GTPL Hathway

Leader in Gujarat

The company's cable and broadband business is regional, capital intensive, competitive, difficult to manage and susceptible to regulatory and technological changes

CM RATING

35/100

GTPL Hathway, promoted by Aniruddhasinhji Jadeja, Kanaksinh Rana, Gujarat Digi Com Private Limited and Hathway Cable and Datacom, is a leading regional multi system operator (MSO) in India, offering cable television and broadband services. It is the number 1 MSO in Gujarat, with a market share of 67% of cable television subscribers in 2015, accounting for approximately 3.7 million of 5.6 million cable television households in Gujarat. It is the number 2 MSO in Kolkata and Howrah in West Bengal, with a market share of 24% of cable television subscribers in this market in 2015, accounting for approximately 0.7 million of 3.0 million cable television households in Kolkata and Howrah. Gujarat is an important market for broadcasters and advertisers as it contributed to more than a 5% viewership share on an all-India basis and more than 8% of the Hindi speaking market in India in 2015. The company provides cable television signals to subscribers either directly or through affiliated LCOs.

The company was incorporated in August 2006 by promoters Aniruddhasinhji Jadeja and Kanaksinh Rana, through the consolidation of cable service businesses in Ahmedabad and Vadodara. In October 2007, Hathway acquired a 50% share of business. Over the past 10 years, the company has grown both organically, through the expansion of services, and inorganically, through acquisitions, joint ventures or by entering into right to use agreements with other smaller regional MSOs, local cable operators (LCOs) and independent service operators (ISOs).

As of January 31, 2017, the company's digital cable television services reached 189 towns across India, including towns in Gujarat, West Bengal, Maharashtra, Bihar, Assam, Jharkhand, Madhya Pradesh, Telangana, Rajasthan and Andhra Pradesh. As of January 31, 2017, it has seeded approximately 6.55 million set top boxes (STBs) and had approximately 5.69 million active digital cable subscribers. Since March 31, 2015, it increased the number of paying HD subscribers from 0.02 million to 0.06 million as of January 31, 2017.

The company also provides broadband services primarily in the state of Gujarat and had established a home pass of approximately 1.05 million households. As of January 31, 2017, the company had 2,28,217 broadband subscribers based on the number of broadband subscribers of subsidiary GTPL Broadband Private Limited. The broadband business was transferred to GTPL Broadband Private Limited with effect from April 1, 2016. The company currently offers various packages to broadband services subscribers that range from one month to 12 months and at rates ranging from Rs 600 for 512 kbps to Rs15135 for 4 Mbps

The company's primary source of revenues for cable services is subscription income received from subscribers and placement / carriage income received from carriage fees payable by broadcasters for carrying their channels and placement fees payable by broadcasters for placing their channels on a preferred channel number or position. As of January 31, 2017, it offered up to 285 pan-India standard definition channels, 158 regionally-transmitted standard definition channels, 32 pan-India high definition channels and 39 regionally-transmitted high definition channels on its digital cable platform. It also owned and operated 27 channels offering localized content developed for the states in which it broadcast, including a range of religious and cultural content, film, music and educational channels. It also has the right to place the "Gujarat News" channel on its network, which is produced by group company Gujarat Television Private Limited. It produces its own content and also offers third-party content on its local channels to ensure that it has a suitable mix of content that appeals to a range of demographics.

The company has completed roll-out of STBs in Phase I, Phase II and Phase III areas and is working towards completing the roll-out of STBs in Phase IV areas. The digital services platform is supported by owned intercity and intra-city optical fiber cable network, which, as of January 31, 2017, spanned approximately 5,406 kilometers (on a consolidated basis), and the fiber network leased to company, which spanned approximately 3,615 kilometers (on a standalone basis).

Issues Size and Purpose

The company is coming out with an initial public offering (IPO) amounting to Rs 240 crore at an price band of Rs 167-170 per share of face value Rs 10 each. Out of Rs 240 crore, the company will spend Rs 229 crore for repayment of certain borrowing, and rest for general corporate purpose.

Beside the fresh issue of shares, there is also offer for sale of 1.44 crore equity shares by selling shareholders comprising up to 11.36 lakh equity shares by Aniruddhasinhji Jadeja, up to 4.4 lakh equity shares by Kanaksinh Rana, up to 54.8 lakh equity shares by Gujarat Digi Com Private Limited, up to 7.2 lakh equity shares by Hathway Cable and Datacom Limited and up to 1.44 lakh equity shares by Amit Shah. The offer for sale size at the lower price band of Rs 167 per share works out to Rs 240.48 crore and at the higher price band of Rs 170 per share, works out to Rs 244.48 crore.

