Hathway Cable & Datacom - Cyclical upturn for BroadBand provider?

(Gagan) #1

Hathway Cable & Datacom Limited (Hathway) promoted by Raheja Group, is one
of the largest Multi System Operator (MSO) & Cable Broadband service providers in
India today.

The company’s vision is to be a single point access provider, bringing into the home
and workplace a converged world of information, entertainment, and services.

Hathway recently got demerged as per below setup:

HCDL – FY18 Standalone Key Highlights:

  • 160k Net adds during the year (50K in Q4-FY18) with New customer ARPU of INR 720/- (Excluding Taxes)
  • 0.8 Mn Homes Passes added during the year, Homes passes reached 5.2 Mn through constant focus on Network expansion
  • Broadband Subscription Revenue increased by 13% Y-o-Y to INR 5,445 Mn in FY18 from INR 4,803 Mn in FY17
  • Subscription Revenue increased by 5% Q-o-Q to INR 1,457 Mn in Q4-FY18 and Operating EBITDA INR 639 Mn in Q4-FY18
  • Average GB / consumer / month has increased to 103 GB in the month of March. Strong indicator of demand side potential of high-speed wireline broadband.
  • TCS has been appointed as System Integrator to automate various Processes and Improve Quality of Service
  • In association with Microsoft 1 TB cloud storage being offered free to all yearly pay term consumers (This is initiative to protect High ARPU custmores from competition)
  • Upgraded Tech infrastructure enables 50% increase in speed and 200% increase in data capacity. Opportunity to delight our consumers by offering better value for money
  • Minimum data limits across country increased to 200 GB / consumer / month. 54% of our consumers have monthly data limits of 1,000 GB
  • GPON FTTH Parallel network being deployed in High Potential High Penetrated Docsis home passes. Opportunity to increase market share by offering 200mbps - 500mbps speed to premium consumers
  • • Docsis 3.0 technology to Docsis 3.1 technology upgradation work in progress to further enhance customer experience. Docsis 3.1 is the latest global technology for offering high speed broadband over cable

HDPL – FY18 Standalone Key Highlights

  • Consolidated CATV Subscription Revenue increase by 21% to INR 5,734 Mn from 4,728 Mn in FY17
  • Standalone Subscription Revenue continues to grow by 3% to INR 1,526 Mn in Q4-FY18 from INR 1,483 Mn in Q3-FY18
  • Standalone Operating EBITDA increased by 11% Q-o-Q to INR 401 Mn in Q4-FY18 from INR 360 Mn in Q3-FY18
  • Collections have grown by 5% QoQ and 24% YoY demonstrating strong improvement in efficiency. Q4-FY18 Collection efficiency is at 98%
  • Effective monetization have resulted in significant ARPU increase: Phase I INR 108/-, Phase II INR 102/-, Phase III INR 70/-, Phase IV INR 55/-
  • Hathway Connect penetration reached to 2/3rd of our base in Q3-FY18 with 55% of online payment by LCO(local cable operator) assuring stable growth in business

Overall: Financials & Balance Sheet

Thoughts on their Network Setup:

As I am from the same field and I understand network architecture, to my understanding they have a very well structured network, specially GPON(Passive Network).

Fiber Networks are of basically 2 types: Active & Passive.

  • Active networks need electricity throughout the network, hence hight running cost & more point of failures.
  • Passive networks need electricity only from starting and receiving devices.
    Passive networks(GPON) are low cost to operate and provide higher availability, but the main drawback of passive is its hard to troubleshoot in case of failure.

For India, specifically passive networks are better suited, as electricity supply is not reliable.
rest for more details refer below link.

rest all other networks vendors are reputed and recently they appointed TCS as principle integrator also work in progress with Microsoft for their CMS.

Managment Guidance on key points

As per the management Guidance from attached concall, management had stated that company won’t go for expansion beyond current cities, as it doesn’t make economic sense to venture in low ARPU area with high initial costs, rather they will expand in existing major cities where they already did the capex and have a lot of room to grow.

On Cost Reduction:
“In Q1 concall, I have shared with you all full year plan of saving Rs.50 Crores in non- content costs put together for both HDPL and HCDL. I am happy to share plan is on track and we have achieved our target for Q3.”

