RESEARCH REPORT 14 th Nov 2017 GTPL HATHWAY LIMITED NSE : GTPL Sector: MEDIA & MSO BSE: 540602 View - BUY CMP : Rs. 144 Target Price: Rs 190 (In next 12 to 18 mths) BUSINESS BACKGROUND GTPL Hathway Ltd. (GTPL) was initially incorporated by 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. GTPL is a leading regional MSO in India, offering cable television and broadband services. As of January 31, 2017, GTPL 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. KEY DATA FACE VALUE Rs 10.00 DIVD YIELD % 0.69 52 WK HI/LOW 190/125 NSE CODE GTPL BSE CODE 540602 INVESTMENT HIGHLIGHTS Healthy business growth in FY18 continues MARKET CAP RS 1631 CRS GTPL reported healthy Q2FY18 numbers with Topline placed at Rs 183 crs from Rs 148 crs up by 24% YoY, a EBIDTA of Rs 58.5 crs from Rs.48.90 crs in Q2 last year on a consolidated basis up by 20% YoY. The PAT on a consolidated basis for Q2FY18 stood at Rs 11.9 crs as compared to Rs 7.70 crs in Q2 last year up by 55% YoY For FY17, on a consolidated basis GTPL reported a Topline of Rs 909.01 crs from Rs 736 crs last year, a EBIDTA of Rs 208 crs from Rs 152 crs last year followed by a PAT of Rs 40 crs from Rs 7.53 crs. GTPL has declared a dividend of 10% for FY17 vscore: GTPL is vscore a leading (Value regional Score) MSO is our with proprietary significant company share rating in system Gujarat, f Kolkata & Mahar GTPL enjoys strong content cost benefits owing to its leadership position in the Gujarat market with a 67% market share. Gujarat is an important market for broadcasters and advertisers with 5% viewership share from the market on an all-india basis and more than 8% of the Hindi speaking market in India in 2015. Hence, GTPL accounted for 14% share of the total cable carriage and placement fee market in India and going ahead GTPL intends to be a regional leader and would only enter those markets where it can secure a leadership position. About 2/3rd of GTPL s presence is in Phase III/IV markets, which are yet to see complete monetisation and will aid revenues as monetisation is visible herein. Assured Long term Drivers for DHFL look good in view of the follow18 SHAREHOLDING PATTERN PROMOTERS - 74% BANKS, MFs & DIIs - 3% FIIs - 10% PUBLIC - 13% KEY FUNDAMENTALS YE FY18 FY19 FY20 Rev Gr% 25 23 24 EBIDTA Gr% 28 27 24 PAT Gr% 62 46 32 EPS Gr% 62 46 32 EPS (Rs) 5.80 8.50 11.2 Precise ROE % 14 18 20 ROCE % 14 17 20 P/E (x) 25 17 13 Advice
GTPL is a large player in important markets like Gujarat & Bengal GTPL is the No. 1 MSO in Gujarat with a market share of 67% of cable television subscribers, accounting for 3.7 million of 5.6 million cable television households in Gujarat. In addition, it is the No. 2 MSO in Kolkata and Howrah in West Bengal with a market share of 24% of cable television subscribers in this market accounting for 0.7 million of 3.0 million cable television households in Kolkata and Howrah. 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 GTPL intends to be a regional leader and intends to enter only those markets wherein it can scale up to be a regional leader GTPL enjoys a well established Business Model which is growing rapidly GTPL s primary source of revenue from 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, GTPL offered up to 285 pan-india standard definition channels, 158 regionally-transmitted standard definition channels, 32 pan-india high definition channels and 39 regionallytransmitted high definition channels on digital cable platform. GTPL also owns and operates 27 channels offering localized content developed for the states in which company broadcasts, including a range of religious and cultural content, film, music and educational channels. GTPL also has the right to place the Gujarat News channel on its network, which is produced by Group Company, Gujarat Television Private Limited. GTPL 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. GTPL believes its local content offering is a key strength, and provides a competitive advantage to attract, retain and grow its subscriber base. GTPL has seeded approximately 8.28 million STBs (as on Sept 2017) and had 7.06 million active digital cable subscribers. GTPL has 2,60,000 broadband subscribers and has an established home pass of 1.15 million households. GTPL also provides owned and operated 27 channels offering localised content to its subscribers and enjoys the right to place the Gujarat News channel on its network. GTPL has completed the rollout of STBs in Phase I, II, III