11 August 2015
1QFY16 Results Update | Sector:
Media
Hathway Cable & Datacom
BSE SENSEX
27,866
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val (INRm)/Vol ‘000
Free float (%)
S&P CNX
8,462
HATH IN
830.5
40.1/0.6
77/46
0/-20/-25
37/281
56.5
CMP: INR48
n
TP: INR70 (+46%)
Buy
EBITDA in line; subscription miss offset by placement/broadband
1QFY16 EBITDA in line:
Hathway’s 1QFY16 standalone EBITDA grew 6% QoQ to
INR327m (v/s estimate of INR331m). Adjusted for activation revenue, EBITDA
grew 9% QoQ to INR273m (v/s estimate of INR271m). Standalone revenue
declined 2% QoQ to INR2.64b, broadly in line. Cable subscription revenue
remained flat QoQ (net of feed income) at INR1.05b (v/s estimate of INR1.09b).
Placement/broadband revenue increased 8%/13% QoQ and was 7%/3% above
estimates. The management estimates consolidated EBITDA at ~INR410m.
Margin in line despite impact of lower other revenue and license fee provision:
EBITDA margin (ex-activation) stood at 10.3%, broadly in line, despiteINR38m
decline in ‘other revenue’ and INR52m provision toward license fee for
broadband business (8% of revenue). Reported content cost grew 9% YoY but
declined 13% QoQ to INR933m (v/s our estimate of INR971m). However,
adjusted for the feed income in 4QFY15, content cost was flat QoQ.
STB seeding remains muted; standalone net debt at INR10.4b:
Set-top box (STB)
seeding remained muted, with additions of 0.1m. Since March 2014, HATH has
cumulatively seeded ~0.6m STBs, largely on a voluntary basis. Standalone gross
debt stands at INR11.37b while net debt stands at INR10.41b. HATH currently
has an inventory of 0.5m STBs and has tied up financing for the phase III rollout.
Continued strong revenue growth in Broadband (BB):
Broadband revenue grew
56% YoY and 13% QoQ to INR651m (v/s our estimate of INR635m). Broadband
revenue growth continues to be largely led by ARPU increase. Of the 0.46m BB
subscribers, 0.17m are now on the DOCSIS 3.0 platform.
Valuation and view:
We expect digital subscriber base to increase from 8.5m in
FY15 to 14.6m in FY18, driving 31% CAGR in net ARPU (from INR55 to INR124)
and 100%+ CAGR in recurring EBITDA/subscriber (from INR6 to INR52). We
maintain our estimates and DCF-based target price of INR70. HATH trades at
proportionate EV/recurring EBITDA of 27.2x/12.6x FY16E/FY17E. Maintain
Buy.
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
EBITDA #
Adj. NP
Adj. EPS (INR)
Adj. EPS Gr. (%)
P/E (x)
EV/EBITDA (x)*
EV/EBITDA(x)*#
2015 2016E 2017E
18.3
2.6
1.7
-2.3
-2.9
NA
25.2
38.6
21.7
4.9
2.5
-0.5
-0.6
28.5
8.6
5.5
1.8
2.1
22.8
8.0
12.6
n
n
NA -460.5
14.0
27.2
-16.7 -82.2
EV/Sub (INR)* 5,527 5,013 4,847
* Based on attributable EBITDA and
subs post minority stake
# (ex-activation)
Estimate change
TP change
Rating change
n
n
Shobhit Khare
(Shobhit.Khare@MotilalOswal.com); +91 22 3982 5428
Jay Gandhi
(Jay.Gandhi@MotilalOswal.com); +91 22 3089 6693
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.