3 3.2 2.6
Net profit (492) 157 (202) 140 EV/EBITDA (x) 25.9 17.8 16.2 13.2
Depreciation 1,409 1,661 1,988 2,185 FCFPS (INR) (4.9) (28.8) (1.1) 5.8
Others 258 (615) 1,022 178
Gross cash flow 1,188 1,203 2,808 2,503
Less: Changes in WC (448) (675) (41) (534)
Operating cash flow 1,636 1,878 2,849 3,037
Less: Capex 2,338 6,000 3,000 2,200
Free cash flow (702) (4,122) (151) 837
Peer comparison valuation
Market cap Diluted PE (X) EV/EBITDA (X) EV/Sales (X)
Name (USD mn) FY14E FY15E FY14E FY15E FY14E FY15E
Hathway Cable & Datacom 666 ‐ ‐ 16.2 13.2 3.2 2.6
DEN Networks 495 34.5 18.4 10.0 6.6 2.4 1.7
Dish TV India 1,127 ‐ ‐ 10.1 7.7 3.0 2.4
Sun TV Network 2,725 18.3 15.3 9.0 7.2 6.8 5.6
Zee Entertainment Enterprises 3,601 26.6 22.6 17.6 14.4 5.1 4.5
Median ‐ 18.3 15.3 10.1 7.7 3.2 2.6
AVERAGE ‐ 15.9 11.3 12.6 9.8 4.1 3.4
Source: Edelweiss research
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Additional Data
Directors Data
Bharat Shah Chairman, Independent Director Rajan Raheja Non‐ executive & Non Independent Director
Akshay Raheja Non‐ executive & Non Independent Director Viren Raheja Non‐ executive & Non Independent Director
K. Jayaraman MD & CEO Vinayak Aggarwal Non‐ executive & Independent Director
Brahmal Vasudevan Independent Director Sasha Mirchandani Independent Director
Sridhar Gorthi Independent Director Devendra Shrotri Independent Director
Biswajit Subramanian Additional Director
Auditors ‐ G. M. Kapadia & Co.
*as per last annual report
Holding ‐ Top10
Perc. Holding Perc. Holding
P6 Mauritius India Holding 9.88 Providence Equity Advisors 9.88
Reliance Capital Trustee Co Ltd 8.88 Macquarie Bank Limited 7.37
Reliance Equity Opport FD 5.34 Infrastructure Ind Hldg FD 3.89
Norges Bank 2.15 Uti Asset Management Co Ltd 1.85
Govt Pension Fund Global 1.54 Tree Line Asia Master Fund 1.03
*as per last available data
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
No Data Available
*in last one year
10 Edelweiss Securities Limited
RATING & INTERPRETATION
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
RELATIVE RETURNS RATING
Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING
Ratings Criteria
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
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Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91‐22) 4009 4400, Email: research@edelweissfin.com
Coverage group(s) of stocks by primary analyst(s): Media
DEN Networks, Dish TV India, Hathway Cable & Datacom, Jagran Prakashan, PVR, Sun TV Network, Zee Entertainment Enterprises
Recent Research
Distribution of Ratings / Market Cap
Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 120 49 17 186 Buy appreciate more than 15% over a 12‐month period
* ‐ stocks under review
Hold appreciate up to 15% over a 12‐month period
> 50bn Between 10bn and 50 bn < 10bn
Reduce depreciate more than 5% over a 12‐month period
Market Cap (INR) 118 56 12
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Hathway Cable & Datacom
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