GTPL Hathway: Expensive, post-issue shocks possible

Heavy dependence on local cable operators a big drag

GTPL Hathway, India’s leading cable television operator, is making an initial public offer to raise around ₹240 crore through a fresh issue of shares and another ₹240 crore through an offer-for-sale.

Decent market share

The company, promoted by Hathway Cables and Datacom, has sizeable presence in the cable television segment in Gujarat and Kolkata with market shares of 67 and 24 per cent, respectively.

However, the cable television industry is currently facing multiple challenges that can affect the company’s prospects. High dependence on local cable operators (LCO) is another negative for the cable business of GTPL Hathway.

The broadband services business also faces competitive pressure from wireless Internet services provided by leading telecom players. Volatility in earnings and thin margins put the financials on a weak footing.

At the upper end of the price-band — ₹170, the price-to-book ratio is 4.43 times for 2016-17 (annualised) according to Indian Accounting Standards — IndAS (3.2 times according to IGAAP).

Business challenges

This is expensive compared to peers such as Den Networks and Hathway Cables and Datacom that trade at 1.76 and 3.5 times, respectively. Investors can, therefore, stay away from this offer.

The cable television business accounts for roughly 85 per cent of GTPL’s revenue. This industry is expected to grow at a healthy clip over the coming years and GTPL’s presence in 189 towns across India give it good reach. However, the company faces stiff competition from other cable television players such as Den Networks and its parent, Hathway. The competition from DTH players such as Tata Sky and Bharti Airtel is also intense. Also, Reliance Jio’s expected foray into DTH could affect GTPL’s prospects.

Despite offering various regional channels and making good progress in digitisation, GTPL’s cable television is no match for DTH players, who offer superior channel quality and a wide variety of channels.

Heavy LCO dependence

GTPL is also heavily dependent on its LCOs to generate and maintain revenue. This can prove to be a deterrent to growth. As of January 2017, over 90 per cent of their customers came through LCOs. The LCOs are not under any long-term obligation to remain affiliated with GTPL. Thus, termination of agreement and loss of LCOs to other players could have a negative impact on the company.

The company’s broadband business is also on shaky ground as affordable prices of Internet services from the telecom players affect its pricing power. The company might have to incur additional expenditure on improving its technology if it wants to remain competitive.

Revenue, according to IndAS, has grown at a compounded annual growth rate of 18 per cent between FY14 and FY16; to ₹738 crore in FY16. For the nine months ended December 2016, revenue grew at a healthy pace to ₹652 crore. However, competition can temper this growth rate, going ahead. Profits have also been erratic, coming in at sub-₹8.5 crore, ₹15.5 crore and ₹4.6 crore in FY14, FY15 and FY16, respectively. Net profit margins are also very thin at 0.6 per cent for FY16. The company’s gross debt as on December 2016 stood at ₹476 crore. Proceeds from the fresh issue will be primarily utilised to repay the company’s debt to the tune of ₹228.9 crore.

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