Buy Wire & Wireless for target price of Rs 24 - Elara Capital

• Rating : Buy
• Target Price : INR24
• Upside : 71%
• CMP : INR14 (as on 28 May 2010)

HITS experiment over

Marginal decline in topline signifies strong analog growth

WWIL posted Q4FY10 revenues of INR676mn, a decline of 5% on YoY basis. Notably, the company's HITS operations were wound up during the quarter hence we were expecting a large drop in revenues, in the absence of digital revenues from HITS. However, the marginal decline in revenues signals strong growth in analog cable revenues during the quarter which confirms the management's assertion that the analog cable business is growing at a hefty pace.

Expecting profitability to resume post HITS

Q4FY10 marks the end to WWIL's experiment with the HITS technology, which could not take off due to extremely high content costs. We expect WWIL to start reporting higher profitability going forward as the analog cable operations of the company are already EBITDA positive and WIWL would not be running HITS associated costs on transponder lease and high content costs going forward. We expect WWIL to post an EBITDA of INR1.4bn in FY12E and INR3.2bn in FY15E, as the company grows its digital subscriber base at the expected pace of 0.5mn subscribers p.a.

Valuation

WWIL's stock price has fallen considerably in line with the recent market correction and also due to lack of headway on HITS operations. With Q4FY10, the company has said goodbye to its HITS platform and now would focus on digital cable through digital headends on the ground like other major MSOs. However the current market cap of the company is heavily discounted when compared to its close peers. We remain positive on the stock, on account of the cheap valuations providing the execution hiccups comfort, which is narrow in other listed firms, in our view. We reiterate our Buy recommendation on the stock, with a DCF based target price of INR24, indicating an upside of 71% from current levels.

Source : Equity Bulls

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