areas and is working towards completing the rollout of STBs in Phase IV areas. Revenues are expected to grow at a faster pace once monetisation commences in the markets so digitised. GTPL owns intercity and intra-city optical fibre cable network of 5,406 km while leased fibre network was at 3,615 km. Digital cable services across GTPL s coverage area is supported by one main digital head-end located in Ahmedabad. ARPUs expected to improve as GTPL intends to increase HD offerings and offer digital content GTPL has completed rollout of STBs in Phase I, Phase II and Phase III areas and is working towards completing the rollout of STBs in Phase IV areas. ARPU is expected to exhibit an increase as and when the monetisation process begins in the Phase II/III markets and the digitisation in the Phase IV is complete. Moreover, GTPL is targeting strengthening its HD service offering, which will result in higher ARPUs. The number of paying HD subscribers is at 0.10 million as on Sept 2017
GTPL plans to to increase primary subscriber base GTPL has 0.33 million of its total digital and analog subscribers as primary subscribers, to whom they provide direct connections, either through relationship with such subscribers, through joint ventures, or through right to use agreements entered into with LCOs. GTPL aims to increase its primary subscriber numbers and benefit from a higher realisation per primary subscriber compared to secondary subscribers, as sharing of subscription fees with LCOs gets eliminated TV Industry looks poised to grow at a healthy rate going ahead The TV industry in India has grown at a CAGR of 12.3% from Rs 37000 crs in 2012 to an estimated Rs 58800 crs in 2016. The industry is expected to grow at a CAGR of 14.7% to Rs 116600 crs by 2021. Subscription revenue is estimated to grow from Rs 38700 crs in 2016 to Rs 77100 crs in 2021 at a CAGR of 14.8%, driven by intended benefits of digitisation after 2017 (Source: The KPMG-Ficci Report). The number of TV households in India increased to 181 million in 2016, implying a TV penetration of 63%. The number of C&S subscribers is estimated to have reached 169 million. The number of paid C&S subscribers is estimated at 147 million in 2016, implying a paid C&S TV penetration of 81%. The number of TV households is expected to increase to 203 million by 2021, with the paid C&S subscriber base expected to grow to 171 million by 2021, representing 84% of TV households. Regional cable TV Market overview Gujarat Gujarat had 8.3 million pay TV subscribers as on CY15 and captured more than 5% viewership share on an all India basis and more than 8% of the Hindi speaking market. Several national MSOs like DEN, InCable and SITI operate in the cable TV market in Gujarat. However, cable distribution in Gujarat continues to be dominated by GTPPL Hathway with 67% market share therein. It has enhanced its channel offerings and differentiated its service offering with a wide suite of local channels and strong LCO tie-ups. As a result, over the last three years, it has been the No. 1 operator in Gujarat with 3.7 million of total 5.6 million cable TV households in Gujarat. Kolkata and Howrah The cities of Kolkata and Howrah were among the earliest markets to be fully digitised and had 4 million pay TV subscribers at the end of 2015. GTPL continues to remain a strong No. 2 cable platform in this market with 24% share with 0.7 million of total 3 million cable TV households in Kolkata and Howrah. Broadband services India s internet subscriber base is expected to increase from 411.6 million subscribers in 2016 to 1,004.3 million subscribers in 2021 led by growth in wireless subscribers. With 137 million broadband subscribers in 2015, India s broadband market penetration was lower compared to developed markets like the US, UK, South Korea and Japan. Hence there is a good headroom for growth in India s broadband subscriber base as well as the internet user base. Fixed broadband had only 6% household penetration at the end of 2015. Considering the benefits of fixed broadband, leading cable operators as well as telecom operators are investing in fibre upgrades and next-generation fixed broadband technologies. The government s digital India programme is also expected to promote cable broadband with cable pipes already reaching over 100 million homes. GTPL also intends to cash in on this digital revolution by coming out with new GPON technology that is more effective in both cost & technology wise.