On Subscriber Chrun
The churn currently for the broadband is around 1.5% month-on-month.

On Content cost:
Content cost, so currently negotiations are going on with the most of the broadcasters, so I think it is premature to comment upon that, but industry wide there is a general consensus that content cost will increase by around 10%, but we are yet to close on that.

Focus on Customer delight(protecting them from churn to competition) rather on ARPU:
currently as you see without increasing ARPU we are delighting consumers by giving more and more GBs and to be very frank Sanjay, we also do not see need for increase APRU currently with the kind of EBITDA margins we have and they are continuously growing, I think the focus has to be on ring-fencing consumer by delighting them rather than looking for an ARPU increase, but yes in future when consumers are used to much higher monthly data limits there is a case for ARPU increase.

Future readiness
this year was all about build up for the future, so last nine months we have been updating each quarter that we are doing lot of things to make sure the business model is sustainable for the next three to five years, which means we have added capacity in the data center, when we say data centre that is a generic term that involves a lot of our infra to make sure we are able to give each and every consumer more than 200 GB of monthly data limits, for many consumers going up to 1000 GB, so essentially we are saying there is a lot of one-time capex, which we have incurred and you know we could have avoided that, but the idea is to build up the business for the future and specifically business which is so attractive in terms and EBITDA and ROIs, so if you see when we have mentioned that kind of capex we also mentioned lets model on 40% EBITDA, but currently already the EBITDA levels ,even if leave aside the non-operating income, they will reach more than 44%, also the EBITDA have been higher than projected then such a scenario it is good to invest for the future that is what exactly we have done.

Last concall: Q3 FY18
Hathway_Q3FY18 Concall transcript.pdf (364.7 KB)

One on one discussion with Jagdish Kumar M D & CEO, Hathway, although its bit old interview but still useful to understand business dynamics.


Notable investors:

  • On 19th April 2018, his Old Bridge Capital PMS Fund(Managed by Kenneth Andrade) bought 164,58,492 shares at Rs. 39.50 each
  • In last quarter Akash Bhanshali name appeared in the 1%+


As per Kenneth Andrade from a price point and from a replacement cycle also, the company is trading at virtually replacement cost, and I am buying his argument.
rest below are key ratio’s, which are generally used to value a telecom or ISP company.
Price to Cash Flow: 7.62

I also took comfort as the stock price is near all-time low also 52 weeks low.

Investment Rational:

  • Company already done with major CapEx phase and current CapEx is sufficient for next 3-5 years of growth, as per management.

  • EBITDA margins are continuously improving despite Jio’s freebies in last 2-3 years.

  • Cost is falling, due to efficiency measures, automation and continuous improvement in process, implemented best in class billing system, dunning process, for ex: for Digital Tv LCO can bar subscriber with delayed payment with a click on mobile, once payment is a collected, immediately connection can be enabled from LCO mobile.

  • Uptrend in online payments, 70% of the broadband payments are online and for TV more than 50% of payments are online.

  • High margin in the broadband business, which gives enough room to compete with new disruptive entrant like Jio.

  • Broadband business is more sticky than the mobile handset.

  • Broadband Penetration going to increase over time, as data consumption habits are rapidly growing.

  • As per Ericsson’s mobility report for India, data consumption is going to grow roughly 8 times from 2017 to 2023.

  • The rise of OTT, streaming consumption will push the high-end user’s from Mobile to the stable Broadband connection.

  • Rest I feel after Jio disruption, no other big player would be investing in India for data/broadband.
    So if supply is limited, and demand is robust, at some point demand should takeover supply and survivors would get profitable growth.

  • One of the main reason I think broadband business is better in comparison to telecom is that: telecom has too many dying revenue streams but they have mandatory maintenance capex for all such dying services.
    for ex: Roaming Revenue(local + International) + SMS + Interconnect + Even local Voice
    all these revenue streams are being eaten by Whatsup & other digital apps.
    Data is the only saving grace for telecom operators and Broadband service are focused only on data, also service quality of a broadband is much better than mobile.

  • Regarding Digital cable Tv business, growth is fine(14% in revenue), as all the 4 phases of digitization mandated by Govt of India is complete, now ARPU is in an uptrend as well.

