Showing posts with label hathwayipoanalyis. Show all posts
Showing posts with label hathwayipoanalyis. Show all posts

Thursday, February 4, 2010

HATHWAY CABLE AND DATACOM LIMITED: POOR FINANCIALS, HAZY OUT LOOK, UNREASONABLE PREMIUM – AVOI D

The Rajan Raheja group owned, India’s leading cable television provider - Hathway Cable and Data Com Limited plans to raise around Rs 600 crore through public issue of 2, 77, 50,000 shares of Rs 10/ each including offer for sale of 77, 50,000 shares in the likely price band of Rs 240 - 265. The issue will open on 9 -02 -10 and closes on 11 -02 -10. Morgan Stanley, UBS Securities and Kotak Mahindra Capital Company limited are the Book Running Lead Mangers.

BUSINESS

The Company is one of the leading cable television services provider in India as well as one of the leading cable broadband services providers, having household reach of more than 8 million. The company offers analog and digital cable television services across 125 cities and towns and high-speed cable broadband services across 20 cities, operating in geographical regions. Hathway has won number of awards for cable television services such as being named as “best cable operator”. The company holds a pan-India ISP license and was the first cable television services provider to offer broadband internet services.

OBJECTS OF THE ISSUE

The proceeds of the IPO are intended to be used for general corporate purposes including the repayment of loans of around Rs 100 crores. In fact, there are no specific projects to be implemented.

FINANCIALS

The Company reported net losses of Rs 62.45 cr, Rs 66.81cr, Rs 62.06 cr in the financial years 07, 08, and 09 respectively. In view of this, there was negative EPS and negative return on net worth. However, the company’s revenue has grown at a CAGR in excess of 40%. Due to heavy depreciation and amortization of expenses, the company reported losses during the above period. The company has Rs 384.25 cr as carry forward loss as on 31-03-09.

EPS (Rs.) for the last three years are as follows;
2007 (19.71)
2008 (6.07)
2009 (5.57)
Weighted Average (8.60)



RISKS FACTORS



• Hathway has history of net losses, primarily due to significant depreciation and amortization of expenses.

• Strategic investments or acquisitions and joint ventures may result in additional risks and uncertainties in the business.

• Promoters and directors are involved in other companies, which are in the same line of activity as Hathway. Promoters hold 18.00% of the paid up equity share capital of Asia net Satellite Communications.

• The Company is heavily dependent on Local Cable Operators (LCOs) to reach most cable television subscribers, to increase the subscriber base and to maintain service quality standards. The Company is exposed to liability arising from activities by LCOs that are beyond the control of Hathway.

• Hathway intends to convert subscribers from analog to digital cable television services. Such conversion will require increased capital expenditure for set-top boxes, new software and improvement of cable network.

• The Internet services business faces significant competition from well-established companies, including Bharti Airtel, Tata Communications Limited, Reliance Infocom, HCL Infinet, Tata Teleservices and others.

• Slowdown in economic growth in India could cause the business to suffer.


• Earlier, The Telecom Disputes Settlement Appellate Tribunal (TDSAT) has directed Hathway - Nasik Cable Network, to settle amount due to Zee Turner and ESPN Software India private Limited.


• The purposes for which the proceeds of the Issue are to be utilized are based on management estimates and have not been appraised by any bank or financial institutions.

• The rating agency CRISIL has assigned grade 3 for the IPO indicating average fundamentals.


VALUATION

The Company’s past financial records or the future business prospects,does not justify the very high premium on shares. Recently, Den networks Limited, another player in the cable television field entered the capital market, for which the response from the investors was luke worm, particularly from retail investors. The share is currently quoting below the issue price of Rs 195/-


CHALLENGES

The television distribution industry is highly competitive and is often subject to rapid and significant changes in the marketplace, technology and regulatory and legislative environments. The company primarily competes with other cable television service providers in the markets, as well as with Direct to Home (DTH) service providers, internet protocol television (IPTV). Competition is not limited solely to traditional forms of television services such as; competition based on program offerings, customer satisfaction, network quality and price, but may also include competition in respect of value-added services offered. Further, the development of new technologies and services within the industry may force the company to compete with new types of services offered by other providers. The success of these ongoing and future developments could have an adverse impact on the business operations. Moreover, the cable television business is largely unorganized, fragmented,and based on local preferences. The company’s ability to adjust to the new environment, as and when needed and cater to the local preferences is one more challenge.

RECOMMENDATIONS

In view of company’s poor financial performance, not so rosy business prospects and very high premium sought, investors are advised to stay away from the issue.