Other Key Developments The upgradation of network to GPON has started- which will also create new FTTH homes in existing territory. Pilot GPON Services has been Launched in Areas of Ahmedabad City Deploying TVkey which uses advance technology from Nagra and Samsung for securing high value content. This technology gives consumers an easy hassle free access to the premium Pay-Tv content on latest Samsung TV sets without the set top box GTPL has also been awarded 2 prestigious 5 year contract from Gujarat government under Digital Initiative for Rs 48.2 crs. These include for two projects mentioned as follows 1.Free WIFI at Public Place - Contract Rs 28.9 crs To Provide Free Wi-Fi under UDD, Government of Gujarat Nagarpalika of 57 cities in Gujarat For Installation, Design and Maintain In Phase I : Civil Hospital, Library, Bus stations Nagarpalika offices will be covered. 2.Internet Services to Police Station Contract Rs 19.3 crs This contract has been awarded by the Home department of Gujarat Project to provide internet services to 1500 police station in Class B and Class C cities of Gujarat across 150+ cities. Benefits to GTPL from these projects The existing infrastructure will be monetized by GTPL as the required network is already there in around half of the place. This provides GTPL the potential to expand its network to potential area and class C cities of Gujarat, where expects broadband penetration to be high This will enable GTPL to increase its density area with cost-effective roll-out to build new home-pass and get more customer acquisition Hence Internet Bandwidth capacity and utilization will be more effective to improve on EBITDA going ahead. Other Key Developments from Existing Businesses Performance Q2 FY 2018 GTPL has seeded 0.52 mn STB boxes during Q2. Increased 0.37 mn CATV Digital Active Subs. Increased 0.94 mn CATV Digital Paying Subs. ARPU has increased in Phase III by 7.4% and Phase IV by 19.5%. In Gujarat, GTPL seeded 4.2 million set top boxes. In West Bengal, GTPL seeded 1.9 million set top boxes and the rest of Maharashtra GTPL seeded 1.2 million set top boxes
GTPL added around 40 K new Home Pass in Broadband Business Increased 10 K Broadband Subscriber during Q2 Data Consumption per Customer Stands at 46 GB/month as on Sept 2017 increasing from 34GB/month in December 2016, a jump of 35%. GPON upgradation and Implementation for High Speed Broadband Progressing in fast pace in 4 major cities of Gujarat namely Ahmedabad, Baroda, Surat and Rajkot IPO Money by GTPL used to re pay debt The GTPL IPO in June 2017 made at a issue price of Rs 170 per share aggregating Rs 485 crs (including a OFS offer) was made to repay debt of Rs 229.44 crs and for general corporate purposes and working capital. Gross Debt stands at Rs 343.9 crs as on 30th September 2017 in comparison to Rs 549 crs in March 2017. Net Debt stands at Rs 244.1 crs as on 30th September 2017 in comparison to Rs 442.6 crs in March 2017 The impact of debt reduction is clearly visible on interest cost in Q2 with Interest costs down to Rs 7.88 crs from Rs 13.63 crs in Q2 last year. For H1 of FY2018 interest cost has totaled Rs 16 crs as compared to Rs 24 crs in H1 last year and Rs 51 crs for last full year ending FY17. Solid financial performance - topline growth and margin expansion We estimate GTPL s earnings to witness a CAGR of 50% plus over FY17-20E. Over the years, the company has improved its operational performance significantly