Key Risks: Competition


however upon checking the mentioned pricing of both Jio Broadband & Hathway Broadband, Hathway is still cheaper, as Jio is tricking on minimum charge for monthly plans, the minimum charge is 1500 Monthly, so minimum total 18000 yearly, where they are mentioning 2000GB quota(for a home subscriber such big quota is unconsumable, altough for business users its good plan), current avg consumption is around 100GB, and most user’s will fall below 200GB monthly usage, So lets take Hathway biggest plan 200GB monthly plan which is at 16499 yearly.

and for a normal user 100GB monthly would be fine which can be bought @10999, whereas Jio’s basic plan is @18000.

Still, there is the probability of Jio taking away the incremental growth from Hathway, but we will have to check market size & other competitors as well in order to know if the market can sustain many profitable players or not.

Open points: Any help from seniors/members would be appreciated

Checking valuation: as all the telecom & broadband business seems to be on cyclically low earnings thanks to Jio, P/E doesn’t make any sense, so I am not sure how to value this business.
also need to factor in debt.

Depreciation: I am not sure how long the high depreciation will continue, basically depreciation and interest are eating all the earning.
as I understood if assets are well depreciated and still retain their earning power, the return on assets will be higher, but the key is to know when the current majority of assets will depreciate.

Competitive analysis: Still need to check about other competitors, comfort is that Hathway is a leader in their market.

Disclosure: 7% of PF @avg price of 25.6, I am a novice investor, this is not a recommendation, please do your homework before investing, this post is still work in progress.

Hathway-Earnings Presentation.pdf (931.8 KB)


(Karthik) #2

Good bet Gagandeep. This business will have great growth as people start using multiple device people will move to optic fiber broadband. If one looks at valuation of Comcast one can easily see the potential of this business .Reliance is a threat but I feel there is enough market and the Apru is really low. So it would depend heavily on the qulatiy of the service more than the price . Disc : Invested 10 percent of my portfolio.

(Changu Mangu) #3

Hi Gagandeep,

Very nice work. Looks like it’s quite clean.

I was wondering on the other expenses though…

Other Expenses in FY17: 5828 and FY 18: 5527. If they seem like such constant and regular expenses why is management posting them under “other”

Especially, When compared to EBITDA which is 3454 so it is a huge amount in comparison being posted under other expenses.

Just checking as you may have done a deep dive so the answer might be quite simple.



Hi Gagan,

Nice write up.

What I don’t understand is the company restructuring.

HCDL is the parent company having broadband business. HDPL is demerged as 100% subsidiary of HCDL having Cable TV business and HCDL also holds around 37% in GTPL Hathway which operates broadband and cable TV in Gujarat .

Shouldn’t HCDL show consolidated numbers while reporting in 2018 ?

How debt of around 700 Crores has been transferred from HCDL books to HDPL books ?

(Gagan) #5

Thank you @karthik_kamath_ yes going by Comcast valuation, it looks undervalued, considering India as an underpenetrated market and huge runway ahead for growth, rest I do believe that in Indian context both Quality & Cost matters equally if the quality was the only parameter, then Jio wouldn’t have gained market share so rapidly, despite the fact that almost 30-40% of initial calls were dropping on Jio and data services were also choppy, whereas AIRTEL & Vodaphone where established quality player.

Thank you @valuestudent, I haven’t really done deep dive, as I am still learning basics of accounting, but as per quick search through the Annual report FY17, below is what I found.
Overall Expenses:

Other Expenses Details:

its good to see that they have recognized Bad Debt, its most likely due to the dunning process they have recently implemented, earlier in the cable business payment collection was fuzzy & hard task, now payment is more & more coming online and after implementing Dunning process for Bad debt recognition(usually company would recognize bad debt if payment is not submitted within 60days of grace period) & collection procedure would start, its good that clear reporting is possible now.

But not sure what is ‘Transfer from allowance’ any idea…? and how these are knocked off against each other?
Overall still Other Expenses on Consolidated basis are 582.8cr as per earning presentation which is still not matching as per the annual report, maybe something else is clubbed under ‘Other Expenses’?

