Long term investors with high risk appetite may opt for GTPL Hathway IPO - SMC Research

SMC | May 11, 2015, midnight


About the company


Incorporated in 2006, GTPL Hathway Limited is Gujrat based Multi System Operator offering cable television and broadband services. GTPL Hathway is number 1 cable service provider in Gujarat with a market share of 67% of cable television subscribers. GTPL Hathway provides digital cable television services in 169 towns across India. The company provides cable television signals in both digital and analog modes of re-transmission. GTPL's source of revenue for cable services is subscription income received fromsubscribers and carriage and placement revenues received from broadcasters for carrying their channels and placing their channels on their preferred channel number or position.


GTPL also has the right to place the 'Gujarat News' channel on its network, which is produced by its Group Company, Gujarat Television Private Limited. GTPL produce its own content and also offer third-party content on its local channels to ensure that it has a suitable mix of content that appeals to a range of demographics.


Strength


One of the leading regional MSOs with significant market share in Gujarat and Kolkata: The company is one of the leading regional MSOs in India offering cable television and broadband services. As of January 31, 2017, its 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. The company has accounted for a 14% share of the total cable carriage and placement fee market in India in Fiscal 2016.


High quality infrastructure network:Its services are supported by its owned and leased fiber optic cable network (using HFC), digital head-ends, analog head-ends, advanced CAS, SMS and advanced internet nodes facilitating seamless delivery of its services. The company believes that its ability to improve and maintain its network infrastructure to keep pace with the constantly evolving subscriber preferences and technology landscape is a competitive advantage.


Balanced local and regional content offering to attract and retain subscribers: As of January 31, 2017, the company owns and operates 27 channels offering localized content developed for the states in which it broadcasts, including 4 religious channels, 9 movie channels, 3 music channels and 11 regional channels. The company also has the right to place the “Gujarat News” channel on its network, which is produced by its Group Company, Gujarat Television Private Limited. The company believes that its local content offering is a key strength, providing it with a competitive advantage to attract, retain and grow its subscriber base and to attract advertising targeted at specific regions and cultures.


Strong traction on digitization: Its market position and industry expertise have provided the company with the ability to take advantage of the four-phased policy on digitization announced by the MIB, pursuant to which the cable television industry must transition the distribution of channel signals in India to DAS by March 31, 2017, thereby requiring cable operators to transmit digital signals through addressable STBs. As of January 31, 2017, the company has offered up to 285 pan-India standard definition channels, 158 regional standard definition channels, 32 pan-India high definition channels and 39 regionallytransmitted high definition channels on its digital cable platform.


Successful track record of identifying, acquiring and integrating MSOs, ISOs and LCOs:As on January 31, 2017, the company had active relationships with 14,606 LCOs. It has added 4,004 and 1,286 LCOs on a net basis in Fiscal 2016 and Fiscal 2015, respectively, and another 3,338 LCOs on a net basis in Fiscal 2017 through January 31, 2017. It believes that its understanding of the cable television distribution industry and its acquisition experience has enabled the company to identify and successfully acquire MSOs/ISOs/LCOs


Risk Factor


Required to obtain certain approvals, licenses, registrations and permissions for operating its business:The Company requires obtaining certain approvals, licenses, registrations and permissions for operating its business, some of which have not been applied for, have expired or may expire and require renewals in the future.


Business model is capital intensive:The business model of the company is capital intensive and the company may not be able to arrange adequate funds for future capital expansion. If its return on capital investment does not meet market expectations, this could materially and adversely affect its business, results of operations and financial condition.


Cable television distribution industry is highly competitive: The cable television distribution industry is highly competitive and often subject to rapid and significant changes in the market place, technology, regulatory and legislative environments. The company cannot assure that it will be able to compete successfully, which could adversely affect its business, results of operations and financial condition.


Heavily dependent on LCOs to reach the majority of its cable television subscribers: The Company is heavily dependent on LCOs to reach the majority of its cable television subscribers, to collect subscription fees, to increase its subscriber base and to maintain its service quality standards.


The company may be exposed to liability arising from activities by LCOs that are beyond the control or losses caused due to the termination of agreements it has entered into with LCOs, underreporting, to the extent it is relevant post DAS implementation, or otherwise.

 

Valuation:


Considering the P/E valuation on the upper end of the price band of Rs. 170, the stock is priced at pre issue P/E of 77.49x on its FY17 EPS of Rs. 2.19. Post issue, the stock is priced at a P/E of 88.62x on its EPS of Rs. 1.92. Looking at the P/B ratio at Rs. 170 the stock is priced at P/B ratio of 4.04x on the pre issue book value of Rs.42.13 and on the post issue book value of Rs. 58.66 the P/B comes out to 2.90x.


On the lower end of the price band of Rs.167 he stock is priced at pre issue P/E of 76.12x on its FY17 EPS of Rs. 2.19.Post issue, the stock is priced at a P/E of 87.05x on its EPS of Rs.1.92. Looking at the P/B ratio at Rs. 167 the stock is priced at P/B ratio of 3.96x on the pre issue book value of Rs. 42.13 and on the post issue book value of Rs. 58.66, the P/B comes out to 2.85x.


Industry outlook


The Indian M&E industry includes television, print, films, digital advertising, animation and VFX, gaming, out-of-home (OOH), radio and music segments. The size of the Indian M&E industry grew at a CAGR of 11.6% to Rs. 1,262 Billion in 2016 from Rs. 728 billion in 2011 and increased by 9.1% in 2016 from Rs. 1,157 billion in 2015. The value chain of each TV distribution platform consists of broadcasters, delivery platform operators, last mile operators and subscribers, except for DTH where delivery platform operators directly send signals to subscribers without an intermediary. In terms of revenue, the TV industry in India has grown at a CAGR of 12.3% from Rs. 370 billion in 2012 to an estimated Rs. 588 billion in 2016. The TV industry is expected to grow at a CAGR of 14.7% to reach Rs. 1,166 billion in 2021. The overall number of TV subscribers in India grew from 130 million in 2012 to 169 million in 2016, and is expected to grow further to 201 million in 2021.


Company outlook


GTPLH also has the right to place the “Gujarat News” channel on its network, which is produced by the Group Company, Gujarat Television Private Limited. With its own produce contents, the company also offers third party contents and thus offers mix of contents. However the company is heavily dependent on LCOs to reach the majority of its cable television subscribers, to collect subscription fees, to increase its subscriber base and to maintain its service quality standards.A long term investor with high risk appetite may opt the issue.

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