Post interest company is cash +ve, says Hathway

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » Hathway Cable BSE | NSE 01/06/12 Are Mutual Funds betting on Hathway Cable?

The initial public offering (IPO) of Hathway Cable and Datacom, a cable television services provider, has opened for subscription on February 09, 2010. The price band is at Rs 240-265 per share. The IPO of 277.5 lakh equity shares of Rs 10 each will close on February 11, 2010.

The company has received commitment of Rs 119.76 crore from anchor investors. Anchor investors subscribed for 4.99 million shares at Rs 240/share, a lower price band.

Anchor investors included Franklin India, DSP Blackrock, Reliance Capital, Copthall Mauritius and Treeline Asia.

In interview with CNBC-TV18, K Jayaraman, Chief Executive Officer and MD, Hathway Cable & Datacom Limited spoke about company's IPO plans and the road ahead.

Below is a verbatim transcript of the interview. Also watch the video.

Q: We had a press note coming in from Zee Turner saying that there have been payment defaults from Hathway Networks and therefore Zee Turner is likely to switch off 33 channels on Hathway Networks - a problem here?

A: There cannot be a payment default. I don't know why Zee Turner has put that out. The matter is sub judice presently, so I cannot comment on it. Hathway never had any kind of such situation.

Q: What is the legal issue at all?

A: There is no legal issue. This is a part and parcel when you have always channels on and off and I don't think it is a payment issue at all. We never had a payment issue at all. Hathway has been here for 12 years and everybody knows what has been our track record.

Q: How do you see carriage fees pan out as a direct-to-home (DTH) kind of growth out there? Do you think there maybe a drop in the revenues that you get from carriage fees and also what kind of additions you are looking to do in the next three-six months in the number of subscribers which means, how much do you see a quantifiable growth and what happens to the unit pricing, does it fall or rise in the next three-six months?

A: I cannot make anything forward - we are prohibited as per Issue of Capital and Disclosure Requirements (ICDR) guidelines on three-six months forward. But it is not carriage fees - it is more of a placement fees. Placement fees are something which the broadcasters on their own, voluntarily want to get their channels placed at a particular slot given the fact that analog networks are choked.

It is an understanding between two parties and the channels earn the revenue out of advertisement and they want to get it placed in a proper band. As long as there is an analog choke, which is going to continue, this would be here to stay.

In regard to what it will grow, it could be quite forward, I don't want to say but then we are happy as long as it remains steady because Hathway doesn't rely so much on placement fees because we are more a subscription revenue model on digital broadband and the analog subscription.

We are more subscription driven and for us placement is if it is there, it is there.

Q: If you cannot give us what the likely revenue is going forward, can you tell us your break up now in terms of what is your subscription base and what are the other revenue streams that you have?

A: We are in much more integrated cable company. We have broad band, we have last-mile. We are largest in terms of digital, we have a million digital, broadband we have about 320,000-330,000 broadband subscribers. We have last-mile also. So we are both the wholesaler and the retailer. Our model is slightly different from the other cable peers that we have.

But having said that we would be about roughly 40% on the placement side and we could be about 60% on subscription. We hope to strive to build a subscription revenue more rather than simply rely on the placement fees. This is much more of a retail model than a wholesale model.

Q: When do you see yourself coming out of losses?

A: We don't have losses. We are EBITDA positive and after interest we are cash positive. The only thing is our depreciation is high because we have huge digital subscriber base - a million digital we have, we have broadband. So we have a post depreciation loss.

Otherwise if you look at FY09, we had Rs 104 crore EBITDA and about Rs 34-40 crore of interest. So we are cash positive Rs 60 crore. Current half year if you see, we have reported about Rs 72 crore of EBITDA and post interest we are still positive by about Rs 40 crore. So we are cash positive. The loss will essentially come because of the fact that we are going to rapidly digitized irrespective of whether the government is going to do mandated or not mandated.

I think all cable companies - I don't want to name - would rapidly strive for digital and broadband. I cannot make anything forward in terms of what the post depreciation would be but having said that the revenue streams are raising out of digital, broadband and being more retail would make us get more subscription revenues.