@manojkapoor06 yeah it was very confusing for me as well, anyways below is management comment on the same.
"I am happy to share that all groundwork for the demerger has been smoothly completed. This new structure allows us to invest more aggressively
in high growth high profit broadband business and in parallel facilitate HDPL to focus on monetisation
of Investment done in different phases of Digital addressable system (DAS) and undertake significant cost optimization initiatives."

rest they are reporting in both standalone & consolidated basis, if you see on a consolidated basis debt is still within same range with the ​downtrend.

(Karthik) #6

I agree price matters but what i meant was there is little room for reliance JIO to reduce price further as the price in already low unlike the mobile network.

(Sarabjeet Singh) #7

@gagandeep : Very nice write up. With Amazon Prime, Netflix, Youtube etc getting popular in our country, for sure broadband players will be in major demand.

I haven’t reviewed the numbers, however I have some inputs regarding competition. You have just considered Reliance as one of the disrupters, whereas multiple non listed players are aggressively expanding. In Bangalore itself non listed players like ACT , Spectranet, Youbroadband are major players and there are many other local players who are offering even cheaper rates with same or even better service. I heard similar feedback from my friends in other Metros as well.
Even BSNL is getting better at this game and with a wider reach and real good rates can capture good mkt share

Hence with all these players expanding, I am not sure if game will be smooth for Hathway.

Moreover, 5G technology which is under trials as of now gets popular and offers data at competitive price can also be a major competitor in this space.

Disc : Not invested

(Gagan) #8

Thank you @zoro99, I agree that game won’t be smooth for any of the players, each player has to give lofty deals to defend and grow their market, Hathaway seems to be reasonably prepared for that, as they have already upgraded their network with high speed & capacity, although same is not yet reflecting their marketing plans, management claims that for their high ARPU subscriber they already raised data limits ranging from 200GB to 1000GB, this is without effective EBITDA margin.

Regarding Local player: local players usually don’t have their own network setup, usually, they are virtual operator just doing marketing things & selling plans and they lease network from existing big players… these guys don’t have any scale & cost advantage, as their network is on fixed fee’s they can’t do aggressive cost cutting… only on the marketing side, they can play around, I would simply ignore them as if the market gets cannibalized, they will be the first one to die.

Regarding State-run co’s: BSNL, MTNL, everyone knows how their services are, once experiencing outage it takes days & weeks to get a fix, yes they will also get market they deserve and mostly in rural areas(Low ARPU). where other private players are not venturing.

Regarding other telecom operator’s (Airtel, Idea-Vodafone): as Jio already damaged their balance sheet, and recent Jio move to aggressively acquire Postpaid subscriber(Postpaid & Corporates are highest ARPU subscriber) will further damage both capacity to invest & fight for broadband, only Airtel I think still can give a fight with diminishing capacity.

Regarding 5G: I know 5G as i work in the same field, it’s more about IOT and improving the latency(gap between the first request for data & delivery of data), it will be more focused on an Enterprise level for IOT & Automation kind of industries, as devices need to talk and should have least possible latency, its not for a normal consumer, is there anything useful you can do with 100 gbps speed, or even with 1-2 Gbps speed.?

For the normal consumer, the litmus test is streaming ability of network(Youtube, Netflix), whenever we do dimensioning of any network our benchmark is youtube streaming, you might have noticed, teleco’s market 42 MBPS speed but you will never experience 42mbps, it will stay around max 7-15 mbps, which works well for normal Youtube.

that’s why for a normal consumer if Youtube works fine… they never complain :slight_smile:

Hathway already have a high-speed network, as I mentioned Streaming is the litmus test, and further marginal utility of speed is next to nothing (Law of diminishing marginal utility), this also kind of limits the incremental CapEx requirements in telecos we have seen till 4G.

I mainly considered Jio plans, as they are the one cannibalizing market and the new entrant in this space, Hathway is already able to compete with other player’s and still getting decent new subscriber’s.

One other advantage Hathway have is: they have around 7.3 Million total Tv consumer, not sure how many are in targeted cities, but still they can easily reach these consumers and do cross-sell for broadband.

Moreover, my investment is with regards to the perceived value which is at replacement cost(assuming, as I am not financial savvy) we are not paying for growth, and growth could be a surprise.

Disclosure: I may be biased and wrong.

