>HATHWAY CABLE AND DATACOM: Acquired majority stake in Bhasker Multinet (Cable TV arm of Dainik Bhaskar Group

■ 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.


To read report in detail: HATHWAY CABLE
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