In an interview to CNBC-TV18, G Subramanium, CFO, Hathway said that there were expectations that cable operators will lose out to the DTH guys in phase II, which has not happened. Cable has done very well in the conversion from analog to digitisation.
Hathaway had expected to do under 6 million subscribers in phase I and II but we have ended at about 6.8 million set-top boxes in the market as of now
Cable operators have done very well in phase I and phase II of rollouts, says G Subramanium, CFO, Hathway Cables . Talking to CNBC-TV18, he says that there were expectations that cable operators will lose out to the DTH guys in phase II, which has not happened.
This is mainly because some of the smaller players have been unable to capitalise on the digitisation process and migrated to large multi-system operators (MSO) who have been able to feed boxes in these market.
Cable has done very well in the conversion from analog to digitisation, he says. Hathway had expected 6 million subscribers in phase I and II, but ended at about 6.8 million set-top boxes in the market as of now, he says.
The company is targeting beyond 10.5 million set- top boxes by end of phase 4.
Below is an edited transcript of his interview with CNBC-TV18:
Q: Can you take us through how business has been lately weak. We have been given information that cable has outplayed direct-to-home (DTH) in recent months and you are the leader in cable distribution so how are revenues shaping up for the first quarter?
A: Yes. You are right, cable has done rather well, phase I and phase II of rollouts. There was always the expectation that cable guys will lose out to the DTH guys at least in phase II. That has not happened.
We have actually surprisingly seen some marginal growth in the universe that we thought we had in phases I and II.
That is mainly because some of the smaller players have been unable to capitalise on the digitisation process and those operators have migrated to one or the other large multi-system operators (MSO) who have been able to feed boxes in these market.
Q: We are working with a research report that has been put out. Maybe you can fill us in with some numbers when you say that cable has done very well in the conversion from analog to digitisation. How much of the market did you expect to lose and actually lost? Can you give some numbers in terms of the progress of DTH being slower in the current quarter than previous quarters.
A: I don’t think we expected to lose but the markets were expecting us to lose between 10 to 15 percent of our universe to the DTH players. That has not happened. Actually, we have grown our universe.
If I can speak of Hathway, as a good example, we had expected to do about in phase I and II probably under 6 million of subscribers but we have ended at about 6.8 million set-top boxes in the market as of now. We were way ahead of what we had anticipated when we started this whole digitisation process.
Q: Could you tell us the kind of market share move that has happened. Is it at the expense of the smaller local cable operator or at the expense of some of the DTH players? How many more subscribers do you think you will be able to add in the next three months or so?
A: The next three months will be primarily spillovers from phases I and II. There are still some regions in phases I and II which have to be completely digitised.
There are people who are still lagging behind, so it will not be huge numbers. Probably phases I and II would add about 200,000 to 300,000 more subscribers for us.
Our strategy has been that we will start focusing on phase III, although phase III is suppose to kick in only in September 2014. Our approach is that many of these phase III territories are contiguous to phases I & II territories that we have already covered.
So, wherever there is a contiguity advantage, we are focusing on those areas and we will continue to roll out boxes. We do not want to wait till the last minute.
As far as numbers go, we have done upwards of 6.8 million set-top boxes as a consolidated company. We would probably end up at about 10.5 to 11 million set-top boxes in the market when we end phase IV. This is considerably better than what we had started out with.
If one remembers, we had spoken of a universe of about 8.8 to 8.9 million subscribers. We probably are going to end up at one to one and half million subscribers more than what we originally had.
Q: How would that translate into earnings in FY14? How much of an uptick should the market expect?
A: I don’t give guidance, but obviously as and when subscribers get monetised it will have a positive impact on the numbers.
Q: You had a fantastic year in FY13 in terms of margins. Do you maintain margins?
A: You should not count the one-time upsides in counting margins. If one takes that out, then margins will be very good. Once you digitize, obviously you are able to monitise.
Q: Will it be in the thirties? That is a handsome margin itself so would it be in the 30-35 percent mark?
A: I would not want to start hazarding a guess on this.
Q: Directionally closer to 35, closer to 25?
A: I don’t give guidance. It will not be as spectacular as numbers that you mentioned. Never that, if one goes and looks at the cable industry anywhere in the world, nobody makes 30-35 percent margins.
Q: The expectation with digitisation was that broadcast companies will start getting better subscriber revenues do you see that happening?
A: I think it is already happening.
Q: Some of the broadcast companies were also showing money in the form of receivables. They did show better revenues but money was not yet received, only recognized. Do you think that position will improve?
A: I think that should definitely improve. Broadcasters are going to see some upside as a consequence of digitisation
Q: What is you current average revenue per user ARPU situation and is there any kind of increment or increase that you expect going forward?
A: We have been billing net to the subscriber base at this point of time. We will probably go to gross billing in the course of the September. Our objective is better than what we were achieving in the analog time at least about 10 to 20 percent.
It would depend on market to market, so definitely ARPUs will improve. It all depends on the mix of packages that are sold into these markets.
We are very optimistic that more and more subscribers will choose higher-end packages when they see the value of our packages. When I say higher-end packages, typically there are four layers.
We believe that most of the subscribers will gravitate towards mid-tier and some subscribers will gravitate towards premium tier. With that, we do expect to see improvement in our ARPUs.
But this is a gradual process. Subscribers are going to have this first experience of packaging they see in July-August-September. After they have experienced the value of the packages that we deliver, we believe that they will buy higher-end packages.
We are very optimistic of that. But even after having bought through the higher-end packages, they will actually get more value for the money that they spend compared to the DTH players.
That is the key differentiator that we have with DTH players - not only the quality but also the variety of the products that we deliver will be far more. More importantly, we have a broadband business which will run on the back of this.
We expect to garner significant growth in our broadband revenues in the following three years.
Hathway Cable stock price
On November 28, 2014, Hathway Cable and Datacom closed at Rs 357.85, up Rs 7.30, or 2.08 percent. The 52-week high of the share was Rs 385.60 and the 52-week low was Rs 221.00.
The latest book value of the company is Rs 56.49 per share. At current value, the price-to-book value of the company was 6.33.
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