(ramanhp) #9

@gagandeep. Congrats on this detailed information on Hathway. I am curious if you looked into the Fibre optics industries like Sterlite, Aksh or KEI. I guess there are more non- listed Fibre Optics companies too. Any chance you looked any or found anything interesting?

(Gagan) #10

Sorry @ramanhp I never checked any of the mentioned co’s and don’t know much about Fiber Optics industry.

(Karthik) #11

Gagandeep have you had a chance to get the feedback from users who have been using Hathaway broadband.

(Gagan) #12

@karthik_kamath_ yes I did check reviews online, and most reviews are -ive and same goes for other broadband operators, as I understood checking online reviews for service co’s may lead to the wrong conclusion as mostly user who is having problems are posting something.

I would rather rely on churn number since churn is around 1.5% monthly which is kind of okay, not really good, less than 1% would be nice, management knows the cost of churn and they are working on it as well, per user churn cost is =1800 rs.

(AJ66) #13

Also one can check why the promoters have consistently reduced holding on the company… reason for frequent changes in the key management personnel… Also why have promoters diluted stake in gtpl Hathway… Do these two compete with each other in any market…

(Shrenik Bothra) #14

My 2 cents (for long term perspective 3+ years)

Jio is huge competitior and headwind for Hathway Broadband. I havent gone through the financials of Hathway though.

I am personally using Jio-Fibre Broadband for past 6 months for FREE in Navi Mumbai and the service guy told it should be free till the full launch of jio-fibre i.e atleast 1 more year. Usage plan is Truly Unlimited usage @ 100 Mbps (without reduction in speed). I am a bit tech savy, so use the internet a lot. This is for sure better than Hathway that i had used for 1.5 year. Internet down-time for hathway was around on an average one day in 2 months, but for jio its 0 days. As the customers of jio fibre increases, quality could decrease but same is applicable to hathway as broadband infrastructure have limited bandwidth OR you need to increase the capacity which again JIO is well positioned to do

In mid 2016 charges for Hathway broadband were around 3000 Rs for 100 GB per month 50 Mbps and for additional usage you need to pay extra. But in Sep 2017 I got 400 GB @ 25 Mbps per month for 1200 rs per month. Initially he gave around 150 GB but after negotiating went upto 400 GB, we can check the sales pressure from this. They used to charge around 1000 rs for installation and router deposit, but now its completely free. (I dont correctly remeber the figures though but they should be approximately true i.e ± 35 %) This is clearly the Jio-effect. Look what Jio has done to the topline of Airtel, Vodafone, Idea while others have sold or gone bankrupt. So same should go in broadband category i guess after the full scale launch and marketing.

In the normal phone usage Jio is very aggressive and will keep competing for price till it gets the majority share or till 2019-20 (have read somewhere in news). They have deep pockets and good cash flow, thanks to the company’s oil and gas division. So this will also follow in broadband in near future I guess.

When I changed the house I called and emailed the customer care to collect the modem and charger many times but they never collected after giving positive response everytime. So at last house-owner had to throw it. This shows the carelessness of management, wasting the money. OR it could be possible that collection cost (taking modem and charger back) is more than the cost of buying the modem, so they didnt care to collect it back.

Hathway are going heavy on telecalling. I keep getting calls from them once in every week to switch back to them again, after repeatedly telling them that Hathway doesnt have service in my new residence. Finally I blocked them. So these telecalling and reduction in prices and some other marketing could increase their revenue for short term.

I guess hands of competition comission (CCI) are tied when Ambanis are involved. I have guessed this from looking at the regular phone usage pricing that jio used in past 2 years, and from the below mentioned book. Even Sunil Mittal and Birlas couldnt make the CCI to behave morally or equally towards all telecom operators. The IUC charges has been cut from 20 to 14 to 6 paisa/ min in past 3 years, adding salt to the wounds of bleeding old telecom players. Jio would be the huge beneficiary of this. Further they have announced that it will be 0 starting from 2020. https://economictimes.indiatimes.com/tech/internet/interconnect-usage-charge-facts-that-you-should-know/articleshow/60772580.cms .
So such is the influence of Ambanis on the institutions. (My judgement)

