Shares of Hathway Cable and DEN Networks rallied up to 8 per cent in intra-day deals, on reports that Mukesh Ambani led-Reliance Industries (RIL) may soon buy a controlling stake in these two companies. The move, according to reports, is part of RIL's strategy to ramp up coverage of its high-speed broadband network.
"A transaction is likely to be unveiled on Wednesday when the boards of all three companies are slated to meet. RIL will own shares in Hathway and Den through a common entity which will become the holding company of the two multi-system operators," said a Time of India (TOI) report.
The move is a win-win for both the parties, says independent market analyst Ambareesh Baliga. "This is a positive development for both, viz, Reliance Jio as well as shareholders of Hathway and Den Networks because both the companies would have found it difficult to survive on the onslaught of Jio. So, from that standpoint, the takeover - if done at a good valuation - will be beneficial for the shareholders of Hathway and Den," Baliga said.
On the other hand, RIL will benefit from the last mile connectivity that the existing networks of both Den and Hathway will be able to provide, analysts say. The last mile refers to the technology providing connection services to and from the user’s office or house. Last mile technology is the final connectivity leg between the telecommunication service provider and an individual customer.
In July this year at its 41st annual general meeting (AGM), RIL announced the launch of fixed-line broadband services branded as Jio GigaFiber. While explaining the broadband for large enterprises, Ambani had said the fixed-line broadband will mean having the ability to compete in the global marketplace, using digital tools and techniques that are powering the fourth industrial revolution.
"Jio GigaFiber will provide ultra-high-definition entertainment on large screen TVs, multi-party video conferencing from a living room, voice-activated virtual assistance, virtual reality gaming, digital shopping, and immersive experiences," Mukesh Ambani had said.
Shares of Hathway Cable & Datacom surged nearly 8 per cent at around Rs 31 apiece on BSE, while those of DEN Networks were trading at Rs 78 apiece on BSE, up nearly 3 per cent. Reliance Industries, on the other hand, was trading over half a per cent higher at Rs 1,145. RIL is expected to announce its September 2018 quarter results on Wednesday, October 17. CLICK HERE TO READ WHAT ANALYSTS EXPECT FROM RIL'S Q2
On the financial front, both the companies have been incurring losses during the last three-four years. While Hathway Cable slipped into losses after reporting profit in 2013, Den Networks has been reporting losses since FY2015.
Himanshu Shah, the telecom analyst at HDFC Securities, says the deal will benefit Reliance Jio from the operational point of view. "It will benefit Reliance Jio in terms of the rollout of their Fibre to the Home (FTTH) business or the Jio GigaFiber as they will get a ready market - existing subscriber base plus last mile access," Shah added. However, whether the move will be positive for RJio from the financial point of view is a thing to watch out for.