Sep 18, 2012 07:20 PM IST | Source: CNBC-TV18

Phase I funding taken care of by most players: Hathway

G Subramaniam, chief financial officer, Hathway told CNBC-TV18 that relaxation of FDI norms will be of more benefit to media companies in the second phase of digitization than in phase one.

The government raised the FDI cap in broadcasting from 49% to 74% last week. G Subramaniam, chief financial officer, Hathway told CNBC-TV18 that relaxation of FDI norms will be of more benefit to media companies in the second phase of digitization than in phase one.

Meanwhile, the October 31 deadline for completion of first phase of digitisation of the Cable TV in the four metros of Delhi, Mumbai, Kolkata and Chennai is just a couple of weeks away. 

As per the latest data released by the Information and Broadcasting Ministry, 68% digitisation of the Cable TV households has been completed in these four metros. According to Subramaniam, most players in the industry are adequately funded to achieve the first phase.

Below is the edited transcript of Subramaniam’s interview with CNBC-TV18.

Q: How much do you think this will show a practical benefit because an analyst said that there is no real interest which has come in and there are lot of companies which are not even looking to pare off majority stake to any foreign player in the digital space?

A: The benefit from this relaxation in FDI norms will flow through to the industry more in the second phase of mandatory digitization than in the first phase. The first phase is just around 40 days away, so it will be presumptuous to assume that capital is going to flow in between now and then.

But in the second phase, there is a significant amount of capital that is going to be required by the cable industry. I am sure after the international players have seen hopefully, the success of phase one rollout, they would get more and more excited and interested in this space.

International players will look to consolidate this business as they come in and that is bit of a way out. Therefore when you spoke to analysts and they were skeptical, I wouldn’t say they were skeptical, but they were probably saying that it will come a bit later rather than immediately and the benefit will be felt in a long run not immediately.

Q: We should understand that providence is not immediately interested in putting money but they would do so after watching phase one?

A: No, I do not think you should understand anything like that because Providence has put in capital has acquired the stake from Star who were our erstwhile investors. If there is a need for additional capital, I am very sure both the existing promoters and providence would step in as necessary. So I do not think there is any lack of interest.

Q: There is quite a bit to catch up in the next forty days, it is only Mumbai that seems to be somewhere near the digitization deadline, the others are pretty way off barely 50% in some of the bigger cities, how will the process pan out if the entire digitization is not completed by October 31?

A: The pace was very good up to June and when the government announced the delay in by about four months to October 31, obviously the pace slackened. We are fairly optimistic that the pace will pick up from now on. It is not going to be a huge challenge to complete the digitization particularly in the series of Mumbai, Delhi and Kolkata.

If you look at the numbers what the government has put out yesterday, while I will not go by the accuracy of those percentages but the percentages are fairly substantial as far as Mumbai is concerned. Delhi has some way to catch up, but we are at this point of time fairly confident that Delhi will also do that in the course of the next six weeks or so.

More pertinently as far as Hathway is concerned, our Mumbai universe is substantially digitized. We are fully stocked up and ready to rollout digitization as of October 31.

We have no issues as far as inventory of set top boxes are concerned. We are comfortable with the notion that cable operators will also see the deadline looming nearer and nearer and they will be able to put those boxes out into the market in time.

Q: What do you do on that day you snap the non-digitized connections?

A: That is seemingly the position at this point that we will all have to discontinue our analog signals and we will be able to only provide digital signals thereafter.

Q: Say a Comcast wants to enter the market at this point in time, what is the capital requirement for the digitized companies or digitization companies such as yours? How urgent is the capital required and three what would be the advantage of a Comcast or a foreign player coming into the Indian market with controlling stake?

A: As far as the capital requirement for the industry as a whole is concerned, I would assume that it will be in the region of about Rs 25,000-30,000 crore. This is not just in set top boxes, the subsidy on the set top boxes, but all the other things which go around rolling out digital networks. Therefore, the availability of that capita is certainly very important.

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As far as phase one is concerned, we are talking of digitizing about 10 million subscribers and a substantial part of it has already completed. I believe most of the players in the market are fully capitalized to achieve first phase digitization.

It is when we come to second phase that some of the medium-sized players are likely to require access to additional capital whether the international players will be interested in small midsized players is moot, I do not think because they would be wanting to build up scale. The possibility is that they will see scale building up by consolidation within the business or they themselves come in and consolidate

I do not know how this is going to pan out but it is very unlikely that large players like Comcast would be interested in mid-sized players; they would be looking at the larger players.

I do not think there are any big advantages in terms of technology, technology is easily available. It is not as if the people who run the business in the country do not understand this technology, so I do not think on the technology front there is going to be any significant upside as far as the large players are concerned.

However, on the availability of capital, if you have to raise Rs 30,000 crore of capital at some point of time, many of the smaller players have to consolidate into the larger players. That is an opportunity international players will see us very valuable.

Q: Would you all consider paring off some amount of stake to a global digital company which comes in and possibly has a lucrative offer? If in case there is requirement by smaller cable companies and phase II once digitization picks up would it be a possibility that you all would look at domestic consolidation as opposed to foreign players coming in?

A: As far as Hathway is concerned, we are fully capitalized for phase one, we are substantially capitalized for phase two. It is not that we are looking at bringing in a new capital into this company at this point of time. We have ability to raise debt and banks have been more than supportive of this company.

Would we be looking at a consolidation? At this point, it is premature to consider those options because the first focus is to digitize the universe that we are already own. We own a universe of about 9 million.

It is very important that we focus and make a success of that 9 million instead of trying to defocusing our effort in making phase 1 and phase 2 successful.

I believe that opportunities will come across our table more and more frequently particularly in phase 2. We will have to think about it at that point of time whether it makes sense particularly, to our shareholders and whether it is coming at the right value.

Q: The expectation is that now your subscriber revenues should shoot up, there are research reports which expect a compounded annual growth of 33% in your revenues and even at an EBITDA level of fairly stiff growth is expected, what is your own revenue forecast once this digitization atleast one phase is over, do you see 30-33% growth in revenues as well when will turn the corner, when will you come to black?

A: I would not like to give any forward looking projections at this point of time that is not the policy of the company. When there is greater and greater transparency introduced to the subscriber numbers, we are going to benefit and broadcasters such as yourselves are going to benefit. We believe that the moment all participants in the value chain get more value out of this, we will be able to provide good quality services to our subscriber.

Q: You can atleast tell us when do you get into the black, should we expect it in FY13-FY14 atleast a ballpark indication even if you do not give numbers?

A: It will take about two to two and a half years from now because we are subsidizing the set top boxes substantially. At this moment, it is anywhere between Rs 800 and Rs 900 subsidy on the set top boxes.

The depreciation on the assets that are being capitalized on this balance sheet is going to take some time, but thereafter yes, there is going to be some visibility on those numbers.

Q: Just wanted to end this conversation by getting a quick answer from you with regards to the sunset date for digitization, overall do you expect it to be pushed up?

A: I hope not. We are investing a lot of capital and effort into making this successful. I believe the government has in all fairness stayed its course on this whole policy. We do not see any major movement in phases 1 and 2.

We will have to see thereafter because the phases 1 and 2 are the critical phases. If these two phases are completed successfully, we do not see any possibility that any further deferral would happen. There could be a shift of couple of months or so but not beyond that.

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