Initiating Coverage on Hathway Cable & Datacom - Ventura

Satisfactory roll out of digitisation in Phase I & II cities, relatively faster seeding in Phase III & IV cities and cable industry gaining significant market share over DTH players re-iterates the robust growth story for Hathway Cable and Datacom Limited (Hathway). Further, the fact that Hathway is the only MSO to have expanded its subscriber base by ~19.3% (from 8.8 mn to 10.5 mn) should go down well with investors.

Monetization of Phase I & II subscribers has already started from Q1FY14 and should lead to improved revenue visibility on the subscription front. However carriage & placement (C&P) income which had so far been the mainstay of revenue has, in our opinion peaked out. Having said that, we do not expect a significant decline in C&P (as once feared) given the significant bargaining power Hathway commands on the back of its 'subscriber packs' strategy. We expect Hathway's total revenues and earnings to reach Rs. 2,248.7 crore (~40.9% CAGR) and Rs. 114.8 crore (168.1% CAGR) respectively by FY15 from Rs. 1,132.5 and Rs. 16.0 crore clocked in FY13.

Broadband is expected to the next phase of growth for Hathway given the fact that the broadband infrastructure is already in place (in Phase I & II cities). However over the forecast period this segment is not expected to add significantly to the revenues.

We initiate a BUY with a Price Objective of Rs. 389, representing a potential upside of ~45% over a period of 15 months. At the CMP of Rs. 269, the stock is trading at EV/EBITDA of 14.8x and 10.5x for FY14 and FY15 respectively.

Source : Equity Bulls

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