with its operating margins having remained in a range between 22. to 23% since last 2 years. Also it has been able to record a return on equity of 10% and a ROCE of 11% as on FY17. Going ahead as more value added products get added and debt gets reduced we expect the ROE and ROCE to climb to levels of 19% and 20% respectively by FY20. Peer Comparison Company Market Cap Rs OPM % PAT Rs EPS P/E GTPL 1631 crs 23.00% 40.00 3.57 40 Ortel Communication 97 crs 24.9% 1.43 0.47 63 Hathway Cable 3068 crs 16.7% -195.00 - - Siti Network 2171 crs 17.5% -179.00 - - Den Network 1828 crs 16.1% -189.00 - - Source Annual Reports, All figures as on FY17
Strong Board Team Aniruddhasinhji Jadeja, Promoter and MD - entrepreneur; started with cable operations in 90s and shaped GTPL in 2006; has many accomplishments to his credit; has won numerous industry/social awards Sumit Bose Head Video Business - Exec. MBA (ISB, Hyd); 28 yrs. of experience across consumer durable, cable (analogue / digital) and broadcast enterprises including Godrej, ESPN-Star, Siticable Hetal Shah,Head Broadband - Computer Engineer; has had association with You Broadband, Tata Tele & Sterlite Tech (Elitecore) and other companies over 24 years; mainly in Techno-commercial roles Jayanta Pani Chief Financial Officer - CA and ICWA (Rank holder) with 23 years of experience in Finance and Accounts across different industries like FMCG, Synthetic, Tea, Leather etc Piyush Pankaj,Chief Corporate Affairs Officer - CFA and MBA with 19 years of experience in Media, Internet & Ecommerce; has worked in Astro Group (Malaysia) and Zee Group (India) V Guruprasad Chief Technology Officer - Master in Electronics and having 27 years of experience in Broadband and Cable Technology enterprises like Reliance JIO, Silicon Applications(Singapore) and Scientific Atlanta What is GTPL s key USP and competitive edge In summary GTPL has some key competitive advantages which stand out. GTPL is the No. 1 MSO in Gujarat with a market share of 67% of cable television subscribers, accounting for 3.7 million of 5.6 million cable television households in Gujarat. In addition, it is the No. 2 MSO in Kolkata and Howrah in West Bengal with a market share of 24% of cable television subscribers in this market accounting for 0.7 million of 3.0 million cable television households in Kolkata and Howrah GTPL has completed rollout of STBs in Phase I, Phase II and Phase III areas and is working towards completing the rollout of STBs in Phase IV areas. ARPU is expected to exhibit an increase as and when the monetisation process begins in the Phase II/III markets and the digitisation in the Phase IV is complete. Moreover, GTPL is targeting strengthening its HD service offering, which will result in higher ARPUs. The number of paying HD subscribers is at 0.10 million as on Sept 2017 Given its strong distribution network of 14000 LCO s and strong reach in Gujarat, Bengal and Maharashtra GTPL is confident of scaling up its operations in the next 2 years. The upgradation of network to GPON has started- which will also create new FTTH homes in existing territory. Thos will also benefit GTPL significantly ahead. Pilot GPON Services has been Launched in Areas of Ahmedabad City. More importantly GTPL has been aggressively increasingly reaching out to customers by seeding strong growth in STPs and will offer far higher value add services which will significantly boost its topline and profits going ahead.
