Brokerages neutral on GTPL Hathway IPO

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Mumbai: Analysts are largely cool to GTPL Hathway Ltd’s Rs485-crore initial public offer (IPO) opening on Wednesday, worried that tough competition may hamper performance.

GTPL Hathway offers cable TV and broadband services in several cities including Pune, Ahmedabad and Kolkata.

The company has set a price band of Rs167-170 per share for the IPO. The offer, which opens Wednesday and closes Friday, will see the firm raise Rs240 crore through a fresh issue of shares and a secondary share sale of 14.4 million shares by the promoter group. At the upper end of the price band, the secondary share sale will fetch the promoter group Rs244.8 crore.

GTPL Hathway will use the proceeds to reduce debt.

In a note on Tuesday, Centrum Broking Ltd said the cable television and broadband services industry is highly competitive and needs constant technology upgradation, which makes the business capital intensive.

“It also faces risk from other distribution channels of digital broadcasting like over the top (OTT—eg. Netflix) and direct to home (DTH). This has led to broadcasting firms reporting losses in the past,” Centrum analysts said in a note.

“Given GTPL’s weak fundamental performance, competitive intensity and high valuation, we recommend investors to avoid the IPO,” Centrum said.

Angel Broking Pvt. Ltd also had similar concerns, pointing out that none of its peers including Den Networks Ltd, Hathway Cable and Datacom Ltd, Ortel Communications Ltd and Siti Cable Networks Ltd have reported profits in the past 3-5 years. Also, these rivals have seen their share prices decline at a compounded annual growth rate (CAGR) of 10.11%, 22.38%, 38.50% and 2.53%, respectively, since listing.

In terms of valuation, GTPL’s annualized P/BV (price to book value) multiple for the first nine months in fiscal 2017 stood at 3.1 times, against Den Networks’ 1.8, Hathway Cable’s 0.7, Ortel Communications’ 1.4 and Siti Networks’ 4.8.

“The cable industry is already undergoing a period of weak performance and with disruptive pricing of new entrants, there is a high probability that the performance may weaken further,” Angel Broking said in a note.

“Hence, we recommend neutral rating on the issue,” Angel Broking added.

According to Amar Ambani, head of research at IIFL Wealth, the revenue model of the multi-service operator businesses is not promising. While Ambani did not have a rating or view specific to GTPL IPO, he was not upbeat about the prospects of the industry.

“For the cable business, too, there are issues due to the switch to digitization. With Reliance Jio coming in, the OTT space is also picking up. This could be a potential threat for cable operators,” Ambani said.

“The profitability of the sector is weak. Also, in terms of share price, none of these companies managed to deliver decent gains since their listings,” he added.

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As of 31 January, the company’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.

Hathway’s own cable TV operations span across almost 140 cities, while broadband service is provided in 21 cities, according to the company’s website.

For the nine months to December, GTPL Hathway reported a revenue of Rs663.4 crore and a profit of Rs16.3 crore.