GTPL Hathway: Expensive entertainment

There are multiple growth triggers but new competition can spoil show

In a sector where most players are not making money, multiple system operator GTPL Hathway has remained in the black for the past few years.
 
The company offers digital cable services to 189 towns. Its net profits grew 23 per cent annually over the FY12-FY16 period. The numbers were Rs 69 crore in 2015-16 and Rs 43 crore for the nine months-ended December 2016. Revenues during this period grew to Rs 845 crore in FY16.
 
The company occupies a 67 per cent market share in cable television in Gujarat and is the number two operator in Howrah and Kolkata.
 
An increase in subscriber base, which has doubled over the past couple of years to about eight million, and a higher average revenue per user (ARPU) have pushed its sales. On the other hand, lower content costs as a percentage of revenue have helped to improve profitability and net profit.
 
About 40 per cent of its revenue comes from subscription and 32 per cent from broadcasters who pay the company to carry their signals.
 
What has helped the company, in which Hathway Cable acquired a 50 per cent stake in 2007, to grow its base has been a measured expansion strategy as well as local content.
 
The company has 27 channels offering content in various regional languages.
 

The biggest trigger, given the investment in infrastructure, is the faster scaling up of its subscriber base and monetisation of its subscribers in smaller towns and cities.
 
Incremental gains for the company hinge on increasing its 230,000 broadband customer base with a monthly ARPU of Rs 472 and an average use of 35 gigabytes per month. The company, which owns intercity and intracity optical fibre network of about 5,400 kilometres, would be able to tap about a million homes with its existing infrastructure and improve from its current penetration level of 23 per cent.
 
It is looking to expand its presence in the broadband segment and increase speeds by up to one gigabyte per second using gigabit passive optical networks technology.
 
Given the initial public offer (IPO) pricing, valuations are pegged at 33 times of its FY17 earnings estimates. This is on the higher side as the likely entry of players such as Reliance Jio, could put pressure on pricing.