GTPL Hathway IPO Review: Turn off the Idiot Box?

Gujarat-based cable TV and broadband services provider GTPL Hathway’s IPO will open next week to raise nearly INR485 crore through a mix of fresh shares and sale by existing investors. Priced in the range of INR167 – 170 per share, GTPL IPO will open on 21 June and will have some overlap with CDSL IPO which will close on the same day. GTPL Hathway IPO will be managed by JM Financial Institutional Securities, BNP Paribas, Motilal Oswal Investment Advisors Pvt Ltd and Yes Securities while Link Intime will be the registrar. As we find out in GTPL Hathway IPO review if the offer deserves your hard-earned money, here is a look at basic details.

GTPL Hathway IPO Review: OFS + Fresh

GTPL Hathway was earlier expected to raise INR300 crore, but has reduced the IPO size which will now fetch only INR240 crore through issue of fresh shares. The company plans to use majority of the IPO proceeds for repayment/pre-payment of borrowings and INR228.9 crore have been earmarked for this. The remaining amount will be used for general corporate purposes.

Similarly, the draft prospectus outlined plans of Offer For Sale (OFS) of 19 million shares which has now been reduced to 14.4 million shares. This totals to INR244.8 crore at the upper end of the IPO price band. The OFS will be led by Hathway Cable and Datacom Limited which plans to sell 7.2 million shares. 5.48 million shares will be offered by Gujarat Digi Com Private Limited while Managing Director Aniruddhasinhji Jadeja plans to sell 1.13 million shares. Company promoter Kanaksinh Rana will sell 440,000 shares while Amit Shah will offload 144,000 shares. It is worth noting that Gujarat Digi Com Private Limited, which is also a promoter of GTPL Hathway, is a company owned by Aniruddhasinhji Jadeja (75%) and Kanaksinh Rana (25%).

Also worth noting is the fact that Rajan Raheja Group-backed Hathway Cable and Datacom Limited – which currently owns 50% equity stake in GTPL Hathway – has an average cost of acquisition of just INR40.19 per share. Hathway Cable and Datacom invested in the company, then known as Gujarat Tele Link Private Limited, in October 2007.

GTPL Hathway IPO Review: Business Background

Incorporated in August 2006, GTPL Hathway is a leading regional MSO (Multi System Operator) in India. It is the leading MSO in Gujarat with a market share of 67% of cable television subscribers in 2015, and second largest player in Kolkata and Howrah in West Bengal with a market share of 24%. As of 31 January 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. It also counts 228,217 broadband subscribers among its customers which are primarily based in Gujarat. 

GTPL Hathway IPO Review: Financial Performance

The company has been performing well on the revenue growth front and has seen its top line increasing from INR528.8 crore in FY2014 to INR746.2 crore in the year ended 31 March 2016. In the latest nine months, the company has maintained its growth streak with revenues of INR663.5 crore.

Notwithstanding the top line growth, GTPL Hathway’s profitability has been volatile and it even posted losses in FY2014 on consolidated basis. After recovering in the subsequent year, its profits dived again in FY2016. Margins also tell the same story of volatility. In fact, the best profit margin figure of 3.2% has come in the latest nine months.

An important factor to consider here is that the figures presented in RHP are significantly different from draft prospectus. Such divergence and restatements are concerning as well as confidence-shaking.

GTPL Hathway IPO Review: Should you invest?

GTPL Hathway’s prospectus says that the TV segment is expected to grow at a CAGR of 14.7% over the 2016-2021 period. Forecasts are not always correct and we certainly don’t have a great deal of faith in TV content. The fact that it is being replaced by internet for many next-generation consumers just underlines the long-term threat this medium faces (many Y-generation sprouts have completely stopped watching TV). Nevertheless, let’s not forget that TV subscriptions are mostly family buys. This makes TV the necessary evil in the families even if viewership is limited to just one person (speaking from personal experience J).

Now having cursed the TV enough, let’s move on to some basics. The overall number of TV subscribers in India grew from 130 million in 2012 to 169 million in 2016, and according to estimates, this figure is expected to grow further to 201 million by 2021. This growth will be led by a disproportionate increase in digital cable, DTH and FreeDish subscribers as analog cable subscribers move to digital options. This is good news for companies like GTPL Hathway at the forefront of digitization.

However, it appears the micro-level picture at GTPL Hathway is far from perfect. As we mentioned above, the company’s margins are volatile and with debt/equity ratio at nearly 1, there isn’t a great scope of margin expansion. Even in this bull market, this sector has not attracted investors. In fact, GTPL Hathway’s parent Hathway Cable and Datacom Limited is a loss making company as is another peer DEN Networks Limited. Another peer Ortel Communications came with its IPO in early 2015 but currently trades at roughly one-third of the IPO price. With most of the players in losses, it is no wonder that investors are staying away from this sector.

In terms of valuations, the IPO price band of INR167 – 170 per share values the company at the price/earnings (P/E) ratio of 20.6 – 21.0. It has a decent Return on Net Worth (RONW) of 14.87% on consolidated basis. To be fair to GTPL Hathway, it has the distinction of being one of the few profitable plays in the industry. However, with so many concerns, investment decision in GTPL IPO is hardly a matter of valuations. Investors clearly have better choices available with CDSL IPO closing on 21 June and AU Financiers IPO opening for subscription a week after.