Stronger signals from Hathway Cable

Listing of its subsidiary and limited impact of note ban are key positives

Hathway Cable and Datacom (Hathway) has a number of triggers going for it. Its subsidiary GTPL Hathway (GTPL), which offers cable TV and broadband services in regional pockets, is raising more than Rs 300 crore via a fresh issue of shares and offer for sale (OFS). GTPL accounts for 41% of Hathway’s consolidated revenues.  

While the proceeds from the issue will be used to nearly half GTPL’s debt to Rs 230 crore, the funds from OFS will flow into Hathway. Though there is no clarity on how Hathway will deploy this money, analysts estimate this money could be used either to reduce its debt or to invest in its broadband business. Notably, Hathway is focusing on growing its broadband business, which entails slightly higher investments than the cable business. Thus, the issue will rub off favourably on both the parent as well as the subsidiary. The issue, however, could be valued at a discount given the higher concentration of GTPL’s operations in Gujarat. 

The other trigger that cable companies such as Hathway have witnessed is lower impact from demonetisation. “Post demonetisation, a couple of things have happened. 
 

Local cable operators extended credit period to the subscriber or customer who was facing liquidity issues. Secondly, to get rid of old notes, subscribers started paying for four-five months in advance, which is a positive for Hathway,” says Manoj Behera, analyst at Phillip Capital. 

While the pace of new subscriber addition slowed down in November, it has normalised again in December, he adds. It will be interesting to see if the advance receipts will compensate for the slower pace of subscriber addition in the December quarter.

In this backdrop, it is not surprising that the Hathway scrip has gained 18% since demonetisation — outpacing the S&P BSE 500 index by a mile, which has corrected 3.5% in this period. Most analysts covering the stock have a ‘buy’ rating and their average target price of Rs 43 indicates upside potential of 17% from current levels.

Going forward, Hathway stands to gain from digitisation as well as strong growth in its broadband revenues. Hathway's high debt of about Rs 1,700 crore is a concern and is unlikely to reduce meaningfully soon given that it needs to invest to grow its cable and broadband businesses. In this backdrop, improvement in average revenue per user will be key to aid earnings.