Strengths

One of the leading regional MSOs with significant market share in Gujarat and Kolkata

Weaknesses

The cable television distribution business faces competition from other local, regional and national cable television distributors and providers of television services through different transmission platforms, such as DTH satellite television and IPTV, as well as from India's traditional terrestrial broadcasting service, Doordarshan.

The company's holding company Hathway is engaged in business activities which compete with GTPL Hathway business.

The business model is capital intensive and it may not be able to arrange adequate funds for future capital expansion. The business model requires significant capital investment primarily for acquiring equipment for operating hybrid fiber-coaxial cable (HFC) networks (a combination of optic fiber in the backbone and coaxial cables in the downstream). Building and maintaining an HFC network requires capital investment

The company is heavily dependent on LCOs to reach the majority of cable television subscribers, to collect subscription fees, to increase subscriber base and to maintain service quality standards. It may be exposed to liability arising from activities by LCOs that are beyond control or losses caused due to the termination of agreements it has entered into with LCOs, under-reporting, to the extent it is relevant post DAS implementation, or otherwise.

The company's margins may decline after it completes the roll-out of STBs in Phase IV areas due to lowered revenue from activation charges which may adversely affect business, results of operations and financial condition

The company's subscriber base is highly concentrated in the state of Gujarat. The inability to retain and grow subscriber base in the state of Gujarat may adversely affect business, results of operations and financial condition As of January 31, 2017, in Gujarat, it had approximately 3.33 million active digital cable subscribers, which constituted 58.61% of total digital cable subscriber base.

The company may not be able to increase subscriber base in businesses as a result of competition and high penetration rates in the market for cable television and broadband internet services. In order to grow revenue and profitability in business, it is reliant on growth in ARPU, besides network expansion. In order to increase subscriber base, it may be necessary to lower rates, or it may be necessary to increase subscriber acquisition costs, which may increase operating costs and lead to a decline in ARPU, either or both of which could result in lower margins, slower growth and lower profitability. Any new services may not be technically or commercially successful or launched according to expected schedules. Any such failure may materially and adversely affect revenue and profitability.

The success of broadband services may be slowed or halted by competition from wireless internet or fixed broadband offerings in India

The company has entered into, and will continue to enter into, related party transactions. It has in the course of business, entered into transactions with related parties and entities owned or significantly controlled by key managerial personnel and their relatives.

The company is exposed to risks relating to churn of subscribers and loss of STBs. As on January 31, 2017 and March 31, 2016, 2015 and 2014, net cumulative subscriber churn in digital cable services was 5,92,119, 3,79,745, 2,41,041 and 2,18,339 subscribers, respectively, resulting in a churn rate (i.e. net cumulative subscriber churn as a percentage of STBs seeded) of 9.04%, 7.01%, 7.20% and 7.34% as on the above specified dates, respectively. A high churn rate may adversely affect business, results of operations and financial condition.

Valuation

The company's net sales for year ended March 2016 (FY 2016) increased 20% to Rs 738.45 crore. The OPM decreased by 180 bps to 21.1%. The net profit after share of associates and MI decreased 51% to Rs 6.10 crore due to increase in depreciation and amortization.

At the lower price band of Rs 167 per equity share of Rs 10 face value, the P/E works out to 66 times the annualized EPS of Rs 2.5(on post-IPO equity) for nine months ended December 2016 and the P/E works out to 308.4 times the EPS of Rs 0.5 (on post-IPO equity) for the financial year ended March 2016. At upper band of Rs 170, P/E works out to 67 times the annualized EPS of Rs 2.5 (on post-IPO equity) for nine months ended December 2016 and the P/E works out to 313.2 times the EPS of Rs 0.5 (on post-IPO equity) for financial year ended March 2016.

On FY2016 financial figures, EV/EBIDTA and EV/sales for the company stood at 11.72x and 2.94x at the lower price of Rs 167. EV/EBIDTA and EV/sales for the company stood at 11.9x and 2.98x at the upper price of Rs 170.

Comparable companies Siti Network and Ortel Communication trade at EV/EBIDTA of 11.29x and 5.02x, respectively. Den Networks, Siti Network and Ortel Communication trade at EV/Sales at 1.5x, 2.65x and 1.53x, respectively. GTPL appears to be little expensive on EV/sales basis.

GTPL Hathway: IPO Highlights  

 GTPL Hathway: Consolidated Financials

KPIs for digital cable television services