Hathway Cable: Kenneth Andrade’s big bet

Hathway Cable & Datacom Ltd. (Hathway) promoted by Raheja Group, is one of the largest Multi System Operator (MSO) & Cable Broadband service providers in India. Hathway operates through two segments: Broardband and Cable TV

Broadband:
– Hathway holds a PAN India ISP license and offers broadband Internet services
– Total broadband Subscribers – 0.7 Mn
– High-speed cable broadband services across 12 cities (4 metros and 3 mini metros)
– Around 52% share of the total MSO cable broadband market in India

Cable:
– One of India’s largest MSO, across various regions of the country and transmitting the same to LCOs or directly to subscribers
– Extensive network connecting 7.5 Mn cable television households and 7.2 Mn digital cable subscribers
– Offers cable television services across 350 cities and major towns
– 15 in-house channels and 10 Value Added Service (VAS) channels

Revenue Break-up:
Hathway derives 37% of its revenue from Broadband, 34% from Cable Subscription and remaining from Placement & Activation.

Management:
– Promoted by Low-profile Rajan Raheja Group
– Experienced management team with strong track record

Risks:
– Increase in competitive intensity in broadband business from wireless operators
– The monetisation in cable TV business has been slower than expected
– The entry of Reliance ‘JioGigaFiber’ threatens broadband companies

Investors:
– Promoters hold 43.5% of the company
– CLSA holds 9.5% of the company
– Providence Equity holds 8.5% of the company
– Norway Pension Fund holds 3% of the company
– East Bridge Capital holds 2.7% of the company
– Akash Bhanshali holds 1% of the company
– Old Bridge Capital buys 2% stake in the company, or at ₹39.5 per share

Hathway holds 37% stake in GTPL Hathway.

Bulk Deals:
On 19 Apr 18, Kenneth Andrade’s firm bought 1.65 crore shares of Hathway for ₹65 crore, or at ₹39.5 per share.

Valuation:
22-Apr-2018:
At the CMP of ₹39, the rate of return is 7.4% based on pre-tax earnings to market cap. It’s available at 4.3 times of sales to market cap.

01-Jun-2018:
At the CMP of ₹27.6, the rate of return is 9.6% based on pre-tax earnings to market cap. It’s available at 4.2 times of sales to market cap. It’s available at 43% discount to Kenneth’s buy price of ₹39.5.

05-Jul-2018:
Reliance ‘JioGigaFiber’ Impact
jio-fiber-impact

Hathway ticks majority of Kenneth Andrade’s checklist:
– Largest in the business
– Look for market leadership
– Continues to gain market share
– Challenging the leaders
– Dominant franchise or a product
– Low cost operator
– Lead industry with cost
– Look for capital efficiency
– Go with largest player during downturn
– Performs well during cyclical downturn

Risk Profile: In our view, Kenneth Andrade’s risk profile is Moderate to High.

Resources:
Investor Presentation – Nov 2017 [Download]

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