I have read the book “The Polyester Prince: The Rise of Dhirubhai Ambani” written by unbiased (I felt) Australian author. The book seems like an accurately written chronological account of the growth of Reliance Industries. The truth behind the success of a common man to build the greatest company of India in terms of revenue and profit surpassing Tata companies which are more than a century old now.This book tells about how Dhirubhai Ambani used the media, public markets and politicians to move to the top leaving behind the century old Tatas, Birlas, Wadias etc. Thats why the book has also been banned from India and it has to be imported from Amazon Global for more than 2000 USD $. I have bought pirated copy from street vendors on thane station for 50 rs :D. From this we can guess how much, Ambani still have huge influence on the media and politicians. Just google on it. https://www.amazon.com/Polyester-Prince-Rise-Dhirubhai-Ambani/dp/1864484683

Soon Jio-fibre will be launched pan India in most of the cities. https://jiofiber.org/jio-fiber-cities-list-broadband-coverage/ (Link is by third party, not by official jio i guess)

Jio also offers the phone minutes, data and other digital services. So effectively the infrastructure cost is divided. This is not the case for Hathway.

So the only plus point is hathway can get acquired by Jio which i feel is less probable since technology used in Jio-Fibre is more advance than Hathway. This can be judged by :

  1. Wire used in Jio is diffrent than Hathway (Fibre-optical wire i guess)
  2. Jio can offer upto 1Gbps and hathway is limited to 50 or 100 Mbps
  3. Whenever someone connects to my Wifi I get a SMS
    It could get acquired by other telecom companies though.

I havent used the TV services of either of the companies.

Disc : All the above points are my personal opinion and judgement. I may be wrong. I am not a critic or fan of Jio or hathway or Ambanis. I have put up my unbiased views here. I am not trying to publicize Jio-Fibre here. I dont have any holdings of shares or options or other financial instruments of Hathway or Reliance indsutries or any telecom company.

(Shrenik Bothra) #15

8 MBps = 64 Mbps, Companies use small b i.e Mbps, Difference between bits and bytes is of 8. In computers size of file is in capital B , MB.

And yes 42Mbps or 5 MBps is more than enough for all.

(Gagan) #16

Thank you @Shrenik951 for posting your review & understanding…!
I broadly agree with what you said.

Jio disruption is the key risk and should be monitored.
Jio has been ruthless in the mobile market, Out of 10 mobile operators in India only 3 major are left, rest all almost went bankrupt/sold/merged, and still, the price war continues.

if we go by the Jio’s disruption in the mobile segment, Market is absolutely right in pricing Hathway at asset replacement value.
The key question is: Can Hathway survive Jio’s disruption or still gain some market…?

For the short to medium term: Hathway may have tuff time, as there is no way to compete with Jio’s free offer and we really don’t know how long it is going to last. //Frankly I did the mistake of overlooking free offer & its impact, I directly jumped on Jio’s paid plans, which looked okay in competitive terms, and I stand corrected.

For Long-term: Hathway might survive with mid-ARPU customer’s, as Jio’s basic plan is costing double then Hathway, Jio is clearly targeting High ARPU customers.
I think we need watch out of Churn number’s on the quarterly basis to really know whats going on.

rest there was another interesting news that RJ invested in Dish Tv, although its only 0.5% of his allocation. :wink: , just pointing out that cable Tv business has been under transition since many years and now all the phases of digitization forced by Govt are complete, so there is a good probability of upturn in industry.

Disc: Invested, reduced position to less than 5% as I realized the Initial position of 7% was too high.

(Karthik) #17

I agree Reliance is a threat and think its factored in the current price. When DMART can survive reliance retail I think Hathway can too. Ofcourse reliance retail did not give grocery for free and that would have been fun to watch. The freebies that reliance can offer will have a limited expiry date. If you observe the price of Jio is slowly inching up.The idea of providing free Jio and attracting customer base worked well because other players were not ready for it .The quality of thier services were not good . As far as Jio broadband is concerned reliance is ambitious and wants to be a pan India player .However Hathway is a limited city player and would just penetrate into those cities. Hathway has completed most of its capex into those cities. So it can do well if it focuses on those cities and slowly expand into selective cities. Being a pan India player in broadband is not as easy task so it will definitely take a toll on reliance cash flows. So the freebies may not last longer .Yes it’s a threat but Hathway will have significant free cash flow and the threat is factored in the price as it trades well below it’s replacement cost.