HATH Summary Report
Core Content
HATH is the largest pay TV cable operator in India, with a total subscriber base of 10.6 million, including 5.4 million analogue and 5.2 million digital subscribers. The company is set to benefit significantly from the government's initiative to digitize the entire pay TV subscriber base by the end of FY15. This digitization will lead to a reduction in under-reporting and increase in paying subscribers, driving revenue and earnings growth.
Main Points
- Market Position: HATH operates in 140 cities and towns through direct channels and joint ventures. It also provides broadband services to 1.5 million homes in 20 cities.
- Regulatory Impact: The government's digitization mandate is expected to increase HATH's paying subscribers to 7 million by the end of FY15, with digital subs to double by FY17.
- Revenue Growth: HATH is expected to achieve a 33% annual revenue growth over the next two years, with FY15 revenue forecasted at Rs20.1bn.
- EBITDA Growth: EBITDA is projected to grow at 35% annually, reaching Rs5.157bn in FY15F. The EBITDA margin is expected to improve from 21% in FY14 to 25.6% in FY15.
- Capital Expenditure: HATH has invested heavily in digitization, with CAPEX peaking at Rs10bn in the past two years. It is expected to decline to Rs3-4bn annually thereafter.
- Financial Health: The company has a strong balance sheet and has recently infused Rs2.5bn in equity to maintain a D/E ratio of 1x. It is expected to generate free cash flow from FY15 onwards.
- Valuation: Based on discounted cash flow (DCF) valuation, the target price is Rs369 per share, implying EV/EBITDA multiples of 19x for FY14F and 11x for FY15F, which are considered attractive.
Key Financial Metrics
| Metric |
FY13 |
FY14F |
FY15F |
| Revenue (Rs bn) |
11.3 |
14.18 |
20.18 |
| EBITDA (Rs bn) |
2.74 |
2.96 |
5.16 |
| Net Debt/Equity (%) |
66.5 |
48.2 |
|
| Free Cash Flow (Rs m) |
-4,257 |
1,396 |
|
| ROE (%) |
1.9 |
9.1 |
|
| ROA (%) |
1.1 |
3.5 |
|
| D/E Ratio |
1.0 |
0.9 |
|
Revenue Mix Trends
| Segment |
FY09 |
FY13 |
FY15F |
FY17F |
| Cable Subscription |
35.7% |
25.5% |
64.5% |
71.9% |
| Carriage & Placement Fees |
44.4% |
41.1% |
19.6% |
9.3% |
| Activation Income |
0.0% |
16.9% |
3.0% |
3.1% |
| Broadband |
15.9% |
13.3% |
11.3% |
14.3% |
| Others |
4.0% |
3.3% |
1.7% |
1.4% |
Subscriber Growth
| Year |
Total Subscribers (m) |
Digital Subscribers (m) |
Paying Subscribers (m) |
| FY13 |
10.63 |
5.23 |
7.00 |
| FY15F |
10.63 |
8.00 |
7.00 |
| FY17F |
10.63 |
10.20 |
10.70 |
EBITDA Margin Trend
| Year |
EBITDA Margin (%) |
| FY13 |
24.2 |
| FY14F |
21.0 |
| FY15F |
25.6 |
Valuation Highlights
- Discounted CF Valuation: Rs369 per share.
- WACC: 12.1%.
- Terminal Growth Rate: 5% annually.
- EV/EBITDA: 19x for FY14F and 11x for FY15F.
- Peer Comparison: HATH's valuation is compared with Dish TV and Den Networks, showing competitive multiples.
Risks
- DTH Competition: Aggressive pricing by DTH players could lead to loss of digital cable subscribers and revenue.
- Market Penetration: While the digitization is expected to be successful, delays in phase III and IV could affect growth momentum.
- Cost Management: The company must manage rising pay-channel costs and maintain its margin improvements.
Conclusion
HATH is positioned to benefit significantly from the government's digitization drive, leading to substantial revenue and earnings growth. The company's strong financials and strategic investments in digital infrastructure support its long-term growth potential. Despite risks from DTH players, the company's market share and revenue mix suggest a strong outlook. With a target price of Rs369, the stock is viewed as a buy based on its discounted cash flow valuation and growth prospects.
