Hathway Cable & Datacom Limited - Improving collection from LCOs - Antique

Collections from LCOs has been a key concern for the stock. Our interaction with Hathway management indicate that the company is on track on the collection front. Around 80% of LCOs in Mumbai and Delhi have paid to the tune of INR80 per set top box for the month of February vs INR40 for December showing a significant improvement. We think, Hathway will be able to realize the targetted levels of INR100-110 per box by April 2013. On a standalone basis we expect atleast a 15-20% QoQ growth in subscription revenue during 4Q. With significant improvement in collections we believe investor concerns on LCO collections should subside. Reiterate BUY on the stock with target price of INR370. Our target price is based on DCF and implies target multiple of 10x adjusted EV/EBITDA FY14e.

Concern on LCO collection ...should subside

Our interactions with management indicate that around 80% of LCOs have paid to the tune of INR80 per set top box for Mumbai and Delhi region for the month of February. Hathway has around ~1.6m subscribers in Mumbai and Delhi. This is significant improvement over INR40 realized from LCOs for the month of Dec. Our checks indicate collection in Mumbai is much better than that of Delhi. Expect at least a 15-20% QoQ growth in subscription revenues during 4QFY13e on standalone basis. We think company should be able to realize the targetted level of INR100-110 per box by April 2013.

Traction visible in Phase II; will gain from consolidation

We reiterate our view that Hathway will gain from consolidation opportunities in Phase II market. Hathway currently has 5m subscriber base in Phase II cities and has ~25% digital penetration currently. We see upside risk to our assumption for subscriber base in Phase II.

Management team update

Post change in CEO (Mr Jagdish Pillai, Ex Star India) in late December, company saw some change at business levels. Mr Rouse Koshy (Head of content and distribution) from You Telecom has taken charge as head of carriage. Mr Kunal Ramteke (Ex Sr VP & Head VAS operations at Reliance communication) has joined to revamp the broadband business. Management at its quarterly analyst call had highlighted a potential upgrade in technology at its Broadband business.

Valuation and Outlook

With significant improvement in collections, we believe investor concern on LCO collections should subside. Reiterate BUY with target price of INR370. Our target price is based on DCF and implies target multiple of 10x adjusted EV/EBITDA FY14e and factors in digital cable revenues from 8.8m subscribers.

Source : Equity Bulls

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