Business Outlook & Stock Valuation On a rough cut basis, in FY18, Topline is expected to touch Rs 1136 crs. On the bottomline level we expect the company to record a PAT of Rs 65 crs in FY18E. Thus on a conservative basis, GTPL should record a EPS of Rs 5.80 for FY18E. For FY19E and FY20E our expectation is that earnings traction for GTPL would continue to be robust wherein we expect a EPS of Rs 8.5 and Rs 11.20 respectively. GTPL is the No. 1 MSO in Gujarat with a market share of 67% of cable television subscribers, accounting for 3.7 million of 5.6 million cable television households in Gujarat. In addition, it is the No. 2 MSO in Kolkata and Howrah in West Bengal with a market share of 24% of cable television subscribers in this market accounting for 0.7 million of 3.0 million cable television households in Kolkata and Howrah. 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 GTPL intends to be a regional leader and intends to enter only those markets wherein it can scale up to be a regional leader The GTPL IPO in June 2017 made at a issue price of Rs 170 per share aggregating Rs 485 crs (inclusing a OFS offer) was made to repay debt of Rs 229.44 crs and for general corporate purposes and working capital. Gross Debt stands at Rs 343.9 crs as on 30th September 2017 in comparison to Rs 549 crs in March 2017. Net Debt stands at Rs 244.1 crs as on 30th September 2017 in comparison to Rs 442.6 crs in March 2017 The impact of debt reduction is clearly visible on interest cost in Q2FY18 with Interest costs down to Rs 7.88 crs from Rs 13.63 crs in Q2 last year. For H1 of FY2018 interest cost has totaled Rs 16 crs as compared to Rs 24 crs in H1 last year and Rs 51 crs for last full year ending FY17. We expect significant reduction in i nterest cost over the next 2 years. This will also drive EPS growth going ahead. GTPL has completed rollout of STBs in Phase I, Phase II and Phase III areas and is working towards completing the rollout of STBs in Phase IV areas. ARPU is expected to exhibit an increase as and when the monetisation process begins in the Phase II/III markets and the digitisation in the Phase IV is complete. Moreover, GTPL is targeting strengthening its HD service offering, which will result in higher ARPUs. The number of paying HD subscribers is at 0.10 million as on Sept 2017. Given its strong distribution network of 14000 LCO s and strong reach in Gujarat, Bengal and Maharashtra GTPL is confident of scaling up its operations in the next 2 years. The upgradation of network to GPON has started- which will also create new FTTH homes in existing territory. Thos will also benefit GTPL significantly ahead. We hence believe that the GTPL stock is strong proxy for India s consumption and data growth story and considering GTPL s strong distribution network of 14000 LCO s and the fact that GTPL has been aggressively increasingly reaching out to customers by seeding strong growth in STPs and will be offering far higher value add services will significantly boost its topline and profits going ahead. Hence we believe that the GTPL stock should be purchased at the current price for a price target of around Rs 190 over the next 12 to 18 months.
FINANCIALS For the Year Ended March RsCrs FY16A FY17A FY18E FY19E FY20E Net Sales 736.37 909.01 1136.26 1397.60 1733.03 EBIDTA 151.67 207.71 265.00 335.424 415.93 EBIDTA % 20.597 22.85 23.32 24.00 24.00 Interest 44.46 57.96 30.00 25.00 23.00 Depreciation 107.27 139.44 160.00 185.00 200.1 Non Operational Other Income 7.91 32.72 15.00 15.00 15.00 Profit Before Tax 8.12 40.78 90.00 140.42 207.83 Profit After Tax 7.53 40.02 65.00 95.00 125.50 Diluted EPS (Rs) 0.67 3.57 5.80 8.48 11.21 Equity Capital 112.00 112.00 112.00 112.00 112.00 Reserves 281.64 317.65 377.65 467.65 583.15 Borrowings 348.55 485.00 241.00 216.00 196.00 GrossBlock 950.77 1098.54 1173.54 1223.54 1273.54 Investments 18.00 17.00 17.00 17.00 17.00 Source Company our Estimates KEY CONCERNS Inability to acquire new subscribers The future growth of the company will be partly dependent on completion of the rollout of STBs in Phase IV areas. The discontinuance of analog signals has been challenged in courts in a number of states. The digitisation in Phase IV areas could be delayed or halted if any such court actions (including injunctions) are successful and the process can be delayed further. Moreover, if the number of STBs available at the time of rollout of digital cable services does not meet demand, the ability to complete the rollout of STBs in Phase IV areas could be impacted. Risk from new tariff order The new tariff order sets out a maximum amount of Rs 130 per month per STB, excluding taxes, which distributors may charge their subscribers to view up to 100 standard definition FTA channels. Distributors can offer a maximum of 15% discount to their subscribers for bundled channels over the sum of the retail price of those channels. Broadcasters have to declare maximum retail prices per month for their channels Technology risk The entertainment and media, cable distribution and internet service provider industry are characterised by rapid changes in technology and the introduction of new products and services. Technological developments within the cable distribution services include changes that may result in improved utilisation of network infrastructure, better consumer experience with more robust content recording features and new interactive content. Any change in market demand as a result of technological change and improvements may require the company to adopt emerging technologies and innovate with new products and services.
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